28 ms·

I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 ye

by _yb2s 2y ago

I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 years. It seems to defy logic, so it makes me suspect how it is being calculated when people claim that housing costs have gone up by massive amounts. Since only a small increase would price a large number of people out of the market- it seems logical that housing can't really increase in cost/value over long time spans, but must track the overall economy almost exactly.

bombcar 2y ago
There have been two major real housing price jumps that I know of, and both are correlated with significant household income increases (at least nominal). Almost everything else can be factored into changes in what the "nominal house" is - from a one room cabin without plumbing to a McMansion with a three car garage. One was the great urbanization post-world wars and the other was the great increase in dual-income households. But if you factor things out and try to correct for as many variables as you can, housing is pretty "steady state" though the percentage of income directed toward it that's acceptable has crept up somewhat. Shelter is, like food, one of the few real necessities and so it will be bid up to the point of pain or worse if there is a scarcity.
- _yb2s 2y ago
  Fair point, in that sense it seems like some fairly fixed step-ups are possible where people culturally decide to spend more of their income on housing, but it cannot be a steady trend to profit from as an investor, because it will always have a hard cap at 100% of household income. It can't steadily beat inflation over long time scales.
  - JumpCrisscross 2y ago
    > It can't steadily beat inflation over long time scales Of course it can. That’s what productivity means. The value could keep going up even amidst the fraction of incomes being spent on it going down.
georgeecollins 2y ago
To help you conceptualize how that is possible: 100 years ago the world population was 2 billion, and now it is 8 billion. While the housing stock is also increasing with that population growth, the actual amount of desirable land does not grow as fast. That's why -- for example-- the US gov't in the 1850s could just hand out 40 acre plots of land to people. They can still do that, but it has to be way out in Alaska or something. A hundred years ago it took much more labor to produce enough food to feed a person. Before the industrial revolution let's say 90% of all people were farmers. In 1850 in the US that was maybe 50% of all people were farmers. So the % of GDP going to food was much higher. Now 1-2 people can feed 100 in the west. That means less of your income proportionately goes to food. Similar declines in the amount of labor required to produce a thing are happening in manufactured goods. So it may have once taken hundreds of hours of human labor to build a car, but now it takes much fewer. So the wealth of everyone is going up faster than the supply of desirable land. That does mean people are getting priced out. But also people find ways to live on less land. Before the industrial revolution most families needed a farm to survive. Now many, many families can live in an apartment building in a city that takes way less land.
- throw0101d 2y ago
  > While the housing stock is also increasing with that population growth, the actual amount of desirable land does not grow as fast. "Buy land, they're not making it anymore." — Mark Twain
  - ManuelKiessling 2y ago
    The Netherlands would like to have a word, but yeah, point taken.
- thbb123 2y ago
  To add to that, a house a hundred years ago was nothing like a house today: building codes, square footage per person, heating, plumbing, connectivity... Building and maintaining a decent housing unit is far more expensive in material and energy than it was 60 years ago.
sdwr 2y ago
Housing has elastic demand, right? Based on prices, you can have roommates, children can live with parents, etc. Real housing costs could double tomorrow, and people would survive (not happily).
- carlosjobim 2y ago
  With extreme consequences to the population. When people are not given space to create their own families, the result is the massive population decrease we're living through now in industrialised nations.
tim333 2y ago
They don't. The numbers in the article include imputed rents. If you plot house prices against incomes they do a wave pattern which is high at the moment. But they were even higher against income in 1845. Article here has data from 1845 for the UK https://archive.ph/FRzaA https://archive.ph/FRzaA
deleted 2y ago
[deleted]
bluGill 2y ago
right out of adam smith, when people get more money they typically spend it on better housing.
- _yb2s 2y ago
  I'm talking about in proportion to income... for example, if people spend 30% of household income on housing, you cannot have an order of magnitude increase in housing prices over any time scale as it will always have a hard cap at 100%.
  - bluGill 2y ago
    Inflation is a factor as well.
Retric 2y ago
People get much larger houses today because they can afford much larger houses. This comes from both increased prosperity and having fewer kids. 1950s: The average new home sold for $82,098. It had 983 square feet of floor space and a household size of 3.37 people, or 292 square feet per person. 2010s: The average new home ($292,700) offers 924 square feet per person (2.59 people per household, 2,392 total square feet) — three times the space afforded in the 1950s. https://compasscaliforniablog.com/have-american-homes-changed-much-over-the-years-take-a-look/ https://compasscaliforniablog.com/have-american-homes-change...
- PostOnce 2y ago
  Around here, they're building bigger houses, but also on much smaller plots without gardens or dogs or tree-houses or places for kids to play outdoors. I suspect it's the same in a lot of places. Maybe these square-foot-per-person calculations should also include square feet of land.
  - travisb 2y ago
    If you are going to do that, other play grounds should also be counted: the forests and fields which used to be nearby, the per-child space in nearby parks, etc. All these are places children used to go unsupervised, but now mostly don't.
  - Retric 2y ago
    Most people today don’t want a large back yard. It’s like an outdoor pool, there’s definitely a market but adding a pool can lower your property’s value. Land doesn’t decrease the value of a property, but it can dramatically lower the number of buyers.
    - DontchaKnowit 2y ago
      If this is true, it is so insanely contrary to the opinion of literally every single person I have ever met. Everyone wants a yard. Most people want a sizeable yard for their dogs or kids, or to drink beer and have campfires. I grew up in rural midwest USA. maybe opinions are different elsewhere, but your comment is a bit baffling. Ive never in my life heard someone say "that house would be perfect if it just came with less land"
pessimizer 2y ago
> I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 years. It hasn't. House prices have been stable for hundreds of years. They're currently being used as financial vehicles, and as another government asset inflation to ward off that pesky balance of accounts reckoning, but they'll be back down eventually. Rents are different, probably because landlords collude. Or irrational exuberance or whatever. Times when everybody suddenly agrees that housing is worth a lot more, for no particular reason. Some guy here (https://www.reddit.com/r/Economics/comments/sq1pb/graph_of_case_schiller_20_city_composite_vs_cpi/ https://www.reddit.com/r/Economics/comments/sq1pb/graph_of_c...) plotted the 2000s housing bubble vs. inflation-predicted price. I would say that the fact that we didn't see a dip after the bubble makes it pretty obvious that if you deal in financial instruments around houses rather than houses themselves (including rents), there had to be a lot of money made that never came back. Renters never got a refund of the inflated rent that they paid during the time of those inflated house prices; that seems like it would account for the 6.6% a year that this paper claims as the return on owning housing. Because the buying and selling of houses is ultimately going to be a wash. That says to me that housing bubbles are required in order to make any money from housing. That money will be supplied by renters and overextended owners who can't buy when prices return to the ground, and can't hold out until the next bubble.
- cmrdporcupine 2y ago
  I'd like to see that same chart but for places like here in Canada that did not have a housing price correction in the 2008 era. It just went up up up, and the lines would show divergence. And of course if that chart continued into 2022...
llm_trw 2y ago
>It seems to defy logic There are more people than ever and the surface area of the planet hasn't increased.
- thfuran 2y ago
  The surface area of the planet is pretty much entirely unrelated to the cost of housing.
  - adammarples 2y ago
    Its variance is though. It is all owned, and controlled. If there was a new land rush then new housing would be almost free until the land was all claimed.
    - thfuran 2y ago
      Building a second Australia in the middle of the Pacific would have very little effect on the price of housing in London.
      - adammarples 2y ago
        Not true, because millions of people would migrate away
cyberax 2y ago
> I don't understand how housing can increase in cost in a stable steady manner It's the density death spiral. Dense housing gets more expensive (yes, dense housing IS more expensive!), that in turn drives even more density. The only way to fix it? Promote suburbs and smaller cities. There is literally _no_ other fix.
- JumpCrisscross 2y ago
  > yes, dense housing IS more expensive Dense housing is more expensive. Dense living massively less so.
  - cyberax 2y ago
    It's actually the inverse. The raw construction cost of a housing unit in a dense building is cheap. Living there is not. People in dense cities spend a larger percentage of their paycheck on housing than people in sparse cities ( https://smartasset.com/mortgage/housing-spending-2021 https://smartasset.com/mortgage/housing-spending-2021 ).
    - rufus_foreman 2y ago
      >> The raw construction cost of a housing unit in a dense building is cheap Not true. The cost per foot of construction of a single family home is lower than that of a small apartment building. A small apartment building has a lower cost per square foot than a mid-rise apartment. And a mid-rise apartment building has a lower cost per square foot than a high-rise apartment building. Taking only construction costs into account, when land is cheap, single family homes make the most financial sense, and dense housing doesn't make sense. Well, except for manufactured homes. They have a lower construction cost per square foot than single family homes, but when most people talk about density they aren't talking about trailer parks.
      - cyberax 2y ago
        > The cost per foot of construction That's why I specifically said that a per-unit cost is lower in cities. But units tend to become smaller and smaller over time. > Taking only construction costs into account, when land is cheap, single family homes make the most financial sense, and dense housing doesn't make sense. Absolutely.
nostrademons 2y ago
A few ways that housing can continue to increase as a percentage of income: 1.) Go from a single income supporting to a house to multiple incomes supporting a house. This is actually happening, with the shift from single-earner households in the 1950s to dual-income households to groups of unmarried professionals living together as roommates. The preponderance of post-1950s data can also overweight this effect: historically, the norm was far large extended families to live together in one household, and the single-earner U.S. nuclear family was an aberration created by suburbanization. 2.) Have reset points. How can real estate continue to return 7% real returns for 120 years? Well, return 7% for 40 years, at which point your investment is up 15x. Then bomb the house and kill the owner. Then give the land to the guys who helped you kill the owner at a low, low price, help them build a house on it cheap, and start the 7% appreciation calculator over again from a new low baseline. This is also very close to what actually happened over those 120 years, between WW1, WW2, the Russian/Ottoman/Austrian revolutions, the fall of the Warsaw Pact, the Chinese Civil War / Cultural Revolution / Great Famine, and so on. 3.) Have a smaller percentage of people owning houses. The average housing price can absolutely escape the confines of the median income, if the median person does not own a house. The study's use of rent and imputed rent partially controls for this, but the broad answer for "Housing prices can't outstrip incomes forever, can they?" is "Sure they can, if nobody can afford houses." 4.) Have more people. If you're talking the returns to an asset class, and you own all that asset class, and then suddenly there are more people that need that asset, you're going to make money. This, to a large degree, actually happened during those 120 years.
Too 2y ago
Trust in institutions and low interest rates allows people today to afford houses 10x more expensive than their tangible savings.
inglor_cz 2y ago
Is the housing price adjusted to sqms / sqft and equipment / amenities? Because my grandparents with their two kids and great-grandma literally lived in a one-room studio in the 1950s, even though they weren't poor. (Grandpa was an engineer for state railways, a good job in 1950s Czechoslovakia.) The toilet was common for 3 households. That was just the standard of living back then. You wanted to be warm, you had to drag coal upstairs from the basement and feed the home furnace. Daily. In 1964, all five moved to a 3-room apartment, which increased their living space a lot, but it would still feel incredibly cramped by today's standards. It had a separate toilet just for them, though, and centralized heating. No more hauling coal upstairs. Progress! Of course that those smaller, more primitive apartments were much cheaper than the house built in 2022 that I am now living in, and that is stuffed full with various sophisticated devices.

by _yb2s 2y ago

bombcar 2y ago

There have been two major real housing price jumps that I know of, and both are correlated with significant household income increases (at least nominal). Almost everything else can be factored into changes in what the "nominal house" is - from a one room cabin without plumbing to a McMansion with a three car garage. One was the great urbanization post-world wars and the other was the great increase in dual-income households. But if you factor things out and try to correct for as many variables as you can, housing is pretty "steady state" though the percentage of income directed toward it that's acceptable has crept up somewhat. Shelter is, like food, one of the few real necessities and so it will be bid up to the point of pain or worse if there is a scarcity.

_yb2s 2y ago
Fair point, in that sense it seems like some fairly fixed step-ups are possible where people culturally decide to spend more of their income on housing, but it cannot be a steady trend to profit from as an investor, because it will always have a hard cap at 100% of household income. It can't steadily beat inflation over long time scales.
- JumpCrisscross 2y ago
  > It can't steadily beat inflation over long time scales Of course it can. That’s what productivity means. The value could keep going up even amidst the fraction of incomes being spent on it going down.

georgeecollins 2y ago

To help you conceptualize how that is possible: 100 years ago the world population was 2 billion, and now it is 8 billion. While the housing stock is also increasing with that population growth, the actual amount of desirable land does not grow as fast. That's why -- for example-- the US gov't in the 1850s could just hand out 40 acre plots of land to people. They can still do that, but it has to be way out in Alaska or something. A hundred years ago it took much more labor to produce enough food to feed a person. Before the industrial revolution let's say 90% of all people were farmers. In 1850 in the US that was maybe 50% of all people were farmers. So the % of GDP going to food was much higher. Now 1-2 people can feed 100 in the west. That means less of your income proportionately goes to food. Similar declines in the amount of labor required to produce a thing are happening in manufactured goods. So it may have once taken hundreds of hours of human labor to build a car, but now it takes much fewer. So the wealth of everyone is going up faster than the supply of desirable land. That does mean people are getting priced out. But also people find ways to live on less land. Before the industrial revolution most families needed a farm to survive. Now many, many families can live in an apartment building in a city that takes way less land.

throw0101d 2y ago
> While the housing stock is also increasing with that population growth, the actual amount of desirable land does not grow as fast. "Buy land, they're not making it anymore." — Mark Twain
- ManuelKiessling 2y ago
  The Netherlands would like to have a word, but yeah, point taken.
thbb123 2y ago
To add to that, a house a hundred years ago was nothing like a house today: building codes, square footage per person, heating, plumbing, connectivity... Building and maintaining a decent housing unit is far more expensive in material and energy than it was 60 years ago.

sdwr 2y ago

Housing has elastic demand, right? Based on prices, you can have roommates, children can live with parents, etc. Real housing costs could double tomorrow, and people would survive (not happily).

carlosjobim 2y ago
With extreme consequences to the population. When people are not given space to create their own families, the result is the massive population decrease we're living through now in industrialised nations.

tim333 2y ago

They don't. The numbers in the article include imputed rents. If you plot house prices against incomes they do a wave pattern which is high at the moment. But they were even higher against income in 1845. Article here has data from 1845 for the UK https://archive.ph/FRzaA https://archive.ph/FRzaA

deleted 2y ago

[deleted]

bluGill 2y ago

right out of adam smith, when people get more money they typically spend it on better housing.

_yb2s 2y ago
I'm talking about in proportion to income... for example, if people spend 30% of household income on housing, you cannot have an order of magnitude increase in housing prices over any time scale as it will always have a hard cap at 100%.
- bluGill 2y ago
  Inflation is a factor as well.

Retric 2y ago

People get much larger houses today because they can afford much larger houses. This comes from both increased prosperity and having fewer kids. 1950s: The average new home sold for $82,098. It had 983 square feet of floor space and a household size of 3.37 people, or 292 square feet per person. 2010s: The average new home ($292,700) offers 924 square feet per person (2.59 people per household, 2,392 total square feet) — three times the space afforded in the 1950s. https://compasscaliforniablog.com/have-american-homes-changed-much-over-the-years-take-a-look/ https://compasscaliforniablog.com/have-american-homes-change...

PostOnce 2y ago
Around here, they're building bigger houses, but also on much smaller plots without gardens or dogs or tree-houses or places for kids to play outdoors. I suspect it's the same in a lot of places. Maybe these square-foot-per-person calculations should also include square feet of land.
- travisb 2y ago
  If you are going to do that, other play grounds should also be counted: the forests and fields which used to be nearby, the per-child space in nearby parks, etc. All these are places children used to go unsupervised, but now mostly don't.
- Retric 2y ago
  Most people today don’t want a large back yard. It’s like an outdoor pool, there’s definitely a market but adding a pool can lower your property’s value. Land doesn’t decrease the value of a property, but it can dramatically lower the number of buyers.
  - DontchaKnowit 2y ago
    If this is true, it is so insanely contrary to the opinion of literally every single person I have ever met. Everyone wants a yard. Most people want a sizeable yard for their dogs or kids, or to drink beer and have campfires. I grew up in rural midwest USA. maybe opinions are different elsewhere, but your comment is a bit baffling. Ive never in my life heard someone say "that house would be perfect if it just came with less land"

pessimizer 2y ago

> I don't understand how housing can increase in cost in a stable steady manner, as a fraction of household income over long periods of time like more than 100 years. It hasn't. House prices have been stable for hundreds of years. They're currently being used as financial vehicles, and as another government asset inflation to ward off that pesky balance of accounts reckoning, but they'll be back down eventually. Rents are different, probably because landlords collude. Or irrational exuberance or whatever. Times when everybody suddenly agrees that housing is worth a lot more, for no particular reason. Some guy here (https://www.reddit.com/r/Economics/comments/sq1pb/graph_of_case_schiller_20_city_composite_vs_cpi/ https://www.reddit.com/r/Economics/comments/sq1pb/graph_of_c...) plotted the 2000s housing bubble vs. inflation-predicted price. I would say that the fact that we didn't see a dip after the bubble makes it pretty obvious that if you deal in financial instruments around houses rather than houses themselves (including rents), there had to be a lot of money made that never came back. Renters never got a refund of the inflated rent that they paid during the time of those inflated house prices; that seems like it would account for the 6.6% a year that this paper claims as the return on owning housing. Because the buying and selling of houses is ultimately going to be a wash. That says to me that housing bubbles are required in order to make any money from housing. That money will be supplied by renters and overextended owners who can't buy when prices return to the ground, and can't hold out until the next bubble.

cmrdporcupine 2y ago
I'd like to see that same chart but for places like here in Canada that did not have a housing price correction in the 2008 era. It just went up up up, and the lines would show divergence. And of course if that chart continued into 2022...

llm_trw 2y ago

>It seems to defy logic There are more people than ever and the surface area of the planet hasn't increased.

thfuran 2y ago
The surface area of the planet is pretty much entirely unrelated to the cost of housing.
- adammarples 2y ago
  Its variance is though. It is all owned, and controlled. If there was a new land rush then new housing would be almost free until the land was all claimed.
  - thfuran 2y ago
    Building a second Australia in the middle of the Pacific would have very little effect on the price of housing in London.
    - adammarples 2y ago
      Not true, because millions of people would migrate away

cyberax 2y ago

> I don't understand how housing can increase in cost in a stable steady manner It's the density death spiral. Dense housing gets more expensive (yes, dense housing IS more expensive!), that in turn drives even more density. The only way to fix it? Promote suburbs and smaller cities. There is literally _no_ other fix.

JumpCrisscross 2y ago
> yes, dense housing IS more expensive Dense housing is more expensive. Dense living massively less so.
- cyberax 2y ago
  It's actually the inverse. The raw construction cost of a housing unit in a dense building is cheap. Living there is not. People in dense cities spend a larger percentage of their paycheck on housing than people in sparse cities ( https://smartasset.com/mortgage/housing-spending-2021 https://smartasset.com/mortgage/housing-spending-2021 ).
  - rufus_foreman 2y ago
    >> The raw construction cost of a housing unit in a dense building is cheap Not true. The cost per foot of construction of a single family home is lower than that of a small apartment building. A small apartment building has a lower cost per square foot than a mid-rise apartment. And a mid-rise apartment building has a lower cost per square foot than a high-rise apartment building. Taking only construction costs into account, when land is cheap, single family homes make the most financial sense, and dense housing doesn't make sense. Well, except for manufactured homes. They have a lower construction cost per square foot than single family homes, but when most people talk about density they aren't talking about trailer parks.
    - cyberax 2y ago
      > The cost per foot of construction That's why I specifically said that a per-unit cost is lower in cities. But units tend to become smaller and smaller over time. > Taking only construction costs into account, when land is cheap, single family homes make the most financial sense, and dense housing doesn't make sense. Absolutely.

nostrademons 2y ago

A few ways that housing can continue to increase as a percentage of income: 1.) Go from a single income supporting to a house to multiple incomes supporting a house. This is actually happening, with the shift from single-earner households in the 1950s to dual-income households to groups of unmarried professionals living together as roommates. The preponderance of post-1950s data can also overweight this effect: historically, the norm was far large extended families to live together in one household, and the single-earner U.S. nuclear family was an aberration created by suburbanization. 2.) Have reset points. How can real estate continue to return 7% real returns for 120 years? Well, return 7% for 40 years, at which point your investment is up 15x. Then bomb the house and kill the owner. Then give the land to the guys who helped you kill the owner at a low, low price, help them build a house on it cheap, and start the 7% appreciation calculator over again from a new low baseline. This is also very close to what actually happened over those 120 years, between WW1, WW2, the Russian/Ottoman/Austrian revolutions, the fall of the Warsaw Pact, the Chinese Civil War / Cultural Revolution / Great Famine, and so on. 3.) Have a smaller percentage of people owning houses. The average housing price can absolutely escape the confines of the median income, if the median person does not own a house. The study's use of rent and imputed rent partially controls for this, but the broad answer for "Housing prices can't outstrip incomes forever, can they?" is "Sure they can, if nobody can afford houses." 4.) Have more people. If you're talking the returns to an asset class, and you own all that asset class, and then suddenly there are more people that need that asset, you're going to make money. This, to a large degree, actually happened during those 120 years.

Too 2y ago

Trust in institutions and low interest rates allows people today to afford houses 10x more expensive than their tangible savings.

inglor_cz 2y ago

Is the housing price adjusted to sqms / sqft and equipment / amenities? Because my grandparents with their two kids and great-grandma literally lived in a one-room studio in the 1950s, even though they weren't poor. (Grandpa was an engineer for state railways, a good job in 1950s Czechoslovakia.) The toilet was common for 3 households. That was just the standard of living back then. You wanted to be warm, you had to drag coal upstairs from the basement and feed the home furnace. Daily. In 1964, all five moved to a 3-room apartment, which increased their living space a lot, but it would still feel incredibly cramped by today's standards. It had a separate toilet just for them, though, and centralized heating. No more hauling coal upstairs. Progress! Of course that those smaller, more primitive apartments were much cheaper than the house built in 2022 that I am now living in, and that is stuffed full with various sophisticated devices.