20 ms·

Supply constraints do not explain house price, quantity growth across US cities

222 points by pessimizer 2y ago

MattDamonSpace 2y ago
[flagged]
ptaffs 2y ago
It's behind a paywall, I think. Do they talk about money laundering? https://alessa.com/blog/real-estate-money-laundering-red-flags/ https://alessa.com/blog/real-estate-money-laundering-red-fla... https://trustforlondon.org.uk/research/faulty-towers-understanding-impact-overseas-corruption-london-property-market/ https://trustforlondon.org.uk/research/faulty-towers-underst... https://www.thedailyupside.com/economics/international-economics/londons-days-as-the-worlds-money-laundering-capital-may-be-numbered/ https://www.thedailyupside.com/economics/international-econo...
- tokai 2y ago
  No
- tobyjsullivan 2y ago
  You might see this text and a download button below the email form. > all visitors to the NBER website are eligible for 3 free downloads each year. You have used 0 of 3. Given the text, I assume some people may not get the download button.
- dublinben 2y ago
  Can you access the direct URL of the PDF? https://www.nber.org/system/files/working_papers/w33576/w33576.pdf https://www.nber.org/system/files/working_papers/w33576/w335...
Tewboo 2y ago
Supply constraints can't fully account for the varied growth in house prices and quantities across US cities. Economic dynamics are more complex.
- deleted 2y ago
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- deleted 2y ago
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- btilly 2y ago
  But "can't fully account" does not imply "aren't a major factor". I would look at the paper in more detail, but it is not available to me.
- Earw0rm 2y ago
  Changes in fashion and lifestyle can shift demand towards types of housing that are more difficult to fulfil, supply-wise. Essentially if the young and upwardly mobile want suburban sprawl, it's easy to build more of it until the price comes down. If they demand city-center condos, that's a little trickier.
lr4444lr 2y ago
Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is the actual profit on home construction constant (or even shrinking)? One would assume it would be, if their data also controlled for confounding factors like regulatory limits, economic stagnation, etc. In other words, it is my position that the burden of proof should rest on people who claim that the laws of supply and demand fail to explain what the obstacle is to equilibrium in the market they're studying: why if I increase supply does price not come down? My instinct is that it's just more expensive to build homes on the same profit margin than it was over 40 years ago, when their data sampling begins. I don't believe that the real estate industry suddenly had a collective awakening to greed.
- ddorian43 2y ago
  Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.
  - mouse_ 2y ago
    Good answer
  - absolutelastone 2y ago
    Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices). But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.
    - lazide 2y ago
      Real estate is very illiquid - and ‘valuations are high, but the market is grinding to a half because demand is dying due to increased borrowing costs’ is exactly when it is nearly impossible to get out. Once things ‘snap’ and it starts to shift, well… then it’s too late.
tokai 2y ago
Fits with my experience. Its mainly the bank's willingness to loan money that drives house sales. Home buyers are some of the best protected groups, so its no wonder that its a speculative market driven mainly by available funds and not supply and demand.
- lazide 2y ago
  Or perhaps another way of stating it - available funds largely determine demand.
- plantain 2y ago
  I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts? Seems more to me like, because there is a shortage, the marginal price gets bid up to the maximum people can possibly pay (which is decided by the banks).
  - HPsquared 2y ago
    And keeping in mind dollars are a limitless, renewable resource.
- electriclove 2y ago
  Same here. I hope we get some good comments from those who believe it is all about creating more affordable housing. I’m interested in reading their counter argument or reading if this changes their thinking.
- hylaride 2y ago
  (Availability of and access to) Debt is definitely a driving factor. It grants access to a larger group of people and if supply can't keep up (for a variety of reasons), it'd drive it up prices in the short to medium term. In the postwar era, any time you saw a country ease mortgage lending rules, home prices would inevitably rise, which would inevitably be made worse by further lessening of standards to "expand affordability". This was the TL;DR of Canadian housing prices (compounded by high immigration, lack of trades people, and high resource costs due to at the time demand from China).
rightso 2y ago
[dead]
bryanlarsen 2y ago
This paper suffers greatly from US-centrism. There are too few examples of proper Austin-like YIMBY cities in the US for proper statistic analysis. A more world-wide search would quickly find counter-examples of low-wage high-price cities like Vancouver, BC.
- lazide 2y ago
  Or Hong Kong, Singapore, any major Indian metro, etc.
- sidewndr46 2y ago
  "Austin-like YIMBY cities" is that a typo? Surely you meant NIMBY?
  - skadamat 2y ago
    Nah they mean YIMBY :) Austin did a great job with opening supply. https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_basically_won_in_austin_now_what/ https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_ba... https://therealdeal.com/texas/austin/2024/05/20/austin-forges-ahead-with-yimby-ratifications/ https://therealdeal.com/texas/austin/2024/05/20/austin-forge... I went to school in Austin back in 2009 and surprisingly, rents for my same college apartment only grew a few % a year since then! Crazy
- hnthrow90348765 2y ago
  This is a paper meant to explain what is happening in US cities and will obviously be US-centric.
  - bryanlarsen 2y ago
    That'd be nice if it was possible. However it runs into the standard social science problem -- you can't run experiments, so you have to rely on natural experiments. If the natural experiment doesn't exist, you don't have any data and you can't draw conclusions.
plantain 2y ago
Income determines house prices because there is not enough supply. Without enough supply, what stock is available gets bid up to the maximum people can pay (largely decided by banks). This is like a basic cornerstone of economics!
- dbspin 2y ago
  This would be true were private equity not buying up housing stock. That being the case income is now to some extent detached from housing prices. [1] https://www.washingtontimes.com/news/2024/mar/15/in-shift-44-of-all-single-family-home-purchases-we/ https://www.washingtontimes.com/news/2024/mar/15/in-shift-44...
  - mtoner23 2y ago
    private equity is no different than any other buyer in a diverse market of buyers here. it sounds bad but they are just bidding like any other buyer
    - epistasis 2y ago
      This is of course true, and the extreme aversion to private equity buying houses versus any other investor such as a person buying a second house to rent out, has puzzled me. Those small time landlords have been the worst landlords I have ever had. Give me a large corporate landlord which knows that laws exist and at least tries to follow them over the greedy, ignorant, and desperate small-time landlord any day.
      - dbspin 2y ago
        As someone who has lived in both, I can't agree. The small time landlords have differed between incredibly kind and deeply unreasonable, but they've all charged under market and responded to issues with their properties in a timely way. I've hit brick walls even attempting to contact owners / get building management to respond with institutional ownership. Both your experience and mine however are anecdotal and while persuasive to us individually, don't evidence the issue one way or another.
llamaimperative 2y ago
Ah, Henry George was right once again. Land Value Tax solves this.
- genpfault 2y ago
  https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
- anonfordays 2y ago
  LVT encourages sprawl. States that have high property taxes implement some of tenants of LVT already and it hasn't solved anything.
  - llamaimperative 2y ago
    1. Property tax is not land value tax, and "high property tax" does not behave at all like a quasi-land value tax even if land value is a component of the property tax. 2. No, it specifically makes sprawl very expensive relative to density, and economic decisions are largely made on a comparative basis. LVT makes it free to increase the density/productivity of your existing lot, while taking ownership of another lot (more area) introduces a huge new tax burden that you have to put to very productive use very quickly. It's way, way cheaper to increase density than sprawl under LVT.
    - anonfordays 2y ago
      >Property tax is not land value tax A lot of property tax is land value tax, especially in rural areas where there are little to no improvements. >No, it specifically makes sprawl very expensive relative to density Not at all, it contributes to sprawl. Cheaper land is farther out of the city centers, so it lessens the cost of purchasing real estate farther and farther out.
ss64 2y ago
Why do journalists and economists never understand that it is the supply and demand of CREDIT which they need focus on.
- lazide 2y ago
  For the same reason alcoholics can never understand the reason they tend to drink is as much because of the hangover, as it is whatever they did to start drinking.
- bildung 2y ago
  Feel free to explain to explain to these economists what they did wrong in their paper
- intended 2y ago
  This is a paper from NBER
Der_Einzige 2y ago
I'm VERY glad to see some evidence that rebukes the reddit/liberal hive-mind belief that we can fix the housing crisis by just "doing housing first policies" or "build more" or "kill all NIMBYs". In general, most similar platitudes that appear like easy explanations for social problems are at best extraordinarily incomplete and are often dead wrong.
- buttercraft 2y ago
  > platitudes > reddit/liberal hive-mind Do you hear yourself?
- mrangle 2y ago
  Both can be true at the same time, and are: Housing costs in the US are much more complicated than consumer supply and demand measurements indicate The US housing supply is embarrassingly ancient, overpriced (especially considering condition), and deficient in volume (especially given quality). You don't really have an argument when $1500 gets renters baseboard heating in a 40+ year old building in a secondary city.
- lucaspm98 2y ago
  As I understand it the "liberal hive mind" believes the exact opposite - that some bogeyman, typically either corporations or foreign investors, prevent functional supply and demand dynamics. Therefore they don't support a free market, typically more right-leaning, solution of deregulation and relaxed zoning restrictions.
donatj 2y ago
What determines housing prices? The seller and to a much lesser extent the buyer. How does the seller set the price? To what they feel is market price. You can flood the market with new houses all you want but if the construction company isn't selling at a lower price than existing houses in the area, and they won't be, that's not going to push prices down. Because it's not a traditional commodity. Beyond that, it's pretty much an open secret at this point that new construction is a lower quality house at a premium. Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years. The big difference between houses and a traditional commodity is that holding one even when you want to sell can still be a net positive. You can continue to live there, you can rent it out. It just doesn't have the same motivation to sell as a traditional commodity.
- naasking 2y ago
  > Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years. The people wealthy enough to do this are a small enough group that this cannot have such an outsized effect across the whole market. People typically have to sell their home to afford the one they're moving into, so they can't just sit on it until they get the price they want.
- bryanlarsen 2y ago
  > Many people are willing to just sit and wait for the right buyer even if it takes years. I think that's only a large minority. IIUC, a majority of sellers are motivated sellers, people that are selling because life circumstances are forcing them to move and sell. But even if only a small portion of sellers were motivated sellers, "prices are set at the margin". In other words, if most people aren't selling because the price is too low, the people who are selling are the ones that are setting the price.
PedroBatista 2y ago
The rivers of ink and all the gymnastics we do to avoid saying the obvious: Houses/Real Estate has become the main asset where most people store/keep their wealth. It has been this way for quite a few time, the banks like it, the boomers love it and the local governments can't live without it. The chickens are coming home to roost on this one, and I'm talking about society in general not just a"correction in the housing market" at this point that is more or less meaningless when looking into the big picture.
ThePhysicist 2y ago
Probably needs to be taken with a large grain of salt and might be exaggerated but I recently heard a claim (https://www.youtube.com/watch?v=iKdtyDnGM-o https://www.youtube.com/watch?v=iKdtyDnGM-o) that the FHA program basically prevents a large number of foreclosures from happening as the government effectively keeps paying for loans where borrowers are already in default, and without the program many homes would be on the market again suppressing prices. If my understanding is correct the home owners get the interest payments made by the government tacked onto their mortgage so once they would go into default they would be faced with a home that is not worth enough to pay off the mortgage due to previously inflated market prices and all the added interest payments. Not sure if we have a new subprime crisis in the making here, it seems unhealthy in any case. But then again, never believe stuff influencers tell you on Youtube, so I take it with a healthy dose of skepticism.
- JohnFen 2y ago
  > without the program many homes would be on the market again suppressing prices. At the same time, though, the people who lost those homes will be on the market looking for a different place to live, increasing demand. This is not my field of expertise, but on the surface it appears to me that this kind of thing is a wash. A housing unit is made available, increasing supply, at the same time as a new demand is created for a housing unit, decreasing supply.
  - recursive 2y ago
    > people who lost those homes will be on the market looking for a different place to live At a lower price point obviously. There's still a net movement to lower prices.
  - aprilthird2021 2y ago
    Foreclosing on a house probably means you are not going to buy another one for a while
- tbrownaw 2y ago
  Subsidies do raise the demand curve for whatever's being subsidized.
ibejoeb 2y ago
>our findings imply that constrained housing supply is relatively unimportant in explaining differences in rising house prices I guess it's something worth investigating, but is anyone really under the impression that this is a simple supply and demand system? We have algorithmic pricing all over the housing markets, and there is an artificial floor on prices. (Check out the realpage actions for a glimpse into this stuff.)
duxup 2y ago
I can't say I understand this paper / I'm not very good at reading these kinds of papers. I will say that in my area the municipality has had to set development rules for various price ranges for houses ... otherwise all we would seem to get are developers who want to sell luxury houses. Obviously there is some demand for those luxury houses, but the incentives to build "starter houses" or even affordable apartments just did not seem to be there unless encouraged / required by government. Once required we had a lot of WAY more affordable and seemingly appropriate housing being built. Still subject market forces, but at least there were choices now. It seems to me the margins on luxury / larger homes makes building luxury homes far more desirable than more affordable homes, even with demand for more affordable options.
- JohnFen 2y ago
  > all we would seem to get are developers who want to sell luxury houses This is how it is in my part of the US. Not so much houses as large luxury apartment buildings aimed at the wealthy (and being built with taxpayer subsidies). They are doing nothing to address the very real housing shortage.
  - bryanlarsen 2y ago
    AFAICT, in my metro and others, pretty much all the cheap housing is luxury housing from ~100 years ago. Cheap housing built 100 years ago has been torn down and replaced, but the good stuff built 100 years ago is still standing and being used. The problem is that we weren't building luxury apartments 50 years ago, it was all single family housing. So there aren't any luxury apartments that can degrade into cheap housing. Building luxury apartments & condos now will help the cheap housing situation in 50 years time.
  - Cheer2171 2y ago
    This is the second biggest piece of economics misinformation, behind people who believe their net income will go down if they get a raise into the next tax bracket. Just like cars, all new housing is luxury. No one working minimum wage can afford the cheapest new car on the lot. But those new cars get bought by people who sell their used cars.
ajkjk 2y ago
I always felt like this was kind of obvious. People love to say housing supply will lower prices, and it's probably slightly true, but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money. In the US the rich have comically more money than the poor--100s or 1000s of times as much, comparing the surplus that a wealthy tech employee has to put towards a house fund compared to a person living paycheck to paycheck. And then the rich will then buy vacation homes, pied-a-terres, etc, with their huge excess. Who would put money into building for people who have no money when those people are out there? Rent on the other hand is likely more supply/demand based because it is actually possible to have empty units due to overbuilding if the local economy shifts. But even still they are motivated to hold units empty and keep the price high to wait for a rich person who can afford it to come along. (Not to mention algorithmically colluding so as to not actually compete on price.) I cannot imagine how housing could ever become more affordable for the poor unless the income disparity lowers, short of some sort of price-fixing governmental action.
- jaredklewis 2y ago
  > short of some sort of price-fixing governmental action. Well rent control has a long, well documented history of bad outcomes. Doesn't exactly make me eager to let the government set all the prices. I think a sufficiently high land value tax would either discourage excess housing speculation by the rich, or raise enough revenue to support wealth redistribution schemes that erode what you identify as being the cause of the issue.
- verteu 2y ago
  Really? https://i.imgur.com/BMsPrKY.png https://i.imgur.com/BMsPrKY.png Seems to correlate pretty well to me. Per [1] and [2], YoY home prices are decreasing in most regions with high % change in homes built ("New housing units authorized per 1k existing (2021)"), eg: Austin, Jacksonville, Houston, Phoenix, Nashville, Phoenix, Raleigh. [1] https://constructioncoverage.com/research/cities-investing-most-in-new-housing https://constructioncoverage.com/research/cities-investing-m... [2] https://www.zillow.com/home-values/10221/austin-tx/#/ https://www.zillow.com/home-values/10221/austin-tx/#/
aeblyve 2y ago
Households with two PMC-type spouses earning PMC-type salaries with generational wealth, set prices in US cities. Preference for cash buyers, as well as buyers that waive inspection (they can afford to), often get precedence in bidding, making the value of cash over credit higher.
- etrautmann 2y ago
  what is PMC?
  - aeblyve 2y ago
    "Professional Managerial Class".
yonran 2y ago
It’s surprising that they took measurements at 2000 and 2020 and did not mention the Great Recession at all, which severely reduced ability of households to get a mortgage and disrupted both demand and supply. I don’t think their attempt to control for the “kinked” supply curve by dropping the bottom 25% of metros by income growth is sufficient to eliminate metros that were devastated by the Great Recession. Also, I am not sure whether comparing to median value of constraint index (e.g. Wharton residential land use regulation index) is a particularly good way to categorizing metros into constrained and unconstrained, since it’s hard to know which specific constraints of the “regulatory hydra” are important for future development (https://twitter.com/TheJakeSchmidt/status/1572207872347447296 https://twitter.com/TheJakeSchmidt/status/157220787234744729...). One metro may need to reduce minimum lot sizes to allow the next increment of development, whereas another metro may need to allow lot mergers and relax density limits instead. So I think this paper is basically concluding that land use constraints are harder to measure than income growth.
- epistasis 2y ago
  There are many many many flaws with the correlative analysis of this paper, and the flaw you have identified is an absolutely key flaw. Here's a great Odd Lots podcast on that specific issue: https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-there-a-simple-fix-to-affordable-housing-podcast?srnd=phx-oddlots https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-... It's also interesting to note that the guest identifies lack of supply as the other key thing to fix, but finds that the idea that YIMBY policies could actually be put in place too politically infeasible to consider.
  - yonran 2y ago
    Yes, Kevin Erdmann’s writings were what I was thinking of when I said that lending has been restricted since the Great Recession. He does identify “Closed Access” supply restrictions as the original sin that the Fed misinterpreted as a speculative bubble. I highly recommend his blog and books.
dogline 2y ago
As somebody who lived in Northern California in the communities which first started spiking in the early 2000's, I've always had a pet theory from the time. Housing Appraisers realized they could tack on $10k per house when appraising, and they realized that nobody would stop them. Realtors loved that because they got more commission, buyers realized that houses were going up fast so they'd better get in while they could, appraisers got called back more in a tight market and everybody made money. There were *no* controls on the appraising.
- deleted 2y ago
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- to11mtm 2y ago
  Ding ding ding! Still remember how when I bought my house, there was a clause for 'if the house appraises under X, buyer will pay up to Y out of pocket to match the difference' (This was to help make the offer 'stronger' according to realtor.) Lo and behold, my house magically appraised exactly for X, despite it likely being more like X-5,000 based on realities and other sales in the area...
- nine_zeros 2y ago
  Yes, appraisers make their best effort to make the sale happen - because that is what their payers (banks) want. All they need is plausible valuation.
- rco8786 2y ago
  At least in my state there is no incentive for appraisers to do this. 99% of appraisals get assigned to random appraisers. There is no such thing as “repeat business”, at least within the realm of your typical home sale where the buyer is financing through a bank.
  - dogline 2y ago
    In California, at least at the time, Realtors called the Appraisers they knew could be a little generous with the numbers to make the clients happy. Speed-dial. Inflated numbers were easy to make plausible, and as time went on, the cycle became self fulfilling. Appraisers knew this, they got lots of easy business for an afternoon's worth of work, and grew their businesses. Realtors would shrug and say "That's what it appraised at." Banks were happy. Sellers were happy. Lots of money. There was no natural regulation or push-back stopping any of this. Source: friend made lots of money doing this at the time. They probably made out better than the Realtors.
jlhawn 2y ago
This paper primarily considers house prices and quantities in terms of single-family homes. They use data sources like the single-family repeat-sales index and the median home value from the American Community Survey, which mostly tracks single-family homes. This focus limits their analysis by not fully accounting for multi-family housing units or rental markets, which are far more significantly impacted by supply constraints. This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent. They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s. [1] https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/02/pasted-image-0-2-768x576.png https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/...
- no_wizard 2y ago
  I also don't see a detailed run down in the paper of zoning laws and other local regulations and how that contributes to cost. They looked at a lot of top level numbers (from what I could tell) without diving into the specifics. Zoning laws while not completely uniform, do seem to follow patterns across the country. The long and short of it is, the more desirable some place is to live, the more restrictive zoning laws and harder it is to get approval for builds and it depresses housing inventory over time.
  - llamaimperative 2y ago
    All of which, they argue, ends up not predicting the movement of prices. Meanwhile, simple income level does predict the movement of prices.
    - GoatInGrey 2y ago
      Doesn't that seem like a given? That people without the incomes to afford housing in a given locality don't own housing there?
frollogaston 2y ago
This is what I've been saying for years. The valuable part is the desirable land, which can't be built like a house. Also the rent and value are pretty disconnected.
postalrat 2y ago
You know why housing is so expensive? It's because building a house is so expensive. If it wasn't people would be building houses left and right in the many thousands of empty lots scattered throughout the country.
- deleted 2y ago
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- johnnyjeans 2y ago
  Which is particularly interesting, because the quality of the buildings themselves have taken a steep nosedive since the 1940s. Something like 98% of all new builds are complete teardown crapshacks. It makes you wonder where the money is going if the materials are dogshit and the labor is incompetent.
anonym29 2y ago
"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." - Milton Friedman One need look no further than the correlation between M2 growth and house prices to see this in action. For the Keynesians and MMTers in the room, downvote me if you must, but please read this before you do: https://www.econovis.net/post/house-price-vs-money-supply-in-the-united-states-1980-2023 https://www.econovis.net/post/house-price-vs-money-supply-in...
hayst4ck 2y ago
The American/western aristocracy has nearly perfectly entrenched their power with housing policy. Housing is the major wealth store for the middle and lower class. Most in the middle and lower class will spend major portions of their income on this for many years of their life. If supply goes up, then the middle and lower class loses significant amounts of their wealth immediately since buyers have more options. If supply goes down or fails to keep up, then housing becomes increasingly unaffordable and the wealth of people who already own goes up. What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable. So because housing policy discussion takes place under these conditions, it's nearly impossible to have a reality based discussion because almost everybody loses except societies richest. "Housing can either be an investment or affordable." Almost everyone in any position of power or with institutional reputation has an extremely vested interest in both keeping the broken status quo and convincing people that absolutely anything other then basic economic theory of supply and demand is chiefly responsible for housing prices.
- jwagenet 2y ago
  Housing might be the major wealth store for the middle class (although I doubt the lower class is collectively storing much wealth in housing), but its the rich who own most of the land and collect rent from most of the lower class and some of the middle class. The rich may not care so long as they collect checks, but I think they stand to lose the most in absolute dollars if more housing is built that they don't own. IMO, its the middle class holding up the show because they are actually owning homes, and even though they may never actually sell their home they cling to an ever rising hypothetical valuation.
  - wahern 2y ago
    > I doubt the lower class is collectively storing much wealth in housing Doesn't directly answer your point regarding wealth, but FWIW 47% of people in the bottom quintile own their home. https://www.minneapolisfed.org/article/2024/homeownership-among-lowest-income-households-climbs-near-all-time-high https://www.minneapolisfed.org/article/2024/homeownership-am... It's actually near a 35 year peak.
foxglacier 2y ago
It's obviously not all supply and demand because school zones are a zero-sum part of house prices. Only the richest people can afford to pay the good school zone premium. If too many houses get built there, the schools shrink their zones so you can't increase housing supply to get out of that. You also can't increase the supply of good schools because that's mostly determined by the relative income of the parents, which can't be increased, by definition because it's relative.
wegfawefgawefg 2y ago
houses are assets, and the fed prints money. when you print money the dollar loses value and assets are worth more dollars. this is pretty basic. our government is intentionally inflating the currency at 4% a year. houses prices will always go up then.
tptacek 2y ago
I'm not all the way through the paper, but two questions I have from the jump: The core finding of the paper is that income growth predicts housing price growth reliable regardless of how elastic each local housing market is (say, Austin vs. SFBA). It also uses the "work-from-home" shock during the pandemic as an example of the same kind of measurement. I don't understand the mechanism the authors are suggesting. The WFH shock occurred over a span of 1-2 dozen months. Housing starts are measured over years and years. Regardless of relative differences in elasticity between markets, all housing markets have bounded elasticity as a result of how long it takes to site and construct houses. In a desirable landlocked community, it can take forever just to find current residents willing to sell and thus open up land for denser development (not something this report appears to study). I'm also confused at how they're looking at permitting. It appears like they're using it as a metric of housing growth between regions. But permitting rates also define much of the supply constraint within a region. Highly elastic housing markets issue lots of permits. If everyone's issuing comparable numbers of permits, aren't the just observing that (for whatever reason) different regions are just converging on similar constraints and elasticity?
jmpman 2y ago
Increasing rental taxes will actually lower housing purchase prices in capacity constrained markets. In such markets, landlords are already demanding the maximum amount their renters can bare. By increasing taxes, the total rent paid by the renters doesn’t increase, but the amount going to the landlords decrease - driving down the price of housing stock. Politicians should be advocating for raising rental taxes, instead they’ve been captured by the rent seeking landlords who fund their campaigns.
- naijaboiler 2y ago
  works in the short term. Long run, it constrains supply of rental housing.
  - jmpman 2y ago
    The policy could just be for rental taxes on SFH. I don’t see a reason society should encourage rentals in the SFH market.
tmnvix 2y ago
The article points out the correlation between rising income and rising house prices. I suspect the real cause involves both incomes and credit availability/price. Incomes are just a proximate cause - as debt serviceability improves, people borrow close to their limit, which increases. The limit increases when income increases, but also as interest rates fall.
BenFranklin100 2y ago
What they are showing is that if wage growth is stagnant across all levels, people can’t afford to pay more for a home. So prices don’t rise or at least not nearly as much. This is a recipe for keeping us all poor as a means to control housing costs. On the other hand, if wages rise, but supply expands, home prices remain relatively decoupled from wage growth. This is the situation we want, but which zoning prevents. The old Alfred Twu cartoon captures the current dynamic of rising wages and rising home prices very well: https://www.instagram.com/cbinsights/p/B7v07LRFBqI/ https://www.instagram.com/cbinsights/p/B7v07LRFBqI/
throwawayUS9 2y ago
People buy houses by taking loans with high interest. Next year, the house they own increase in valuation equal to the amount they paid interest. House owner is happy - their asset has increased in value. Bank is happy. They got the money. City is happy. They got their taxes for the higher valuation of the house. After sometime, The middle-class becomes lower class and moves to rent. The lower class becomes homeless as they cannot afford the rent. The cycle repeats.
bjoli 2y ago
We have heard that housing shortage in Sweden will be solved by the market. The housing prices have increased by 300% in 25 years, yet we are building even fewer housing units today than back then.
typ 2y ago
Homes are not a homogeneous commodity. New homes cannot be perfect substitutes due to locations, amenities, access to jobs (commute time), etc. Also, government spending on infrastructure will be capitalized into the neighborhood's land (location) value. You cannot 'undo' this capitalization simply by building more homes.
seethishat 2y ago
Gary Stevenson (UK economist and author of the Trading Game) has a good explanation for this. Both his book and YouTube videos. In short, everyone (governments and ordinary people) are insolvent and in debt to ultra-rich people (especially since Lehman and Covid stimulus programs) and the only way to return asset ownership to governments and ordinary people is to tax the ultra-rich like Western Governments did in the 1950s and 1960s so that ordinary people and governments can actually afford to own things again without extraordinary debt. Tax wealth, not wages is the basic idea. When you have 700 million dollars earning 5%, the only thing to do with all of that passive income is to buy assets. That's why house prices are so high. https://www.theguardian.com/books/2024/feb/22/the-trading-game-by-gary-stevenson-review-cashing-out https://www.theguardian.com/books/2024/feb/22/the-trading-ga...
johann8384 2y ago
The housing market has been heavily manipulated for a long time. Why would anyone be so naive as to think supply constraints would model it?

222 points by pessimizer 2y ago

[flagged]

It's behind a paywall, I think. Do they talk about money laundering? https://alessa.com/blog/real-estate-money-laundering-red-flags/ https://alessa.com/blog/real-estate-money-laundering-red-fla... https://trustforlondon.org.uk/research/faulty-towers-understanding-impact-overseas-corruption-london-property-market/ https://trustforlondon.org.uk/research/faulty-towers-underst... https://www.thedailyupside.com/economics/international-economics/londons-days-as-the-worlds-money-laundering-capital-may-be-numbered/ https://www.thedailyupside.com/economics/international-econo...

tokai 2y ago
No
tobyjsullivan 2y ago
You might see this text and a download button below the email form. > all visitors to the NBER website are eligible for 3 free downloads each year. You have used 0 of 3. Given the text, I assume some people may not get the download button.
dublinben 2y ago
Can you access the direct URL of the PDF? https://www.nber.org/system/files/working_papers/w33576/w33576.pdf https://www.nber.org/system/files/working_papers/w33576/w335...

Tewboo 2y ago

Supply constraints can't fully account for the varied growth in house prices and quantities across US cities. Economic dynamics are more complex.

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btilly 2y ago
But "can't fully account" does not imply "aren't a major factor". I would look at the paper in more detail, but it is not available to me.
Earw0rm 2y ago
Changes in fashion and lifestyle can shift demand towards types of housing that are more difficult to fulfil, supply-wise. Essentially if the young and upwardly mobile want suburban sprawl, it's easy to build more of it until the price comes down. If they demand city-center condos, that's a little trickier.

lr4444lr 2y ago

Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is the actual profit on home construction constant (or even shrinking)? One would assume it would be, if their data also controlled for confounding factors like regulatory limits, economic stagnation, etc. In other words, it is my position that the burden of proof should rest on people who claim that the laws of supply and demand fail to explain what the obstacle is to equilibrium in the market they're studying: why if I increase supply does price not come down? My instinct is that it's just more expensive to build homes on the same profit margin than it was over 40 years ago, when their data sampling begins. I don't believe that the real estate industry suddenly had a collective awakening to greed.

ddorian43 2y ago
Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.
- mouse_ 2y ago
  Good answer
- absolutelastone 2y ago
  Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices). But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.
  - lazide 2y ago
    Real estate is very illiquid - and ‘valuations are high, but the market is grinding to a half because demand is dying due to increased borrowing costs’ is exactly when it is nearly impossible to get out. Once things ‘snap’ and it starts to shift, well… then it’s too late.

tokai 2y ago

Fits with my experience. Its mainly the bank's willingness to loan money that drives house sales. Home buyers are some of the best protected groups, so its no wonder that its a speculative market driven mainly by available funds and not supply and demand.

lazide 2y ago
Or perhaps another way of stating it - available funds largely determine demand.
plantain 2y ago
I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts? Seems more to me like, because there is a shortage, the marginal price gets bid up to the maximum people can possibly pay (which is decided by the banks).
- HPsquared 2y ago
  And keeping in mind dollars are a limitless, renewable resource.
electriclove 2y ago
Same here. I hope we get some good comments from those who believe it is all about creating more affordable housing. I’m interested in reading their counter argument or reading if this changes their thinking.
hylaride 2y ago
(Availability of and access to) Debt is definitely a driving factor. It grants access to a larger group of people and if supply can't keep up (for a variety of reasons), it'd drive it up prices in the short to medium term. In the postwar era, any time you saw a country ease mortgage lending rules, home prices would inevitably rise, which would inevitably be made worse by further lessening of standards to "expand affordability". This was the TL;DR of Canadian housing prices (compounded by high immigration, lack of trades people, and high resource costs due to at the time demand from China).

rightso 2y ago

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bryanlarsen 2y ago

This paper suffers greatly from US-centrism. There are too few examples of proper Austin-like YIMBY cities in the US for proper statistic analysis. A more world-wide search would quickly find counter-examples of low-wage high-price cities like Vancouver, BC.

lazide 2y ago
Or Hong Kong, Singapore, any major Indian metro, etc.
sidewndr46 2y ago
"Austin-like YIMBY cities" is that a typo? Surely you meant NIMBY?
- skadamat 2y ago
  Nah they mean YIMBY :) Austin did a great job with opening supply. https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_basically_won_in_austin_now_what/ https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_ba... https://therealdeal.com/texas/austin/2024/05/20/austin-forges-ahead-with-yimby-ratifications/ https://therealdeal.com/texas/austin/2024/05/20/austin-forge... I went to school in Austin back in 2009 and surprisingly, rents for my same college apartment only grew a few % a year since then! Crazy
hnthrow90348765 2y ago
This is a paper meant to explain what is happening in US cities and will obviously be US-centric.
- bryanlarsen 2y ago
  That'd be nice if it was possible. However it runs into the standard social science problem -- you can't run experiments, so you have to rely on natural experiments. If the natural experiment doesn't exist, you don't have any data and you can't draw conclusions.

plantain 2y ago

Income determines house prices because there is not enough supply. Without enough supply, what stock is available gets bid up to the maximum people can pay (largely decided by banks). This is like a basic cornerstone of economics!

dbspin 2y ago
This would be true were private equity not buying up housing stock. That being the case income is now to some extent detached from housing prices. [1] https://www.washingtontimes.com/news/2024/mar/15/in-shift-44-of-all-single-family-home-purchases-we/ https://www.washingtontimes.com/news/2024/mar/15/in-shift-44...
- mtoner23 2y ago
  private equity is no different than any other buyer in a diverse market of buyers here. it sounds bad but they are just bidding like any other buyer
  - epistasis 2y ago
    This is of course true, and the extreme aversion to private equity buying houses versus any other investor such as a person buying a second house to rent out, has puzzled me. Those small time landlords have been the worst landlords I have ever had. Give me a large corporate landlord which knows that laws exist and at least tries to follow them over the greedy, ignorant, and desperate small-time landlord any day.
    - dbspin 2y ago
      As someone who has lived in both, I can't agree. The small time landlords have differed between incredibly kind and deeply unreasonable, but they've all charged under market and responded to issues with their properties in a timely way. I've hit brick walls even attempting to contact owners / get building management to respond with institutional ownership. Both your experience and mine however are anecdotal and while persuasive to us individually, don't evidence the issue one way or another.

llamaimperative 2y ago

Ah, Henry George was right once again. Land Value Tax solves this.

genpfault 2y ago
https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
anonfordays 2y ago
LVT encourages sprawl. States that have high property taxes implement some of tenants of LVT already and it hasn't solved anything.
- llamaimperative 2y ago
  1. Property tax is not land value tax, and "high property tax" does not behave at all like a quasi-land value tax even if land value is a component of the property tax. 2. No, it specifically makes sprawl very expensive relative to density, and economic decisions are largely made on a comparative basis. LVT makes it free to increase the density/productivity of your existing lot, while taking ownership of another lot (more area) introduces a huge new tax burden that you have to put to very productive use very quickly. It's way, way cheaper to increase density than sprawl under LVT.
  - anonfordays 2y ago
    >Property tax is not land value tax A lot of property tax is land value tax, especially in rural areas where there are little to no improvements. >No, it specifically makes sprawl very expensive relative to density Not at all, it contributes to sprawl. Cheaper land is farther out of the city centers, so it lessens the cost of purchasing real estate farther and farther out.

ss64 2y ago

Why do journalists and economists never understand that it is the supply and demand of CREDIT which they need focus on.

lazide 2y ago
For the same reason alcoholics can never understand the reason they tend to drink is as much because of the hangover, as it is whatever they did to start drinking.
bildung 2y ago
Feel free to explain to explain to these economists what they did wrong in their paper
intended 2y ago
This is a paper from NBER

Der_Einzige 2y ago

I'm VERY glad to see some evidence that rebukes the reddit/liberal hive-mind belief that we can fix the housing crisis by just "doing housing first policies" or "build more" or "kill all NIMBYs". In general, most similar platitudes that appear like easy explanations for social problems are at best extraordinarily incomplete and are often dead wrong.

buttercraft 2y ago
> platitudes > reddit/liberal hive-mind Do you hear yourself?
mrangle 2y ago
Both can be true at the same time, and are: Housing costs in the US are much more complicated than consumer supply and demand measurements indicate The US housing supply is embarrassingly ancient, overpriced (especially considering condition), and deficient in volume (especially given quality). You don't really have an argument when $1500 gets renters baseboard heating in a 40+ year old building in a secondary city.
lucaspm98 2y ago
As I understand it the "liberal hive mind" believes the exact opposite - that some bogeyman, typically either corporations or foreign investors, prevent functional supply and demand dynamics. Therefore they don't support a free market, typically more right-leaning, solution of deregulation and relaxed zoning restrictions.

donatj 2y ago

What determines housing prices? The seller and to a much lesser extent the buyer. How does the seller set the price? To what they feel is market price. You can flood the market with new houses all you want but if the construction company isn't selling at a lower price than existing houses in the area, and they won't be, that's not going to push prices down. Because it's not a traditional commodity. Beyond that, it's pretty much an open secret at this point that new construction is a lower quality house at a premium. Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years. The big difference between houses and a traditional commodity is that holding one even when you want to sell can still be a net positive. You can continue to live there, you can rent it out. It just doesn't have the same motivation to sell as a traditional commodity.

naasking 2y ago
> Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years. The people wealthy enough to do this are a small enough group that this cannot have such an outsized effect across the whole market. People typically have to sell their home to afford the one they're moving into, so they can't just sit on it until they get the price they want.
bryanlarsen 2y ago
> Many people are willing to just sit and wait for the right buyer even if it takes years. I think that's only a large minority. IIUC, a majority of sellers are motivated sellers, people that are selling because life circumstances are forcing them to move and sell. But even if only a small portion of sellers were motivated sellers, "prices are set at the margin". In other words, if most people aren't selling because the price is too low, the people who are selling are the ones that are setting the price.

PedroBatista 2y ago

The rivers of ink and all the gymnastics we do to avoid saying the obvious: Houses/Real Estate has become the main asset where most people store/keep their wealth. It has been this way for quite a few time, the banks like it, the boomers love it and the local governments can't live without it. The chickens are coming home to roost on this one, and I'm talking about society in general not just a"correction in the housing market" at this point that is more or less meaningless when looking into the big picture.

ThePhysicist 2y ago

Probably needs to be taken with a large grain of salt and might be exaggerated but I recently heard a claim (https://www.youtube.com/watch?v=iKdtyDnGM-o https://www.youtube.com/watch?v=iKdtyDnGM-o) that the FHA program basically prevents a large number of foreclosures from happening as the government effectively keeps paying for loans where borrowers are already in default, and without the program many homes would be on the market again suppressing prices. If my understanding is correct the home owners get the interest payments made by the government tacked onto their mortgage so once they would go into default they would be faced with a home that is not worth enough to pay off the mortgage due to previously inflated market prices and all the added interest payments. Not sure if we have a new subprime crisis in the making here, it seems unhealthy in any case. But then again, never believe stuff influencers tell you on Youtube, so I take it with a healthy dose of skepticism.

JohnFen 2y ago
> without the program many homes would be on the market again suppressing prices. At the same time, though, the people who lost those homes will be on the market looking for a different place to live, increasing demand. This is not my field of expertise, but on the surface it appears to me that this kind of thing is a wash. A housing unit is made available, increasing supply, at the same time as a new demand is created for a housing unit, decreasing supply.
- recursive 2y ago
  > people who lost those homes will be on the market looking for a different place to live At a lower price point obviously. There's still a net movement to lower prices.
- aprilthird2021 2y ago
  Foreclosing on a house probably means you are not going to buy another one for a while
tbrownaw 2y ago
Subsidies do raise the demand curve for whatever's being subsidized.

ibejoeb 2y ago

>our findings imply that constrained housing supply is relatively unimportant in explaining differences in rising house prices I guess it's something worth investigating, but is anyone really under the impression that this is a simple supply and demand system? We have algorithmic pricing all over the housing markets, and there is an artificial floor on prices. (Check out the realpage actions for a glimpse into this stuff.)

duxup 2y ago

I can't say I understand this paper / I'm not very good at reading these kinds of papers. I will say that in my area the municipality has had to set development rules for various price ranges for houses ... otherwise all we would seem to get are developers who want to sell luxury houses. Obviously there is some demand for those luxury houses, but the incentives to build "starter houses" or even affordable apartments just did not seem to be there unless encouraged / required by government. Once required we had a lot of WAY more affordable and seemingly appropriate housing being built. Still subject market forces, but at least there were choices now. It seems to me the margins on luxury / larger homes makes building luxury homes far more desirable than more affordable homes, even with demand for more affordable options.

JohnFen 2y ago
> all we would seem to get are developers who want to sell luxury houses This is how it is in my part of the US. Not so much houses as large luxury apartment buildings aimed at the wealthy (and being built with taxpayer subsidies). They are doing nothing to address the very real housing shortage.
- bryanlarsen 2y ago
  AFAICT, in my metro and others, pretty much all the cheap housing is luxury housing from ~100 years ago. Cheap housing built 100 years ago has been torn down and replaced, but the good stuff built 100 years ago is still standing and being used. The problem is that we weren't building luxury apartments 50 years ago, it was all single family housing. So there aren't any luxury apartments that can degrade into cheap housing. Building luxury apartments & condos now will help the cheap housing situation in 50 years time.
- Cheer2171 2y ago
  This is the second biggest piece of economics misinformation, behind people who believe their net income will go down if they get a raise into the next tax bracket. Just like cars, all new housing is luxury. No one working minimum wage can afford the cheapest new car on the lot. But those new cars get bought by people who sell their used cars.

ajkjk 2y ago

I always felt like this was kind of obvious. People love to say housing supply will lower prices, and it's probably slightly true, but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money. In the US the rich have comically more money than the poor--100s or 1000s of times as much, comparing the surplus that a wealthy tech employee has to put towards a house fund compared to a person living paycheck to paycheck. And then the rich will then buy vacation homes, pied-a-terres, etc, with their huge excess. Who would put money into building for people who have no money when those people are out there? Rent on the other hand is likely more supply/demand based because it is actually possible to have empty units due to overbuilding if the local economy shifts. But even still they are motivated to hold units empty and keep the price high to wait for a rich person who can afford it to come along. (Not to mention algorithmically colluding so as to not actually compete on price.) I cannot imagine how housing could ever become more affordable for the poor unless the income disparity lowers, short of some sort of price-fixing governmental action.

jaredklewis 2y ago
> short of some sort of price-fixing governmental action. Well rent control has a long, well documented history of bad outcomes. Doesn't exactly make me eager to let the government set all the prices. I think a sufficiently high land value tax would either discourage excess housing speculation by the rich, or raise enough revenue to support wealth redistribution schemes that erode what you identify as being the cause of the issue.
verteu 2y ago
Really? https://i.imgur.com/BMsPrKY.png https://i.imgur.com/BMsPrKY.png Seems to correlate pretty well to me. Per [1] and [2], YoY home prices are decreasing in most regions with high % change in homes built ("New housing units authorized per 1k existing (2021)"), eg: Austin, Jacksonville, Houston, Phoenix, Nashville, Phoenix, Raleigh. [1] https://constructioncoverage.com/research/cities-investing-most-in-new-housing https://constructioncoverage.com/research/cities-investing-m... [2] https://www.zillow.com/home-values/10221/austin-tx/#/ https://www.zillow.com/home-values/10221/austin-tx/#/

aeblyve 2y ago

Households with two PMC-type spouses earning PMC-type salaries with generational wealth, set prices in US cities. Preference for cash buyers, as well as buyers that waive inspection (they can afford to), often get precedence in bidding, making the value of cash over credit higher.

etrautmann 2y ago
what is PMC?
- aeblyve 2y ago
  "Professional Managerial Class".

yonran 2y ago

It’s surprising that they took measurements at 2000 and 2020 and did not mention the Great Recession at all, which severely reduced ability of households to get a mortgage and disrupted both demand and supply. I don’t think their attempt to control for the “kinked” supply curve by dropping the bottom 25% of metros by income growth is sufficient to eliminate metros that were devastated by the Great Recession. Also, I am not sure whether comparing to median value of constraint index (e.g. Wharton residential land use regulation index) is a particularly good way to categorizing metros into constrained and unconstrained, since it’s hard to know which specific constraints of the “regulatory hydra” are important for future development (https://twitter.com/TheJakeSchmidt/status/1572207872347447296 https://twitter.com/TheJakeSchmidt/status/157220787234744729...). One metro may need to reduce minimum lot sizes to allow the next increment of development, whereas another metro may need to allow lot mergers and relax density limits instead. So I think this paper is basically concluding that land use constraints are harder to measure than income growth.

epistasis 2y ago
There are many many many flaws with the correlative analysis of this paper, and the flaw you have identified is an absolutely key flaw. Here's a great Odd Lots podcast on that specific issue: https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-there-a-simple-fix-to-affordable-housing-podcast?srnd=phx-oddlots https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-... It's also interesting to note that the guest identifies lack of supply as the other key thing to fix, but finds that the idea that YIMBY policies could actually be put in place too politically infeasible to consider.
- yonran 2y ago
  Yes, Kevin Erdmann’s writings were what I was thinking of when I said that lending has been restricted since the Great Recession. He does identify “Closed Access” supply restrictions as the original sin that the Fed misinterpreted as a speculative bubble. I highly recommend his blog and books.

dogline 2y ago

As somebody who lived in Northern California in the communities which first started spiking in the early 2000's, I've always had a pet theory from the time. Housing Appraisers realized they could tack on $10k per house when appraising, and they realized that nobody would stop them. Realtors loved that because they got more commission, buyers realized that houses were going up fast so they'd better get in while they could, appraisers got called back more in a tight market and everybody made money. There were *no* controls on the appraising.

deleted 2y ago
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to11mtm 2y ago
Ding ding ding! Still remember how when I bought my house, there was a clause for 'if the house appraises under X, buyer will pay up to Y out of pocket to match the difference' (This was to help make the offer 'stronger' according to realtor.) Lo and behold, my house magically appraised exactly for X, despite it likely being more like X-5,000 based on realities and other sales in the area...
nine_zeros 2y ago
Yes, appraisers make their best effort to make the sale happen - because that is what their payers (banks) want. All they need is plausible valuation.
rco8786 2y ago
At least in my state there is no incentive for appraisers to do this. 99% of appraisals get assigned to random appraisers. There is no such thing as “repeat business”, at least within the realm of your typical home sale where the buyer is financing through a bank.
- dogline 2y ago
  In California, at least at the time, Realtors called the Appraisers they knew could be a little generous with the numbers to make the clients happy. Speed-dial. Inflated numbers were easy to make plausible, and as time went on, the cycle became self fulfilling. Appraisers knew this, they got lots of easy business for an afternoon's worth of work, and grew their businesses. Realtors would shrug and say "That's what it appraised at." Banks were happy. Sellers were happy. Lots of money. There was no natural regulation or push-back stopping any of this. Source: friend made lots of money doing this at the time. They probably made out better than the Realtors.

jlhawn 2y ago

This paper primarily considers house prices and quantities in terms of single-family homes. They use data sources like the single-family repeat-sales index and the median home value from the American Community Survey, which mostly tracks single-family homes. This focus limits their analysis by not fully accounting for multi-family housing units or rental markets, which are far more significantly impacted by supply constraints. This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent. They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s. [1] https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/02/pasted-image-0-2-768x576.png https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/...

no_wizard 2y ago
I also don't see a detailed run down in the paper of zoning laws and other local regulations and how that contributes to cost. They looked at a lot of top level numbers (from what I could tell) without diving into the specifics. Zoning laws while not completely uniform, do seem to follow patterns across the country. The long and short of it is, the more desirable some place is to live, the more restrictive zoning laws and harder it is to get approval for builds and it depresses housing inventory over time.
- llamaimperative 2y ago
  All of which, they argue, ends up not predicting the movement of prices. Meanwhile, simple income level does predict the movement of prices.
  - GoatInGrey 2y ago
    Doesn't that seem like a given? That people without the incomes to afford housing in a given locality don't own housing there?

frollogaston 2y ago

This is what I've been saying for years. The valuable part is the desirable land, which can't be built like a house. Also the rent and value are pretty disconnected.

postalrat 2y ago

You know why housing is so expensive? It's because building a house is so expensive. If it wasn't people would be building houses left and right in the many thousands of empty lots scattered throughout the country.

deleted 2y ago
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johnnyjeans 2y ago
Which is particularly interesting, because the quality of the buildings themselves have taken a steep nosedive since the 1940s. Something like 98% of all new builds are complete teardown crapshacks. It makes you wonder where the money is going if the materials are dogshit and the labor is incompetent.

anonym29 2y ago

"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." - Milton Friedman One need look no further than the correlation between M2 growth and house prices to see this in action. For the Keynesians and MMTers in the room, downvote me if you must, but please read this before you do: https://www.econovis.net/post/house-price-vs-money-supply-in-the-united-states-1980-2023 https://www.econovis.net/post/house-price-vs-money-supply-in...

hayst4ck 2y ago

The American/western aristocracy has nearly perfectly entrenched their power with housing policy. Housing is the major wealth store for the middle and lower class. Most in the middle and lower class will spend major portions of their income on this for many years of their life. If supply goes up, then the middle and lower class loses significant amounts of their wealth immediately since buyers have more options. If supply goes down or fails to keep up, then housing becomes increasingly unaffordable and the wealth of people who already own goes up. What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable. So because housing policy discussion takes place under these conditions, it's nearly impossible to have a reality based discussion because almost everybody loses except societies richest. "Housing can either be an investment or affordable." Almost everyone in any position of power or with institutional reputation has an extremely vested interest in both keeping the broken status quo and convincing people that absolutely anything other then basic economic theory of supply and demand is chiefly responsible for housing prices.

jwagenet 2y ago
Housing might be the major wealth store for the middle class (although I doubt the lower class is collectively storing much wealth in housing), but its the rich who own most of the land and collect rent from most of the lower class and some of the middle class. The rich may not care so long as they collect checks, but I think they stand to lose the most in absolute dollars if more housing is built that they don't own. IMO, its the middle class holding up the show because they are actually owning homes, and even though they may never actually sell their home they cling to an ever rising hypothetical valuation.
- wahern 2y ago
  > I doubt the lower class is collectively storing much wealth in housing Doesn't directly answer your point regarding wealth, but FWIW 47% of people in the bottom quintile own their home. https://www.minneapolisfed.org/article/2024/homeownership-among-lowest-income-households-climbs-near-all-time-high https://www.minneapolisfed.org/article/2024/homeownership-am... It's actually near a 35 year peak.

foxglacier 2y ago

It's obviously not all supply and demand because school zones are a zero-sum part of house prices. Only the richest people can afford to pay the good school zone premium. If too many houses get built there, the schools shrink their zones so you can't increase housing supply to get out of that. You also can't increase the supply of good schools because that's mostly determined by the relative income of the parents, which can't be increased, by definition because it's relative.

wegfawefgawefg 2y ago

houses are assets, and the fed prints money. when you print money the dollar loses value and assets are worth more dollars. this is pretty basic. our government is intentionally inflating the currency at 4% a year. houses prices will always go up then.

tptacek 2y ago

I'm not all the way through the paper, but two questions I have from the jump: The core finding of the paper is that income growth predicts housing price growth reliable regardless of how elastic each local housing market is (say, Austin vs. SFBA). It also uses the "work-from-home" shock during the pandemic as an example of the same kind of measurement. I don't understand the mechanism the authors are suggesting. The WFH shock occurred over a span of 1-2 dozen months. Housing starts are measured over years and years. Regardless of relative differences in elasticity between markets, all housing markets have bounded elasticity as a result of how long it takes to site and construct houses. In a desirable landlocked community, it can take forever just to find current residents willing to sell and thus open up land for denser development (not something this report appears to study). I'm also confused at how they're looking at permitting. It appears like they're using it as a metric of housing growth between regions. But permitting rates also define much of the supply constraint within a region. Highly elastic housing markets issue lots of permits. If everyone's issuing comparable numbers of permits, aren't the just observing that (for whatever reason) different regions are just converging on similar constraints and elasticity?

jmpman 2y ago

Increasing rental taxes will actually lower housing purchase prices in capacity constrained markets. In such markets, landlords are already demanding the maximum amount their renters can bare. By increasing taxes, the total rent paid by the renters doesn’t increase, but the amount going to the landlords decrease - driving down the price of housing stock. Politicians should be advocating for raising rental taxes, instead they’ve been captured by the rent seeking landlords who fund their campaigns.

naijaboiler 2y ago
works in the short term. Long run, it constrains supply of rental housing.
- jmpman 2y ago
  The policy could just be for rental taxes on SFH. I don’t see a reason society should encourage rentals in the SFH market.

tmnvix 2y ago

The article points out the correlation between rising income and rising house prices. I suspect the real cause involves both incomes and credit availability/price. Incomes are just a proximate cause - as debt serviceability improves, people borrow close to their limit, which increases. The limit increases when income increases, but also as interest rates fall.

BenFranklin100 2y ago

What they are showing is that if wage growth is stagnant across all levels, people can’t afford to pay more for a home. So prices don’t rise or at least not nearly as much. This is a recipe for keeping us all poor as a means to control housing costs. On the other hand, if wages rise, but supply expands, home prices remain relatively decoupled from wage growth. This is the situation we want, but which zoning prevents. The old Alfred Twu cartoon captures the current dynamic of rising wages and rising home prices very well: https://www.instagram.com/cbinsights/p/B7v07LRFBqI/ https://www.instagram.com/cbinsights/p/B7v07LRFBqI/

throwawayUS9 2y ago

People buy houses by taking loans with high interest. Next year, the house they own increase in valuation equal to the amount they paid interest. House owner is happy - their asset has increased in value. Bank is happy. They got the money. City is happy. They got their taxes for the higher valuation of the house. After sometime, The middle-class becomes lower class and moves to rent. The lower class becomes homeless as they cannot afford the rent. The cycle repeats.

bjoli 2y ago

We have heard that housing shortage in Sweden will be solved by the market. The housing prices have increased by 300% in 25 years, yet we are building even fewer housing units today than back then.

typ 2y ago

Homes are not a homogeneous commodity. New homes cannot be perfect substitutes due to locations, amenities, access to jobs (commute time), etc. Also, government spending on infrastructure will be capitalized into the neighborhood's land (location) value. You cannot 'undo' this capitalization simply by building more homes.

seethishat 2y ago

Gary Stevenson (UK economist and author of the Trading Game) has a good explanation for this. Both his book and YouTube videos. In short, everyone (governments and ordinary people) are insolvent and in debt to ultra-rich people (especially since Lehman and Covid stimulus programs) and the only way to return asset ownership to governments and ordinary people is to tax the ultra-rich like Western Governments did in the 1950s and 1960s so that ordinary people and governments can actually afford to own things again without extraordinary debt. Tax wealth, not wages is the basic idea. When you have 700 million dollars earning 5%, the only thing to do with all of that passive income is to buy assets. That's why house prices are so high. https://www.theguardian.com/books/2024/feb/22/the-trading-game-by-gary-stevenson-review-cashing-out https://www.theguardian.com/books/2024/feb/22/the-trading-ga...

johann8384 2y ago

The housing market has been heavily manipulated for a long time. Why would anyone be so naive as to think supply constraints would model it?