5 ms·

I'm surprised we don't see more discussion of house prices on sites such as this. In my opinion it is THE issue affecting our generation. Specifically for HN,

I'm surprised we don't see more discussion of house prices on sites such as this. In my opinion it is THE issue affecting our generation. Specifically for HN, the high cost of housing severely restricts entrepreneurship. If you are paying 50% of your income on a rent or mortgage, you are of course less likely to start a business, and the cost of doing that business in terms of employees salaries and commercial rents make it less viable. Also consider that your suppliers, and their suppliers, and their suppliers ad infinitum, all have the same high costs ultimately derived from high housing costs for their employees. This all adds up across the country and the whole economy is made less competitive and agile as a result. With lower housing costs there would certainly be less unemployment. The sad thing is that the even intelligent people are duped into believing the myth that high house prices are good for them. Clearly lower prices mean more disposable income, which is usually a good thing? Clearly high house prices barely benefit anyone as we all need a house, and the next house you buy would likely have gone up by a greater price than the one you have now? And yet we persist - 'we MUST get on the housing ladder' and we blame those nasty banks because 'they aren't lending any more' when all they are doing is scaling back lending multiples from the absurd back to the ridiculous. All that high house prices achieve is to keep young people into debt serfdom, keeping us on a treadmill servicing massive mortgages for the same bricks our parents bought for 20% of the price. We really could be out doing something much more worthwhile. Edit - you may wish to read this to put the madness of this credit bubble into perspective: http://www.housepricecrash.co.uk/forum/index.php?showtopic=53593 http://www.housepricecrash.co.uk/forum/index.php?showtopic=5...

jseliger 14y ago
Word about this problem is trickling out, slowly—I like to cite Edward Glaeser's The Triumph of the City and Ryan Avent's The Gated City on the subject—but I think a lot of people simply don't understand supply and demand. One time in Seattle I was driving home a friend, who was in law school, and she complained that there was too much construction in the city, and that construction made it less affordable. I said that more units make the city less affordable than it would be otherwise, and she said that they were tearing down "affordable" housing to put up housing for "rich people." I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. It was a bit like the scene where the Martian and man meet in The Martian Chronicles. Except that I'm right and she isn't. But until more people connect supply restrictions with cost, we won't get (much) improvement. (Side note: I just read this: http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_cool_it_needs_more_housing_units.html http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_c... on the subject.)
- thisone 14y ago
  >I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. I don't know what your friend's reasoning was, however, I can see an argument on her side. If the 12 units that were torn down were worth (and able to be sold for) 200k each and they were replaced by 200 units worth (and able to be sold for) 500k each, then that neighborhood is about to change character, and it probably won't continue to be affordable for the people who can't afford a 500k unit.
  - ghgr 14y ago
    Exactly, we can consider that the 200k unit is not the same item as the 500k unit. Indeed, the price of "de luxe" units will decrease (but maybe there were not enough of them in the first place) and, unfortunately (for poorer people), the price of the "affordable" unit will raise.
  - wbillingsley 14y ago
    As I understand it, even if the builder is wrong and they can't sell at 500k (there are only 200k buyers), affordability still suffers. Why? Because the developer won't sell the first flat for 200k even if that turns out to be the highest achievable sale price, because it would mean immediately having to write down the market value of the other 199. (A paper loss of 200 * 300k, not just the one lot of 300k). That's going to mean the flats sit there unsold for a long time, while the developer holds out hope of finding high value buyers that don't materialise. Net upshot, for a significant period the developer has reduced the available housing by twelve 200k flats (the replacement two hundred are effectively not available for sale at the going rate).
- josephlord 14y ago
  Supply and demand isn't that simple especially in housing or other assets seen as investments. Rising prices in housing increases rather than decreases demand. People want to get on the ladder, banks throw money at people with no incomes and the world goes mad when house prices go up. It may be than supply can do a little to moderate the effects of the backwards demand curve but I don't think it can generally fix it. Where there is a real building boom (Ireland/Dubai/Spain... 2004-2008, probably much of China now) the building industry can actually be a large part of the economy bringing in migrants (and housing demand) into the area temporarily increasing demand. Also the building tends to happen when prices are rising and people build and purchase speculatively based on the rising prices. So in the short term affordability falls due to the increased demand. In the slightly longer term prices start to fall and the building stops and therefore the demand falls further and no one will offer a mortgage to buy anything so affordability is still rubbish. [Edit: typos. Added Spain to list of 2004-2008 boom areas and put a "probably" on China]
netcan 14y ago
One strange thing about the house prices is that people can opt out, especially in the US. You don't have to live in expensive places. You can live in perfectly nice places where house prices are 30%. One would have thought that the internet would have eased some pressure on the most desirable addresses, but the discrepancy seems to be getting sharper. Another way of putting it is that if house prices are harming innovation, you would see more entrepreneurship in lower cost of living locations.
- michaelochurch 14y ago
  Another way of putting it is that if house prices are harming innovation, you would see more entrepreneurship in lower cost of living locations. Correlation != causation. Right now, location still matters a great deal. People are just mobile enough to stratify in their 20s (ambitious people move to the star cities) but not enough to render location obsolete outright. In the Bay Area and New York, you have a continuous/liquid job market. If you're a startup that needs to hire a Scala expert with knowledge of 3 specific NoSQL databases, and you need to hire that person in two weeks, you can find such a person in the Bay Area, for a price. In Minneapolis, there are a lot of talented people, sure, but there isn't the critical mass that allows you to have ridiculous AND-ing in your requirement query. The same goes in job searching. You might have to choose between your location and your speciality. The appeal of the star cities is the continuous, liquid market. For build-to-flip startups that grow rapidly and reallocate huge amounts of money without doing much, the second-tier cities just aren't an option.
  - netcan 14y ago
    Where was I claiming any kind of causation?
    - michaelochurch 14y ago
      You weren't. Sorry. I got ahead of myself.
  - eli_gottlieb 14y ago
jfoster 14y ago
Isn't banks lending part of the reason why prices are so high? If no one could get a loan, no one would be able to pay current prices for housing.
- jtc331 14y ago
  It's not so much that no one would buy if they couldn't get a loan so much as it is that the availability of the loan causes prices to rise because demand goes up relative to supply.
don_draper 14y ago
All good points. But ask yourself, 'What's in the best interest of the wealthy and powerful, who get what they want?'. (They own a lot of real estate) Sorry if i'm too cynical.

jseliger 14y ago

Word about this problem is trickling out, slowly—I like to cite Edward Glaeser's The Triumph of the City and Ryan Avent's The Gated City on the subject—but I think a lot of people simply don't understand supply and demand. One time in Seattle I was driving home a friend, who was in law school, and she complained that there was too much construction in the city, and that construction made it less affordable. I said that more units make the city less affordable than it would be otherwise, and she said that they were tearing down "affordable" housing to put up housing for "rich people." I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. It was a bit like the scene where the Martian and man meet in The Martian Chronicles. Except that I'm right and she isn't. But until more people connect supply restrictions with cost, we won't get (much) improvement. (Side note: I just read this: http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_cool_it_needs_more_housing_units.html http://www.slate.com/blogs/moneybox/2012/12/10/brooklyn_is_c... on the subject.)

thisone 14y ago
>I tried to explain that, if given space that had 12 units now has 200, the overall affordability rises, but she totally didn't or wouldn't get that point. I don't know what your friend's reasoning was, however, I can see an argument on her side. If the 12 units that were torn down were worth (and able to be sold for) 200k each and they were replaced by 200 units worth (and able to be sold for) 500k each, then that neighborhood is about to change character, and it probably won't continue to be affordable for the people who can't afford a 500k unit.
- ghgr 14y ago
  Exactly, we can consider that the 200k unit is not the same item as the 500k unit. Indeed, the price of "de luxe" units will decrease (but maybe there were not enough of them in the first place) and, unfortunately (for poorer people), the price of the "affordable" unit will raise.
- wbillingsley 14y ago
  As I understand it, even if the builder is wrong and they can't sell at 500k (there are only 200k buyers), affordability still suffers. Why? Because the developer won't sell the first flat for 200k even if that turns out to be the highest achievable sale price, because it would mean immediately having to write down the market value of the other 199. (A paper loss of 200 * 300k, not just the one lot of 300k). That's going to mean the flats sit there unsold for a long time, while the developer holds out hope of finding high value buyers that don't materialise. Net upshot, for a significant period the developer has reduced the available housing by twelve 200k flats (the replacement two hundred are effectively not available for sale at the going rate).
josephlord 14y ago
Supply and demand isn't that simple especially in housing or other assets seen as investments. Rising prices in housing increases rather than decreases demand. People want to get on the ladder, banks throw money at people with no incomes and the world goes mad when house prices go up. It may be than supply can do a little to moderate the effects of the backwards demand curve but I don't think it can generally fix it. Where there is a real building boom (Ireland/Dubai/Spain... 2004-2008, probably much of China now) the building industry can actually be a large part of the economy bringing in migrants (and housing demand) into the area temporarily increasing demand. Also the building tends to happen when prices are rising and people build and purchase speculatively based on the rising prices. So in the short term affordability falls due to the increased demand. In the slightly longer term prices start to fall and the building stops and therefore the demand falls further and no one will offer a mortgage to buy anything so affordability is still rubbish. [Edit: typos. Added Spain to list of 2004-2008 boom areas and put a "probably" on China]

netcan 14y ago

One strange thing about the house prices is that people can opt out, especially in the US. You don't have to live in expensive places. You can live in perfectly nice places where house prices are 30%. One would have thought that the internet would have eased some pressure on the most desirable addresses, but the discrepancy seems to be getting sharper. Another way of putting it is that if house prices are harming innovation, you would see more entrepreneurship in lower cost of living locations.

michaelochurch 14y ago
Another way of putting it is that if house prices are harming innovation, you would see more entrepreneurship in lower cost of living locations. Correlation != causation. Right now, location still matters a great deal. People are just mobile enough to stratify in their 20s (ambitious people move to the star cities) but not enough to render location obsolete outright. In the Bay Area and New York, you have a continuous/liquid job market. If you're a startup that needs to hire a Scala expert with knowledge of 3 specific NoSQL databases, and you need to hire that person in two weeks, you can find such a person in the Bay Area, for a price. In Minneapolis, there are a lot of talented people, sure, but there isn't the critical mass that allows you to have ridiculous AND-ing in your requirement query. The same goes in job searching. You might have to choose between your location and your speciality. The appeal of the star cities is the continuous, liquid market. For build-to-flip startups that grow rapidly and reallocate huge amounts of money without doing much, the second-tier cities just aren't an option.
- netcan 14y ago
  Where was I claiming any kind of causation?
  - michaelochurch 14y ago
    You weren't. Sorry. I got ahead of myself.
- eli_gottlieb 14y ago

jfoster 14y ago

Isn't banks lending part of the reason why prices are so high? If no one could get a loan, no one would be able to pay current prices for housing.

jtc331 14y ago
It's not so much that no one would buy if they couldn't get a loan so much as it is that the availability of the loan causes prices to rise because demand goes up relative to supply.

don_draper 14y ago

All good points. But ask yourself, 'What's in the best interest of the wealthy and powerful, who get what they want?'. (They own a lot of real estate) Sorry if i'm too cynical.