- Building codes have changed. Things are much safer now than in the past. The chance of dying in a fire has decreased 1/4 since 1950 [1].
- Houses are much bigger. Houses have almost tripled in size [2].
- Quality of finishes have increased. People will probably debate me on this because things have generally gotten cheaper over time but that means that the expectation for a house now is quartz countertops and not vinyl.
- Desirability has changed. For example, the number of sports teams have tripled since 1950.
I definitely agree that there's much more to housing prices than most simple analyses present.
Some food for thought in the other direction, though:
- Tools (e.g. nail guns, paint guns, concrete finishers, horizontal drilling for utilities, etc.) and materials (e.g. pre-engineered trusses) are significantly more efficient, so labor costs can be reduced which should drive pricing down. At least enough to offset changes in building codes, but likely more.
- Triple house size does not equal triple building costs.
- I would definitely debate on quality of finishes. Some might be better, but plenty is worse. For example, crown moulding is not as common (in my experience), and skirting is typically much cheaper, and I rarely see chair rails anymore. More often than not I see vinyl floors replicating wood instead of real hardwood floors.
The use of pneumatic nailers has substantially reduced the time required to frame a house.
Regarding labor costs and productivity, there is vastly more specialization in building a house now than there was in 1950. I suspect that in 1950 you only had a few types of skilled labor involved: carpenter, electrician, plumber, and maybe a flooring person (the flooring may have also been done by carpenter at that time). Now, there are additional specialties that need to be involved - roofer, concrete, HVAC, tile, countertop, appliance, etc.
Efficiency gains only lead to lower prices if they are bigger than wage increases. And those are driven by efficiency gains of the rest of the economy. Sure you can gain here and there some wins, but in the end construction is still a very labor-intensive job.
The percent efficiency gain in labor when we moved from hammer & nail framing to nail gun framing significantly outpaced the percent wage increase framers experienced.
But yes, absolutely, you are right that there are many variables at play. Which is what my original post, and the person I replied to, were trying to convey.
>Productivity in building construction has not improved much, according to data, even if tools have improved.
What data are you looking at? I worked in construction (to be fair, industrial and commercial sector) for over a decade. Productivity rates changed quite a bit during the decade I was an estimator. I will dig up my productivity books from when I first graduated and compare to the last one I purchased (a few years ago) when I get home.
>Even if tripling house size doesn’t literally triple costs, that is a straw man.
A straw man? Even if labor only accounted for 10% of the cost of building a house (it is much more), changes to labor productivity absolutely affect the cost to build. Productivity rates are different for a new build of 1000sqft and 2000sqft. Not sure how that's a straw man?
Also, just to clarify, I'm not really presenting an argument. I agree with the parent comment that these maps/analyses aren't able to capture all of the variables. They gave some variables to consider when looking at the article data. I'm giving some others.
>It certainly must account for some of the cost increase.
I said it's not a 1:1 relationship, not that size didn't account for costs at all.
Crown molding only it isn't common anymore because it isn't very desirable.
I wonder if we could do housing the Chinese way and just give people a concrete box to renovate (houses aren't sold new renovated in China, and you are expected to do your own re-renovation after you buy a house second hand), but that really hasn't helped housing prices over there very much.
The things you are pointing out are largely styling choices. The difference in quality of finishes are, like mentioned, solid surface quartz counters which are basically stain proof, large porcelain tiles, toilets that flush more effectively, low voc paints, engineered wood flooring that doesn’t warp and creak, etc.
I'm not quite sure I understand the distinction you're making. In construction terminology, at least, pretty much everything you can see or use is considered a "finishing material".
All of the things that I pointed out, as well as all of the things you point out, would be considered a "finishing material". Some are generally more high quality (e.g. counter, toilet) some are lower (e.g. vinyl flooring), some are no longer really bothered with at all (e.g. crown moulding).
If you asked me whether I would want to pay 5x more for a house that reduces my likelihood of dying in a fire from 0.00427% to 0.00104%, I think I would choose to roll the dice (and maybe DIY install a $20 smoke detector).
1950: 6,405 fire deaths / 150,000,000 US pop = 0.00427%
2022: 3,490 fire deaths / 335,000,000 US pop = 0.00104%
These are guesses but I think the main reduction in fires from 1950 to 2022 are:
a) better electrical wiring and circuit provisioning. Overloaded outlets or circuits were more common in the 1950s. Fuses could also be tampered with more easily than circuit breakers.
b) Matches everywhere. You had matches in the kitchen for lighting the stove, and around the house for lighting cigarettes. "Kids playing with matches" was a common cause of fires. You don't hear about that nearly as much today.
Arguably came and left. In the early 00s battery pack explosions in cell phones wasn't a super rare event. Now Li batteries are a lot safer with better protections to keep fires from starting. Additionally, the biggest batteries someone is likely to setup for their homes are LFPs which are quiet resistant to starting fires. If sodium batteries are successful they'd go even further in being a non-issue.
I think that many rural homes were still in the process of getting electricity around 1950 and that there were some that still used kerosene lamps for lighting.
Death is a well tracked statistic and a severe and fairly distinct outcome. Other statistics might not be as available or accurate.
Similarly the murder rate is a more accurate than other crime rates. Burglaries, muggings and assaults are often not reported to police whereas violent deaths almost always are.
Gred's post however strongly implies that the only outcome worth considering is death. That might be true for them, but I'm not sure if that applies broadly.
Speaking from experience, losing your house to a fire is traumatic, expensive, and you lose things that can't be replaced. Even when there are no deaths.
> Houses are much bigger. Houses have almost tripled in size [2].
I know the numbers support this but I always wonder why my observations are so different.
When growing up (I'm Gen X) all my friends houses and mine were pretty big. Most of us were lower middle class so these were cheap houses. Land was dirt cheap so houses used the space and still had huge yards. Houses were simple, but spacious.
By the 90s houses had shrunk, since now land was quite expensive so builders had less space.
All the construction going on right now in my town is even tinier, since land prices have skyrocketed, so builders have the incentive to stuff as many tiny units into tiny plots as possible.
I just had this conversation with my grandmother today. She was describing her own grandmothers house- and how huge it was. The large bedrooms, a whole room dedicated to the telephone even! The way she described it, it was a straight up mansion.
I was curious what this house looked like, so I asked the address. Looked it up on Redfin. It was less than 2400sq ft. The house she was standing in and comparing to was twice that size.
The big houses are REALLY big. And, while I can find a small apartment, new homes under 2000 sq ft are tough to find. The house I grew up in was 1500 sq ft and plenty for a family of four. I wish I could own a 1100 or less sq ft home but they’re all very old
I suspect that something has changed in the way square footage is calculated. Perhaps there are more finished basements or something. I was very involved in several moves my family undertook when I was younger. I feel like I got a good sense for home sizes. Many of the ones listed for 3000 sq ft. today look more like the 2000 sq ft. houses from yesteryear.
I also think about Louis Rossmann's quest to find a NYC storefront for his repair business a few years ago. He brought a laser measure with him, to document how the actual space squared with advertisements. I don't know that he ever found a place that wasn't lying. Yes, New York and, yes, commercial, but I wouldn't be surprised to see similar tactics in place for residential, across the country.
Almost all of the middle class tract homes built in California (for example) in the 60s/70s are around 1200sf. They also used cheap materials, had no insulation, maybe 2 bathrooms but often 1.5, very simple kitchens, etc.
The stuff that people buy now are much bigger and much more luxurious even at the bottom end.
Looks like normalizing to price per sqft might make the price flat at least in some parts of the US? I always debate with my brother, an architect, why people consider an 80-sqm apartment big enough for a family of 4 (Europe), but wouldn’t aim below 150 sqm when considering a house.
Much of the US housing stock includes homes built before 1990 (30 years ago). If most of the median home price increase was due to build quality there would be a bimodal distribution of housing appreciation with newer homes having appreciated more than older homes.
Most of the appreciation in housing is due to higher household incomes due to two income households.
I would change your last sentence to: is due to higher household incomes due to two income households without a similar increase in the supply of housing near where jobs are.
Why bimodal? Houses are being built every year. So maybe houses built in 2023 have appreciated 1% more than in 2022, and those have appreciated 1% more than 2021, and so on, leading to a smooth distribution.
sorry what do you mean by saying "Desirability has changed. For example, the number of sports teams have tripled since 1950." ? I am like not American and I do not get how that is related to housing
Houses near desirable locations (e.g. sports stadiums) are more expensive. There are more of those desirable locations now (more sports teams = more sports stadiums). So the average is driven upwards even with no change to the housing itself.
Is living near a sports stadium really that desirable? I lived a few blocks from the Giants stadium in SF, and I'll never make that mistake again.
Running a 15 minute errand on a game day could take hours. It was impossible to get my car out of the garage or get on/off the highway. The food/trash left on the streets was terrible too, which made walking my dog a PITA instead of a pleasure.
I think the point is that if you live in an American city with a professional sports team, you’re living in an area that offers way more than just a sports team; there are many things of note to do within a 20mi radius.
People who choose to live, say 250mi from the nearest major professional sports team are going to have a ton less job opportunity, things of note to do, but will generally have a lot less to pay because no one else wants to live there.
Ah that makes more sense, thank you! I wasn't looking at it as a proxy for surrounding development, but now I can see why that might be a more nuanced metric than just region size/population.
Yeah, it's the sports stadiums and not where the paying jobs are. KISS. People want to be comfortable and secure. To be secure you need wealth. To be wealthy you need a high paying job. To get a high paying job you need to live in an urban center. To live in an urban center you need to compete with millions of other like-minded, capable individuals.
If the market was flooded with options nobody would be talking about housing prices. People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense. People are hard: they want a big house that isn't damaged on a nice plot of land above the flood plane where they don't spend 3 hours a day commuting to their job.
>Yeah, it's the sports stadiums and not where the paying jobs are
Who said that?
>People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense.
You might not, but other people definitely do. It's common for people to have criteria when looking for a house (e.g. not having an airport or train station directly in your backyard, being near a good school, being close to x and y amenities, being on a main bus line, etc.). They don't go to a real estate agent and only say "I want a house". Being close to work is a starting filter. Most people apply more filters.
Stadiums were just an example of what people might consider desirable. I think the broader point hervature was making was that what is considered a desirable location (and the cost of being near those locations) has changed in the last 70 years. That is an effect on housing prices which is not clearly captured in the article's analysis.
That conclusion assumes there are options when there are not. There are millions of people priced out of secure housing. People buy what they can. There's no reason to hunt for patterns in noise.
I don’t think it is causative at all. The statement sounds like an AI hallucination. But this is testable. You do probably see some gentrification in the immediate area but you also have the negative externality of parking…
I think this is likely a distortion caused by zoning regulations, resulting in "missing middle" housing.
Basically, if you are only allowed to build single family housing on a plot of land, it doesn't make sense to build anything other than a large luxury home.
I wonder, should arguments like this be used to justify the issue? With technological advancements things should become better (i.e. safer in this case) without raising inflation-adjusted costs. Wouldn't it be very similar to saying that processors should have become more expensive because they became faster or hard drives because they have larger capacity? Additional costs built into the new codes should decrease over time as builders become more efficient at implementing them or technological advancements allow them to become more efficient.
Not every safety item is necessarily an extra expense due to inefficiency. The simplest example would be electrical wire. 2 lead, paper insulated aluminum wire is less expensive than 3 lead PVC insulated romex, regardless of manufacturing efficiency. There's not a lot of modern AL electrical wire for price comparison, but Home Depot lists a 1000ft spool of #2 AWG USE-2 AL wire from Southwire for $0.80 / foot. The same spool from the same manufacturer in CU is $2.32 / foot. So while not a perfect comparison, if you imagine going from a 1950's 2 wire AL situation to a 2024 3 wire CU situation, you're talking a baseline price increase of over 4x with modern efficiency. And that's before you consider that modern building codes also require many more outlets and circuits than they used to. My home, built in the 70's has 3 circuits in the kitchen. 1 counter top, 1 fridge, 1 range. IIRC the modern building code is 1 circuit for every hard wired appliance, 1 for the fridge, 2 accessory circuits and a circuit for the room walls in general. If you assume a modern house with a fridge, range, dishwasher and over the range microwave/hood combo, that's 7 circuits minimum for the kitchen. So in addition to the 4x increase in wiring costs for the existing circuits, you also have a 2x increase in the number of circuits for just that room let alone outlet spacing requirements in other rooms and the like.
This can't be it, much of the housing stock is from pre 1950s and adding those finishes or code improvements does not make a house 5x as valuable.
My theory is that we simply don't allow building anywhere near the rate of increasing demand, which is reflected by the anemic supply growth compared to population increases.
My grandmother compiled a book of letters from families in my hometown that she gave all of the grandkids a copy of before she died.
One of the letters talked about how common fires were and how the standard practice was to just pull up a chair in the middle of the street and watch it burn.
- Square-footage-maximizing floorplans, with a 3-foot wide lawn that your HOA still wants in pristine condition
- "Open floorplans" so you can listen to the roar of your dishwasher, washer, and dryer from the comfort of your living room (is it cheaper to get rid of interior walls and doors?)
- Mandates to use more-fireproof sticks and boards, and non-carcinogenic insulation
- Incremental improvements in the technology of home appliances, no thanks to home-builders
I hate that's the sum of "progress" in housing quality. I wish more expensive homes meant something more than extra bedrooms with the same race-to-the-bottom construction and townhouse-level neighbor-separation as the next development.
It would also be interesting to see the numbers relative to mortgage rates and availability. It looks like the 1950's had mortgages starting around the 5% range, but that steadily increase to a peak of near 20% in the 80's before dropping through the 90's and bottoming out around 2.5% in 2021. Along with that I imagine qualifying / getting a mortgage in 1950's was more difficult than modern times with 0% down first time home buyer loans.
When the zoning/permitting process limits the building of new houses, builders are going to build what gives them the biggest return: large, luxuriously finished houses.
> builders are going to build what gives them the biggest return: large, luxuriously finished houses
In a lot you could build one largish luxurious home and sell it for 1.5 to 2.0M
Or do 8 tiny townhouse units and sell each for 800K for a total of 6.4M
I don't see how the single home will ever be more profitable if a builder is doing it.
We're seeing a lot of these 8 townhomes per lot (4 on each side with small driveway in between) popping up everywhere, precisely because it maximizes profit per lot for the builder.
Exactly that: you've got a limited number of lots and a limited number of units that can be on those lots, so max the value of those units. With the lot supply and zoning, that equals replacing whatever might already be there with a giant McMansion. This drives up housing prices while also deleting the middle out of the market.
> that equals replacing whatever might already be there with a giant McMansion
That's the opposite of what we see around here. Developers buy houses from the 1940 to 60's (big houses on big lots), tear them down and build an 8-pack or 6-pack (depending on lot size) of tiny townhomes.
The only people building large houses are wealthy individuals building for themselves (as opposed to a development company building to sell) because they can afford to take the potential-profit hit and just build what they want.
Houses are bigger, but seem less thoughtfully designed with a lot of useless space that seems to be there to maximize the sq. footage to justify high prices.
Hard no. I've been going to many open houses and there is a strong trend towards more functional layouts over time. The 1940s houses might have a large number of square feet, but the % of that taken up with unusable walkways and narrow rooms is much higher than things built later. 1960s era is better, 1980s better still, and best of all are new builds.
I disagree, each marginal square foot is not equivalent. (Access to owning the first few hundred over zero are in particular market is very important!) I think overall housing supply vs overall demand is still a useful way to look at it, because it captures how we're under building cheap housing.
The short answer is that a house is no longer a place to live, but an abstract financial asset. The problem with divorcing occupation and use from finance and ownership concerns remediation of grievances. The benefit of such a system concerns maximizing the building's utility. I'm personally in favor of a more boring housing market, in addition to automatic tenant enrollment in equity-sharing programs (ie, due to living in a building and paying rent, the person who experiences hardship and loses tenancy still has some small, depreciating ownership based upon what they paid as rent). This helps solve the problem of financial engagement for the less financially literate, in addition to enabling higher-density housing to be built.
Bingo. People love to go into some deep analysis of housing and "agh it's a really hard problem", but it's simple at the end of the day: we have constructed, and continue to construct, a society where housing is not considering a right, but instead a way to inflate your bank account. It smells like this from the prospective house buyer at the bottom all the way to the government propping up the system at the top. Time to change the system. I refuse to believe that out of all the great things humanity has achieved, effective housing (shelter, of all things!!) is unsolveable.
The system will not change because the folks in charge profit and maintain power from a system of accelerated financialization. They then wring their hands and clutch their pearls as young people take rational actions by not having children (rapid fertility rate decline), worried what happens to the pyramid scheme as it runs out of steam. Their crisis is the young cohort's survival mechanism.
Young people have to do their best to survive in an unfavorable macro for the life they have left, and old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).
I think there may be something in this point. Lots of generational wealth in my area. Property investment is nearly a sport. The entry bar for which is lower if you already have wealthy parents providing you property (or equivalent buying power) for yourself, so the eye turns to property for investment. I know people in their early 20s, decently well off, already thinking property investment is the correct option for them. The rich get richer and the poor get poorer.
And a lot of folks don't have parents leaving them a portfolio or a high value asset they can live in. A material amount of people 55+ have no retirement savings, have material amounts of debt, or are in similar situations where the house might have to be sold versus be conveyed to children at death to break even (healthcare, senior|nursing home, memory care facility costs until death).
If you are lucky enough to inherit an unencumbered (or one with a mortgage you can at least afford) residential property you can live in as a young person when your parent(s) pass, that is fantastic luck. Take the win if you can get it. That is not the mean experience, based on the data.
This was the case with my dad and he isn't even 55. His house wasn't even worth all that much relatively speaking, but he had too much debt, not enough income, and too many expenses (more kids).
It's fairly likely we won't see any inheritance from him. The 2 of us who can realistically work for a living might make more, but it's not looking likely either of us will ever be able to retire. On the other hand, if I chose the same life, it's plausible I could buy a house eventually, but buying a house in my home town isn't worth the trade of living in my home town.
Not advice, educational purposes only. Speak to an estate planning attorney. Depending on resources and objectives, a property can be transferred into a corporate or trust entity. Parent rents from the entity, this covers the mortgage payment. Upon parent's death, property basis is stepped up (no capital gains), beneficiaries retain control of the asset. If children wanted to rent it out to cover the mortgage, they can. Federal statute prohibits a lender from accelerating the note when a property is transferred from parent to child(ren) (Garn-St. Germaine Act). This preserves the equity in the asset while shielding it from creditors (potentially, strongly contingent on state creditor law). Speak to an estate planning attorney.
Primary residence equity is the largest component of wealth in most family estates, ergo maximize efforts and opportunity to protect that wealth. When it’s gone, it’s gone. Good luck.
Thanks for the detailed suggestion, I do appreciate it, but it's gone. I just hope he's able to relieve himself of a few burdens and find a way to earn a better income for the rest of his life, although it's a pretty bad time to hope for that.
in my experience its normal that old folks have lots of children and inheritance works out that the house is sold and revenue shared among children instead of one of the children moving in
Im a rube but it my knee jerk reading tfa is there has to be some correction or young people are financially and domestically doomed. The solutions you listed here seem great. Is there momentum behind establishing these in the US?
Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely? If the latter, what are smart people expecting?
>Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely?
As a layman, take this with a huge grain of salt: it depends. By established rules, a major correction should be imminent. In fact, it should have happened one of several times already.
Examples of catalysts include a bond liquidity crisis in late 2019, the flash crash at the start of the COVID pandemic, the Gamestop debacle in early 2021, the collapse of the Chinese real estate market later in 2021, and the US bank collapses of early 2023. There are also others, though several venture into conspiracy theory territory.
In every example I mentioned, unprecedented action was undertaken to prevent a catastrophic event that might have lead to financial contagion across global markets. There will be probably be more. It remains to be seen whether authorities will continue undertaking steps to shore things up when the bubble threatens to pop. (Trump's return to office is an interesting wrinkle; grab another grain of salt, but it's my opinion that the Gamestop thing only got as bad as it did because the regulatory regime under his tenure was asleep at the wheel.)
It should be noted that a correction doesn't necessarily lead to affordability if purchasing power simply continues falling or remains stagnant, as a result of a weaker job market. There are people who believe that sellers will simply refuse to drop residential real estates prices, as they have with commercial properties. Consolidation of ownership under large entities - as we've already seen to some extent - would allow owners to simply squat on properties, perhaps renting then out. Who knows what happens to the algorithmic rent fixing lawsuits, that might have brought those costs back to Earth a bit, after this year's electoral red wave.
A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask. There is not enough labor to build more units at any reasonable rate, so it'll be a slow burn as the system reaches equilibrium over time (new housing comes into the market when owners must sell, demand destruction due to pricing). Due to demographics, a lot more housing could be satisfied by smaller units accounting for reduced forward looking family formation, but the challenge remains in sourcing labor to build these units.
With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
Never say never, but yes, agreed. And that shortage depending on how it’s calculated may be more pronounced if we look at where people plan to live in the future. Central Ohio where I live is on track to gain in population while the state as a whole loses population. A house in a rural county doesn’t necessarily count/help, even if it’s included in official “here are many houses we have” statistics.
Home builders, especially with a risk-free 4% return today, do not have any incentive to build “cheap” or “affordable” housing, and as material prices continue to increase because there are 330 million people in America who also want those resources, new builds will have to continue to increase in price and perhaps decrease in quality, depending on how much oil goes into the construction of the house. Home builders, absent clear evidence of industry collusion will simply increase their profitability and will not build ‘starter homes” or “affordable housing”.
We can address the issue in a few ways, for example removing artificially limiting zoning practices, generally speaking, or perhaps the elected government can just pay for cheaper housing, or we can craft good legislation.
But on its own I don’t see a good catalyst right now that will cause home prices to “correct”* without a treatment worse than the disease (economic depression or global war or something else that is otherwise catastrophic).
* The term “correction” is popular but misused. The current price of an asset is always correct. When an asset decreases in price, that decrease is no more correct than a corresponding increase in price.
Great points, great comment. An additional measure to solve for this would be by making remote work a protected labor right (assuming it does not overly burden the employer and such), so workers can move where the housing is, or the housing is cheap. But we'd rather let old, status seeking folks at the top of the corporate ladder "show workers who is in charge" and maintain control while workers get extracted from for higher than necessary rent or mortgage payments near an office (where housing is in demand but very slow for additional supply to come online, if it ever does at all).
> A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask.
I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".
For NZ, this doesn't hold up when looking at actual statistics.
- Prices rose x4 between 1995 and 2021 (inflation adjusted).
- The total number of households to total number of dwellings remained relatively unchanged over the same period.
- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).
Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).
I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).
US institutional ownership is too low nationwide to be material compared to new housing build rate when considering overall supply shortage. Of note, there is institutional concentration in certain local markets, which diminishes purchase supply in those localities (and potentially contributing to price level firmness in those localities).
When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.
Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.
This is a misconception that gets perpetuated because of a conflation of a shortage of physical housing units (which does not exist) and a shortage of affordable units (which does)[1]. This shortage is highly local, as your Fannie Mae sources discuss; it is best characterized as a mismatch between local resources and opportunities. This suggests that it's not merely a matter of market failure, but additionally (if not principally) one of municipal mismanagement.
The solution is already known, as it has been executed successfully in many places, including Singapore, the UK[2], and the Soviet Union: the government builds units directly and either sells or rents them according to affordability rather than cost. This will destroy housing as an investment, which would certainly have knock-on effects, but in terms of solving the problem at hand - "Are there enough places for people to live?" - it's adequate. Chalk up any resulting difficulties as a redistribution of the externalities of letting the problem fester for so long.
>With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
Please see GP for examples of situations where just that exact scenario happened (China, relevant because of the potential for financial contagion) or almost happened (the rest). It's unwise to bet the labor market on the ability of officials to pull novel remedies out of thin air every time a systemic threat appears.
Every time there is the potential for a correction (2008 being close to mind) the government just hands the banks a ton of taxpayer money because they're "too big to fail".
So I wouldn't expect a correction until the US is unable to borrow more money or defaults on its debt.
Much like climate change it will already be too late by the time young people have the power to change it. So I'm not surprised many of them have sort of checked out from the "spouse/house/kids" grift/grind
This is all well and good but as someone who just went through a renovation, the cost of labor and materials is astronomical. Yes the land is expensive too but it’s not like it was free to get construction crews out either.
So while it is a financial asset, the cost is still tied to the cost of physically constructing the thing.
The part I found strangest about the house-buying process (in 2015) was that the real estate agents, mortgage brokers, etc., had a fundamentally different conceptual framework than we did. I thought we were looking for a place to put our stuff, where we would stay basically permanently. They were assuming we'd sell it in 5-10 years. I didn't understand this unstated premise at first and it led to some confusing moments.
> The short answer is that a house is no longer a place to live, but an abstract financial asset.
This line of thinking is commonly repeated, but it fails to take into account the old “location, location, location” thing. If you bought a house that was once in the middle of farmland 30+ years ago but now that house is on (let’s say) two acres of land in the middle of a coveted suburb of a large city where the average house sits on .2 acres, why _wouldn’t_ that house (or more accurately, the land) have appreciated greatly in value?
A LOT of these houses that “boomers” bought were once out in the boonies, and now those places are desirable, developed areas.
There should be no tax on selling a primary residence if and only if you buy another primary residence. Otherwise tax it like capital gains or higher. Make it economically unfeasible for people to own more than one house. I’m generally a capitalist but i’m okay with this because the housing situation is ridiculous.
Hedge funds and other corporations should be disallowed from purchasing single family homes. Period.
People don’t have the right to simply live in highly desirable areas for very cheap.
It is time for people to accept that if they want affordable housing they should look at some lesser developed areas in the country. Otherwise it’s pay to play.
People don’t have the right to simply live in highly desirable areas for very cheap - I find that it's less people can't afford to live in their dream locations as people can't afford to live where their jobs are, or within reasonable commuting distance.
And the jobs? The amenities that make areas highly desirable require workers who can actually commute to them.
It's a game of chicken. The people who live in these areas and expect to be served without complaint either acquiesce to density and lower property values, or risk (occasionally fiery) demonstrations against the unfair and unworkable situation. Their goal is to keep the game running, so that everyone else doesn't decide on one or the other end state. Essentially, "Highly desirable areas that are too expensive for low/middle-income workers," is a transition state.
In my city, the homeless are offered free housing that is away from the downtown area. They do not want it. Preferring instead to camp in downtown where they want to be.
Cheaper housing is available if people are willing to move to less densely populated areas.
At the end of the day, housing is all about supply and demand. Like most other things in life. There is not enough supply in the areas where people want to live. And no country has been able to figure out a solution for that problem.
> And no country has been able to figure out a solution for that problem.
Minor nit, the "solution" is well known, it's to increase supply of housing by removing zoning regulations and letting the increase in demand pull more supply out of the market. It's just not politically popular, everyone is for it in the abstract but campaign against multifamily homes being constructed in their backyard. Basically, we know how to build homes but do not know how to convince people that neighbors who can't afford McMansions are still desirable neighbors.
What about when housing is equally unaffordable in the less desirable areas? Keeping in mind that wages are probably less in those areas.
Also, less desirable areas are not necessarily constructed to be any more functional or sustainable, so why should we promote that? Areas that are "less desirable" in my city are swathes of oversized, copy-pasted houses massively spaced apart with near zero amenities. 100% car dependent. Near-dystopian land use, really. We don't need more of that. Instead, I'd much rather take amore sustainable approach to housing across the board.
In places like Lisbon and Milan, the rich live in the center and the young folks live on the outskirts. The outskirts then become trendy and cool and filled with bars and restaurants and cafes (can also look at Brooklyn, and now we are seeing a second Harlem Renaissance as well). Eventually the rich realize this and move to that place, and then the young people move again. But no matter what, the young people always end up living in the most desirable area because they commune with each other and create a desirable community in that place; meanwhile retired wealthy people are inherently uncool and consume more than they contribute.
The price of houses will fall and the price of basic services, food, etc. will skyrocket as people flee the stagnant cities and core economic activity moves elsewhere. It will never go this far of course (zero actual workers is an asymptote), but that's the way it will trend.
This is already happening in many neighborhoods in California. I imagine elsewhere in the US too. People who keep it running have to commute long distances.
There is nowhere someone can live for $200/mo, as they could in some lesser developed countries. The floor has been established by speculation, building codes, and minimum services. It sounds like a good idea to make sure all dwellings have electricity and running water, but when the alternative is a tent under the freeway, it's actually much worse.
solar and starlink keep on improving. i continue to be surprised remote work communities arent commonly developing in scenic, non-traditional locations. it seems idealistic, but makes a lot of sense on paper
Would be useful to see the cost of just the land as well if thats possible. As others have pointed out, the size and feature expectation inflation has to be factored in here. The little "wartime 4" I grew up in north of Toronto was smaller than a lot of "garage-ma-halls" these days and didn't really have insulation. It was a regular feature in winters to get ice on the living room window. My "modest" (by today's standards) house would be a rich persons place in the 70s.
I live in an affluent suburb in a rich city in a sleeper town just outside Toronto. My home was built in the past twenty years and is in a "McMansion" style neighbourhood. It's a relatively large home, but in many ways things have regressed.
Craftsmanship is non-existent. The kitchen cabinets look like Ikea specials with shelves held up by little plastic pegs. All of the various particle board doors are installed laughably poorly with giant gaps. Sound travels through the home with ease.
It's well insulated and has good multi-pane windows, but automation and mass production should bring a lot of that just with the passage of time. I would expect that all else being equal the same work should by better windows and insulation and so on than fifty years ago.
Regarding land value, it is interesting how in denial we are about land values. The city gives me property tax statements valuing my land at 1/10th the price of the dwelling...yet people are buying $1M homes on smaller lots and immediately tearing the home down to build new. More than a few cases of that demands that we completely upend our valuations.
There is an equation they use that might be biased toward improvements. In Seattle/King county at least they are gradually changing the equation to value land more and improvements less, so our property taxes have been going down each year even though our value is going up (since we are a narrow townhome on a small plot). This is to ultimately encourage more density and make it more expensive to hold unimproved land.
I think quality is something at least there is choice on. But even then, the lowest quality of materials now seems way above anything my 1940s war-time-four that I grew up in in Willowdale. It was just tarpaper "brick" over the frame. We didnt feel "poor" or anything as thats what all the houses were.
I was lucky to buy my first house in 97 at the bottom of the market in Waterloo. An 1890s house on a 133x66 lot. House was absolute mishmash of "left over parts" as one contractor friend of mine described it. My wife and I saved up and did a full teardown in 2016 (again as luck would have it) at a low point in construction costs. My general contractor said it would now be 3x to do the same project due to labour and material costs.
But, going through the process I could do anything I wanted. Fresh timber, or timber that was properly aged. Steel beams, or wood. You can choose "quality" it just is gonna cost.
But that 3x jump (not even taking into account land costs) pre-covid vs post covid is.... eye popping.
Your windows likely would still ice up today, except they are double pane with argon or another gas inbetween the panes so they are comparatively insanely well insulated.
The US M2 in 1950 was <$300 billion and in 2024 was >$20,500 billion (70x increase). The article is using an inflation estimate of ~13x. The author doesn't give an average but the top 3 states by population (California, Texas, Florida) saw increases of 65x, 39x and 44x respectively.
I think it is more likely that house prices have slightly decreased in real terms and they are tracking closer to the M2 as houses are assets not consumables. This gels with home ownership [0] which is generally stable or higher than usual, it doesn't look like people are actually struggling to acquire homes all that much. Especially since I expect household size is shrinking.
Most of the pain people are feeling is because of the insanity leading up to and flowing from the '07 crisis if the home ownership rates are good evidence.
The wikipedia article you linked showed only a decline of 1% home ownership as defined, but mentions a massive decline in "home equity" down to around 34% owning the home outright - this means that people are struggling to own homes in the classical sense of the word "ownership" to me, and the ownership rates are being papered over by long periods of access to cheap loans.
The article isn't about how easy it is to own homes though; it is about whether the real price of homes is changing over time.
Article suggests it is, I'm suggesting that the CPI is an inappropriate index to use and I suspect the trend is - if anything - probably in the other direction. Relative to the money printing that has taken place, the real price of homes appears to have dropped a smidgen which is what we'd expect given technology improvements.
I do agree that houses are probably a lot less affordable. All that debt is expensive. But that has little to do with the real value of the house, it depends on how the financial system is architected.
If the real price of homes is increasing we would expect people to be able to afford them less, per your original comment. I am arguing owning less equity is equivalent to owning less homes in a highly financialized system with cheap credit access. I am not sure about your argument here.
My argument is that the CPI is an inappropriate index to use, it hasn't done a good job of measuring general inflation. My interpretation is that the price of the house is staying about the same (probably slightly down) and real incomes are dropping a bit faster than that (which'd be consistent with real incomes tracking metrics like energy availability per capita & the relative lack of capital investment in the US compared to Asia).
There isn't a particular reason why the real price of houses would go up. A house today is more or less the same good as in 1950, and technology improvements suggest that if anything it is probably easier to build cheap houses today than back then. And on the other hand, the money printing being done is entering into the economy through loans so it probably turns up first in things like house prices. I can imagine scenarios where the real price rose, but the more likely explanation for affordability issues is that real incomes dropped.
Keeping money supply the same in the face of a growing economy leads to deflation. Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill. What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?
> Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill.
(1) If any economy ever has been killed by deflation, you should include it on the the Wikipedia page for deflation. The list of economies that experience deflation [0] is almost a whos-who of places I'd be happy to live - it is often a precursor to economic success.
I don't argue that it is a good thing, but inflation is actually a way to kill an economy because it can get completely out of hand and regularly does. Deflation isn't and doesn't.
(2) It doesn't make it any harder to get a loan. When making a loan, you estimate the real return (say 2%) and adjust for inflation/deflation. So if there is 1% inflation you loan at 3% and if there is 1% deflation you loan at 1%.
Deflation does put a floor on what people will loan money for. The argument that this is a bad thing is very questionable indeed - why we should want people borrowing investing in low-return activities when they could be not-borrowing and resources could be going into high-return activities is a mystery to me. Lending money doesn't make real-world resources appear out of nowhere.
And again, lending can be good or bad so I'm not arguing against it in the abstract. But encouraging lending in marginal and risky gambits is stupid, it causes regular collapses and seems to me to be be making society relatively poorer. People don't save enough as a starting point, end up broke in their retirement all too often. They shouldn't be punished for putting money aside on top of that.
> What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?
The election is behind us, people can stop with this silliness. The US economy is obviously not growing. Countries don't put a Trump in charge twice when economies are growing. Global hegemons don't get overtaken by China when the economy is growing. The US has very visibly not been growing strongly for the last decade, it has been papering over cracks with money printing. Maybe that is fine, growth has to end sooner or later.
Not at a computer due to thanksgiving so unfortunately can’t get in depth here but as far as deflation being horrible look at the 20 years after the civil war. Deflation is very rare due to everyone realizing how awful it is. 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. It is better to not loan at all than to loan at 1% because of that. Exceptions are bonds from massive institutions but small business is absolutely fucked.
That time period was the best performance of any economy in history up to that point and has been largely unsurpassed in "Wow!" factor until the miracle that is modern China. The post civil war era was when the US established the foundations of the economy that became globally preeminent for a century. If that is the economy being killed, maybe we should kill more economies.
This sort of thing drives me crazy. I ask for examples of deflation being a bad thing and I get "well there was the time the US became a global economic colossus, that was pretty bad".
> 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money.
1) You missed the argument. The argument is that if a loan doesn't make economic sense then it is stupid to adjust the entire monetary system to encourage people to do stupid things.
2) The argument is just wrong. I'd lend money at 1% if I was making a real return.
But you wouldn’t make a return because some loans default and the person you pay to screen debtors costs than you make. At the end of the day your business would have less money than it started with.
The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
That is absurd. The premise here is there are different nominal scenarios with the same real return. It isn't possible to make the same real return and be worse off. The risk of default hasn't changed.
If you think 2% real return is too low you can just pretend I chose a higher number. It doesn't change the argument.
> The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
So your position here reads a lot like the economic situation that led to a civil war was the good part, but the era where the US set themselves up and overtook the British and Chinese empires was a good example of an economy that is best described as "horrible" and "killed".
Are you sure that this is the best example you have of deflation being a bad thing? You might want to pick a different example - maybe one from an era that wasn't characterised by rapid improvements in economic power leading to a century of commercial dominance. I haven't even got to the point in the thread where I bring up that this horrible era was just after, you know, a civil war. It might be that that was the reason people felt badly off rather than goods and services getting cheaper in nominal terms.
There is a floor for nominal interest rates below which operating the business costs more than the business makes. That floor is higher than 1%. We were not too far from it during Covid. If we had deflation real interest rates would have to increase because nominal rates can barely go down. Real rates going up is again very bad for the economy.
> I think it is more likely that house prices have slightly decreased in real terms and they are tracking closer to the M2 as houses are assets not consumables
Still means homes has became much more unaffordable than in the past since you have to use your income to pay for the house.
Yeah homebuilding got absolutely murdered due to the financial crisis. 2009 was the lowest number of new builds since 1959 and we haven't yet reached the 2005 peak.
If 101 people want to move to a city that has 100 houses, and they are prevented from building more, then house prices will be bid up as high as they can afford to pay.
The only solution is to legalize building more homes, especially at higher densities that allow more people to live in desirable locations.
There has been incredible inflation for items that cannot be exported in the US. Think healthcare, education and housing. Things that could be sent overseas like TVs, Computers, Clothing has seen their prices deflate. The combo of the two is what is called inflation but the later hides the fact we have increased our money supply incredibly since 1950 and that will show in the things that did not find a way to get cheaper.
I only want to add that in 1950 a significant number of homes still did not have indoor plumbing, and I'd guess that a lot of existing housing stock was small square footage. I don't want to say there wasn't housing inflation, but I do think the the nature of housing stock has changed too.
Hedonic adjustments are important but, as you point out, have issues.
But, affordability isn't represented well by inflation, either. Median family income in 1950 was equivalent to $45k today; the actual number is $100k.
A big part of the issue is that workers stopped benefitting from productivity growth in the mid-1990s. That's what's really made the housing crisis particularly sharp.
It has, because people are greedy and self centered and capitalism exploits this better. Nobody's gonna work harder and smarter if they know they'll get the same outcome as those who don't, as per socialism.
That's why Europe is falling behind the US at tech innovations. People aren't gonna put in the risk, the grind and the hours if they'll get the same living standards as a unionized tram driver.
In a lot of states there was a more than 3x increase in price which I think is hard to justify as a difference in stock. Median square footage for homes now is only 1835 square feet (https://fred.stlouisfed.org/series/MEDSQUFEEUS). There are also a lot of arguments like how quality has gone up but building technology has vastly improved. Either way that the price increase is mostly a function of housing quality doesn't seem convincing to me (I've seen really garbage houses go for crazy amounts recently).
One example is my grandparents' home was built in the 1930s. It's a small home but in a good location and they said when they were younger it was worth ~200,000$ (I don't know the exact decade they were talking about here but from context it was somewhere in the 50s to 70s). The literal exact same house is now worth around 3,000,000$. The house now needs a lot of work (it actually decreases the value of the land) but the price is still 15x higher.
> It's a small home but in a good location and they said when they were younger it was worth ~200,000$ (I don't know the exact decade they were talking about here but from context it was somewhere in the 50s to 70s). The literal exact same house is now worth around 3,000,000$. The house now needs a lot of work (it actually decreases the value of the land) but the price is still 15x higher.
If this is true, and using 1960 as our middle of the road, then this isn't exactly "egregious". 200k in 1960 is 2.1M today just accounting for inflation. If we use 1950 it's 2.6M and if we use 1970 it's 1.6M. Now sure the house needs work, but I also. bet the area even if it was "good" when they built it in the 1930's how many more people are living in the same location now all vying for the same plots of land? People often gawk at what their parents or their grand parents paid for their houses, but rarely consider what living there would have been like 30 or 60 years ago. I have some relatives that bought a house outside a developing area about 30 years ago that's probably seen an easy 3-4x increase in value (of which only 2x would be accounted for with inflation. But the difference between then and now is that when they bought that home, it was 1 of 6 on a street in the middle of nowhere, surrounded by fields and undeveloped land. There was a single main road that ran through "town" about 5 minutes away that had 2 gas stations, and 3 fast food stores and a grocery store. For anything else you were driving 20-40 minutes into the nearest city (or around). They commuted every day 45 minutes into the city. Today that same area is bursting with new homes, there's now 2 exits / entrances onto the highway within 10 minutes of their house, the main street is jam packed with businesses and filled with strip malls and shopping centers with multiple grocery stores, and a good chunk of the main "national brands" you might expect (Home Depot, Lowes, Walmart, Gamestop etc). And just about anything they don't have along that main street and it's adjoining centers can be found 15 minutes away in the shopping centers and neighborhoods that sprung up between them and the city. In short, the house they live in today is in the sort of place some folks looking to move into a thriving and growing area would want to move into, and the house they bought 30 years ago was in the sort of backwoods sticks that such people would be avoiding as "too remote".
I never said that all or even most of the change in price is simply a function of changes in housing stock. I simply stated that changes in housing stock is something you must account for.
Also, your example of your grandparent's home is long tail. Some places have seen skyrocketing prices that have everything to do with the location (and zoning restrictions limiting stock of housing in area). Example would be Santa Monica. Lots of coastal towns in California. But median, not mean. Think about all the one-room shacks that used to exist. You don't see them anymore because ... why would someone keep them around now? The homes that survive are the ones that retained enough value to make it worthwhile to keep up/restore.
Here in southwest Virginia, an empty lot near town might be about $40k. A house built on that will have multiples of that value.
If it was significantly cheaper, I'd do my own plumbing. Wouldn't you? Much better than having no home at all. But it's not even an option - I'm required to pay for the plumbing.
I'm curious how much the equivalent modern home would cost in 1950? Also the medium salary has almost doubled. I suspect modern homes are a much better value
although more expensive.
Depends if it's a liability or not. For many it's like a big savings account. The bigger the better. Inflation protected.
You can't trust the government not keep printing more and more money and diluting your after tax savings. But house prices are linked to physical structure. Government can't just print more houses out of thin air. So they appreciate against inflated paper currency which they do just print out of thin air sometimes.
Also, having owned older built Canadian houses, they're a constant maintenance. Many were not well designed and don't age well (wood construction). So for them to still appreciate tells you how much government has been busy printing. Where does all that money go? I sometimes wonder.
Indebted servitude to banks, a good chunk of a lifetime of work to pay off one of these mortgages.
And waging so government can take most of it in taxes.
I'm not sure if this is sustainable much longer without a revolt in Canada... at least younger Canadians may one day decide it's not a good system and turn the tables.
Average house price in Canada is like 700k now, average wage is like 54k.
It needs to account for the difference is sizes. Average square footage in 1950 was just under 1000 sqft; in 2024, it's more like 2300.
In Texas, for example, the inflation adjusted cost per square foot was $79 in 1950, and about $130 in 2024. Still a steep rise, but a 60% jump instead of the 285% without considering square footage.
I think this is largely because of zoning regulations forbidding multifamily homes. If you have to build only a few single family homes on land per zoning regulations, you maximize your profits by building really big homes. But it's hard to separate out how much of it is zoning versus genuine consumer preference for larger homes at larger costs (+ easy access to cheap mortgages for many years) because of the ubiquity of these zoning regulations.
It doesn't matter if you aren't shopping by size. I would like a house (or a generic dwelling unit, but let's call it a house). I don't care the ones today are twice as big as the ones in 1950 - both have the same value to me.
Prices from 1950 is relatively useless because they don’t count the effect of women entering the workforce in the 1970s and 80s. Once women were working en masse in the 1980s house prices spiked because there was now 2 incomes that could be used to pay for the house. This inflation is seen in the data but you can’t see it from this map.
The higher house prices get the more desperate people are to use every cent to buy a house. That’s why things like mortgage tax deduction is useless because that money immediately gets factored into increasing the amount of mortgage you can get and spikes the house prices.
It’s fascinating and sad because we are at the stage now where hedge funds are driving up the prices of single family homes so that millennials and gen z become renters for the rest of their lives.
Given that even in the least attractive locations, home prices have grown around 100 per cent, we can probably chalk those 100 per cent up to general improvements of homes (size, appliances etc.) Neither homes, nor cars, nor planes are the same as they were in 1950.
I believe these kind of data is slightly misleading, because the price is directly affected by everything else that surrounds building a house these days.
Just some examples zoning/land use, building standards codes (electrical, plumbing, mechanical), permits, compliance, inspections, water, sewage, etc etc.
I am not advocating a wild west for building, but rules & regulations always increases and with that comes more costs.
This of course also drives higher rents, and if you think they are high now...
Anecdotally, the biggest driver I've seen in California is the large pushback against multifamily housing and large apartment buildings. In many of the hot real estate markets they would be able to get so much more value out of a parcel with these larger buildings but are forbidden to build them per zoning regulations.
Houses can be a good investment or they can be cheap.
A good investment outperforms its alternative asset classes. We chose policies that ensured they’d be a good investment. For housing to become cheap in our lifetimes, existing homeowners will need to experience an enormous capital loss.
This has been exacerbated by the long-term decline of interest rates. Sticker price and interest rate are roughly inversely correlated since the monthly payment a prospective owner can afford is roughly fixed. Over the past fifty years, boomers have been able to regularly refinance their loans into lower and lower interest rates as prices skyrocketed. This also made it easy to move since you could trade up on your home’s increased value relative to the remaining mortgage.
That pathway isn’t as available to millennials who bought at sub-4% interest rates, and it likely never will be.
Should also also adjust for price/sqft and energy efficiency/insulation savings, lack of plumbing in some and ~15% without electricity. And also externalities of 1950s air conditioning designs that would have depleted the ozone by now if we stayed with them, and things like lead paint causing mental development issues.
Median wages are up since significantly since 1950 (most stagnation was after 1970s), and house building is expected to be heavily affected by purchasing power parity, using a heavy portion of local labor.
Occupational deaths in construction went from 8 per thousand workers in 1950 to below 2 per thousand today, but I couldn't find numbers for residential. In the 1950s, if there was as much highschool attendance as today, out of each medium sized highschool you'd expect a higher than 50% chance of one of your peers to eventually die in a construction accident.
I suppose what this illustrates is that, while the CPI does include rent (or “owners equivalent rent”) in its calculation, the equivalent rent is either not representative of the median home, or house prices have grown much faster than rent over the past 75 years… and yet the apparent popularity of being a “real estate investor” seems only to have increased, which suggests to me that the rent/buy ratio has gotten more favorable, not less
None of the above, the disconnect is that median income has risen (much) faster than inflation in the last seven decades. See my comment elsewhere. The whole post is an exercise in failing to recognize confounding variables.
I may well be completely wrong, I am not a social scientist or involved with the housing market; my sense of it is that building has been ever harder, while demand - more people with more money - has continued to rise.
Prices, accordingly, have risen.
I think what we see here is primarily a function of constrained supply.
Or a huge warning sign of the wealth disparity between the rich and lower-income group - it's a reality that lower middle-income group today cannot afford to buy homes; they are lucky if they can inherit one.
You could use the Dow though. It varied from 2700 to 2900 in 1950, and is now about 45,000, so about a 16x increase, while inflation over the same period has been about 30x. However the index price doesn't account for dividends, so total return has been much larger.
It's tricky to say if the Dow is really a good measure across time like that. Exactly two of the companies on it were there in 1950; the other 28 were added in 1976 and beyond. It's not clear if the price weighting really accounts for that much of a shift in composition.
Now the next question is why? Why the houses prices have surged in the past decades. And why is it a worldwide situation (at least in developed countries)?
too many people and not enough land in areas where people don't have to drive 3 hours to work.
Want pricing to go down then we need to build more dense housing even an hour drive from the city. The days of wanting a big backyard are coming to an end for most home owners.
Luckily, density is what makes mass transit viable. It's more cost effective to run a driverless metro every three minutes in an urban core than to run a mostly-empty bus once an hour in a distant suburb.
What if we put the jobs closer to the people instead of making the people get closer to the jobs? Just drop a big ol’ tech park in the middle of Oakland?
Who is the “we” in that sentence? Is there a Central Planning Bureau that forces “jobs” to be placed in certain locations? What jobs would you place near the people, whatever that means?
I was born, raised, lived in dense cities. I've lived in semi-suburban life as well. Unless you're into some hobbies that requires such tools, you just never use it? And when you have to... you just use it? I live in an apartment building in a city, and once a month or so, during daytime, people use tools and it's no biggie.
To each their own though. I definitely grew to understand that if someone was raised in rural or suburban life, it would be extremely hard to adjust to hardcore city life, and vice versa. But I don't think we should be blocking build ups for one, if there's demand.
We just bought a place in a dense area of The Hague, and I run a table saw + shop vac frequently as we renovate. No complaints yet, just keep my hours between 10-6. Lots of other neighbors doing similar stuff too.
There are lots of benefits to density. Our grocery store and day care are less than ten minutes away on foot, because there's a ton of people so we can support these kinds of businesses (also weed, hair salons, bars, cafes, boutiques, secondhand stores, restaurants, play cafes, etc etc.)
More people want to live in the city than ever in the history of humankind for various reasons. See gigantic rental price drops in mid-2020 when people briefly thought city-life will never return to normal. Housing prices mostly went up during the year, but they're much stickier than rental and that flight didn't last long enough for people to sell their homes (well, it's much easier to drop your rental for another, than sell and buy somewhere else).
When demand starts slowing down or supply is caught up (it's happening everywhere outside of Tokyo in Japan, and somewhat in HK and other places as well), they stabilize or go down.
New home sales are at a near 30 year low at this very moment, at least in the US. No one is really buying, but prices are still inflated drastically. The people that -are- buying homes, are people that already have them. Houses in rural and suburban areas are also super inflated as well. It's not just a city phenomenon. There is clearly something very broken in the market. It really comes down to NIMBYs, entrenched interests and ZIRPs massive distortion of the market that locked a ton of people into a low rate.
Many current homeowners have their wealth in their home, they want it to (in some cases) to continue to out-perform the S&P 500. Since they live there, they bully the local governments to not allow more building so there is less supply to compete with their asset. State and federal agencies are going to have to step in at some point to incentivize local governments to upzone. Not even mentioning this isn't remotely sustainable as a tax base in most instances, because subdivisions and infrastructure to deal with the sprawl this a bill that will come due in a harsh way making higher property taxes inevitable pricing out many of the people that were in. The #1 reason people are fleeing California and New York is due to costs...and in turn they are about the lose electoral power in Congress and Electoral college.
People who intend to continue living somewhere don't care about the price of their asset per se (they're not going to sell it), and dense zoning tends to increase land prices anyway. Opposition to density is about quality of life.
In a related phenomenon, people will pay more to be around better neighbors (which you can see reflected in price differences across similar houses in similar areas but in different school catchment areas). It makes some sense that people will pay as much as they can to be in a better area with better kids when you look at the state and direction of public education. If you can't afford private school, that's basically your only lever to try to buy quality. If you can, you still have a tradeoff that you could spend ~13k/yr/kid on tuition or add 200k/kid to your home budget to live in an area with better public schools. Living in a more affluent area carries other QoL benefits as well of course.
Yeah I agree with basically every statement. But house prices are extremely sticky with 30 year mortgages. Less stickier in Canada because of 5 year mortgages. There’s actually a big drop in rental prices in my very-in-demand city. SFH still sell like hotcakes though. Since rates might be coming down again, it’s incentivizing people to move and lock in for 5 years.
My take as someone living in the northwest and witnessing exponential growth over my lifetime:
- We clearcut 95% of US timber, now the remaining 5% is in states like Oregon, Washington and Idaho. Some wood is an order of magnitude more expensive or simply unavailable, with prices held artificially low by importing wood and deforesting Canada, for example.
- Good, fast, cheap (pick any two). We build homes good and fast, but little effort is being made to reduce costs by an order of magnitude by using materials like hempcrete.
- Zoning laws have been changed so that row houses and 3-4 story apartments can be built right up to the road, maximizing profits but externalizing urban decay. High price/low value.
- The US adopted a service economy when it sent 100,000 factories overseas under the GW Bush administration in the 2000s after Clinton signed NAFTA in the 1990s. Now a smaller fraction of the population does the work of building homes, with most everyone else pushing paper, so charges what it wishes.
- People with high carbon footprints had more children. Bigger houses for high consumers left less housing for thriftier people.
- Garages, lawns and commuting wasted immeasurable resources after we could/should have transitioned to sustainable energy and transportation in the 1980s but chose to double down on the nuclear family, trickle-down economics, etc.
- The cost of those unnecessary roads was factored into property taxes, driving home prices higher.
- Nearly unlimited financing was available for home loans, while almost none was devoted to startups and other disruptive industries. We got what we paid for (McMansions instead of, I don't know, 3D printed homes).
- Modern techniques were almost never adopted into building codes. So rather than running wiring conduit through walls or encouraging similar practices to make additions and remodeling easier, we encouraged tearing down and building from scratch, which wasted countless trillions of dollars.
- The tax system doesn't value trees, existing structures, previous money spent on remodels, etc. So developers profit from bulldozing homes and razing lots in a day to build houses in a month. The human and environmental cost of that can never compare to moving homes, remodeling them, etc.
- Our culture and entertainment tell everyone they need granite countertops and $50,000 gas guzzlers. Things are expensive because other people consume more and more and more with insatiable appetites and expectations.
- Wealthy people who could have steered our culture in a positive direction chose to do nothing. Or worse, actively encouraged extractive and vulture economic policies to enrich themselves further.
2. a lot more equipment in it: electricity, plumbing, AC
3. zoning restrictions reducing supply to increase the value of existing houses; owners benefit from that, local government benefits even more from higher property taxes and also from permitting taxes
4. increase of demand due to different factors, like lifestyle changes (back then almost nobody lived on their own in a house, single people were very rare by comparison), unequally distributed immigration and internal migration to some cities)
5. very different and more expensive safety requirements for new houses
6. more expensive workforce building the houses
7. huge reduction in self-building houses and price gouging by the developers
It's not just "developed" country problem any more. It is also happening in developing countries, like India and Vietnam for example. In India, real estate prices have sky rocketed over the past 30+ years. Part of this is because of the rise of property development firms. Government encouragement too has played a role, I think, because construction (and the construction industry) does create a lot of jobs. Real estate is also a vehicle to hide black money, and that's another factor here in India.
(I wanted to strangle Trump when he once commented that real estate in India and other parts of Asia, are still "undervalued"!)
10x-15x+ price to median income is common in many desirable areas. Completely ridiculous, but also what you might expect after a decade+ of QE, asset inflation, and the last four years of core inflation.
That's because "desirable" areas aren't fixed over these timescales. Today's gated suburbs in the Bay Area were literally dust bowl farms in 1950! Like, literally Steinbeck wrote a famous novel about it.
Steinbeck's books were mostly late-30s, no? Which one are you thinking of? Grapes of Wrath is mostly around Bakersfield, Cannery Row and East of Eden are Monterey/Salinas Valley. I'm not sure of anything set that far north.
I have family photos from back in the 50s showing lots of good orchards in the Bay Area. Certainly no dust bowl stuff. If I remember correctly, my grandparents bought their 5BR tract house in Santa Clara in the mid-1950s for somewhere around $15 or $16k, which was ~40% more expensive than the median California house back then. The Bay Area has always been expensive!!!
Ooph, HN is being HN. The point is that California was not remotely exclusive or expensive in the mid-century, it was a target of emigration from the rest of the country for its relative affordability and low density. The point to citing Steinbeck wasn't to claim he wrote about Silicon Valley in particular, it was to show that this effect was well-known to basically everyone at the time.
I mean, no, "good orchards" aren't desirable homes, by definition. There's at least an order of magnitude delta in real estate price between the two! And sure, your family found a very nice neighborhood in the south bay. That doesn't mean that South SF wasn't a dump or that Fremont wasn't completely uninhabited.
Because my upthread point was, and remains, that you can't look at the history of "desirable homes" over a 75 year scale because by definition desirability changes much more frequently.
I think about this and wonder if it's supported by data.
I wonder because no one speaks about the poverty created by the last few decades, which might contradict what you wrote, or might not. I also wonder where one could track creation of wealth and creation of poverty.
(living outside income, for example, i think of as creating poverty)
Getting long historical series of economic data is often a challenge due to changes in definitions and sampling methodology over time. FRED has a bewildering array of both income and house price series, all with subtly different definitions, most with pretty short histories.
This is still a bit spun though. Median income has risen even faster!
Some quick unverified googling says that in 1950 US Median income was $3300, and that inflation since 1950 has been a 10.89x increase. US median income today is $80k.
So indeed, housing has gotten a lot more expensive in real terms. But we've all gotten richer, and on average A US Household is spending less of its income on housing today than in 1950, not more.
California, it's true, is sort of out of control. But that's clearly a local thing in two metro areas, not a problem with the economy as a whole.
What these analyses normally miss:
- Building codes have changed. Things are much safer now than in the past. The chance of dying in a fire has decreased 1/4 since 1950 [1].
- Houses are much bigger. Houses have almost tripled in size [2].
- Quality of finishes have increased. People will probably debate me on this because things have generally gotten cheaper over time but that means that the expectation for a house now is quartz countertops and not vinyl.
- Desirability has changed. For example, the number of sports teams have tripled since 1950.
[1] - https://www.statista.com/statistics/526310/timeline-deaths-n...
[2] - https://www.ahs.com/home-matters/real-estate/the-2022-americ...
I definitely agree that there's much more to housing prices than most simple analyses present.
Some food for thought in the other direction, though:
- Tools (e.g. nail guns, paint guns, concrete finishers, horizontal drilling for utilities, etc.) and materials (e.g. pre-engineered trusses) are significantly more efficient, so labor costs can be reduced which should drive pricing down. At least enough to offset changes in building codes, but likely more.
- Triple house size does not equal triple building costs.
- I would definitely debate on quality of finishes. Some might be better, but plenty is worse. For example, crown moulding is not as common (in my experience), and skirting is typically much cheaper, and I rarely see chair rails anymore. More often than not I see vinyl floors replicating wood instead of real hardwood floors.
The use of pneumatic nailers has substantially reduced the time required to frame a house.
Regarding labor costs and productivity, there is vastly more specialization in building a house now than there was in 1950. I suspect that in 1950 you only had a few types of skilled labor involved: carpenter, electrician, plumber, and maybe a flooring person (the flooring may have also been done by carpenter at that time). Now, there are additional specialties that need to be involved - roofer, concrete, HVAC, tile, countertop, appliance, etc.
They didn’t have roofers in 1950?
I don't know. I suspect that a good percentage of the roofing was probably done by carpenters at that time.
Efficiency gains only lead to lower prices if they are bigger than wage increases. And those are driven by efficiency gains of the rest of the economy. Sure you can gain here and there some wins, but in the end construction is still a very labor-intensive job.
The percent efficiency gain in labor when we moved from hammer & nail framing to nail gun framing significantly outpaced the percent wage increase framers experienced.
But yes, absolutely, you are right that there are many variables at play. Which is what my original post, and the person I replied to, were trying to convey.
Productivity in building construction has not improved much, according to data, even if tools have improved.
Even if tripling house size doesn’t literally triple costs, that is a straw man. It certainly must account for some of the cost increase.
>Productivity in building construction has not improved much, according to data, even if tools have improved.
What data are you looking at? I worked in construction (to be fair, industrial and commercial sector) for over a decade. Productivity rates changed quite a bit during the decade I was an estimator. I will dig up my productivity books from when I first graduated and compare to the last one I purchased (a few years ago) when I get home.
>Even if tripling house size doesn’t literally triple costs, that is a straw man.
A straw man? Even if labor only accounted for 10% of the cost of building a house (it is much more), changes to labor productivity absolutely affect the cost to build. Productivity rates are different for a new build of 1000sqft and 2000sqft. Not sure how that's a straw man?
Also, just to clarify, I'm not really presenting an argument. I agree with the parent comment that these maps/analyses aren't able to capture all of the variables. They gave some variables to consider when looking at the article data. I'm giving some others.
>It certainly must account for some of the cost increase.
I said it's not a 1:1 relationship, not that size didn't account for costs at all.
Also while houses are generally larger, lots are generally smaller, and often comprise the majority of the value.
Crown molding only it isn't common anymore because it isn't very desirable.
I wonder if we could do housing the Chinese way and just give people a concrete box to renovate (houses aren't sold new renovated in China, and you are expected to do your own re-renovation after you buy a house second hand), but that really hasn't helped housing prices over there very much.
>Crown molding only it isn't common anymore because it isn't very desirable.
Why it's not there doesn't really matter when we're talking about costs. If it's not there, you don't have to pay for it, end of story.
It doesn't mean it wasn't desired. It could have been replaced with something else even more expensive.
...What would you replace crown molding with that is more expensive?
The things you are pointing out are largely styling choices. The difference in quality of finishes are, like mentioned, solid surface quartz counters which are basically stain proof, large porcelain tiles, toilets that flush more effectively, low voc paints, engineered wood flooring that doesn’t warp and creak, etc.
I'm not quite sure I understand the distinction you're making. In construction terminology, at least, pretty much everything you can see or use is considered a "finishing material".
All of the things that I pointed out, as well as all of the things you point out, would be considered a "finishing material". Some are generally more high quality (e.g. counter, toilet) some are lower (e.g. vinyl flooring), some are no longer really bothered with at all (e.g. crown moulding).
My budget was around a million, idk if I saw a single home (sfh, Townhomes, condos) that had wood floors
How about two of the most cost impacting elements in home building, cost of labor and land?
If you asked me whether I would want to pay 5x more for a house that reduces my likelihood of dying in a fire from 0.00427% to 0.00104%, I think I would choose to roll the dice (and maybe DIY install a $20 smoke detector).
1950: 6,405 fire deaths / 150,000,000 US pop = 0.00427%
2022: 3,490 fire deaths / 335,000,000 US pop = 0.00104%
These are guesses but I think the main reduction in fires from 1950 to 2022 are:
a) better electrical wiring and circuit provisioning. Overloaded outlets or circuits were more common in the 1950s. Fuses could also be tampered with more easily than circuit breakers.
b) Matches everywhere. You had matches in the kitchen for lighting the stove, and around the house for lighting cigarettes. "Kids playing with matches" was a common cause of fires. You don't hear about that nearly as much today.
More points:
Basically everything is soaked in flame retardant: your insulation, your wiring, your furniture, your appliances.
Heater technology is way safer now. Central heat is a lot more prevalent, and space heaters are a lot less likely to start a fire.
I'd also add to your wiring point: electrical appliances are way safer and way less hot.
A counter-argument though is the prevalence of lithium-ion batteries. I do wonder if a spike in fires is coming--though I would've expected it by now.
> I do wonder if a spike in fires is coming
Arguably came and left. In the early 00s battery pack explosions in cell phones wasn't a super rare event. Now Li batteries are a lot safer with better protections to keep fires from starting. Additionally, the biggest batteries someone is likely to setup for their homes are LFPs which are quiet resistant to starting fires. If sodium batteries are successful they'd go even further in being a non-issue.
c) Smoking
In 1950 around 50% of adult males smoked, these days it is closer to 15%
Why tie it to half the population (in an ideal world)? Just list per capita.
A good number of females also smoked, so the overall percentage of adults was higher than that.
"Smoking in bed" was such a common cause of fires that even in elementary school we were taught "never smoke in bed."
And why they have to be lined with retardants
I think that many rural homes were still in the process of getting electricity around 1950 and that there were some that still used kerosene lamps for lighting.
Also improvements in medicine might matter
Death is not the only negative outcome of a house fire.
Death is a well tracked statistic and a severe and fairly distinct outcome. Other statistics might not be as available or accurate.
Similarly the murder rate is a more accurate than other crime rates. Burglaries, muggings and assaults are often not reported to police whereas violent deaths almost always are.
Sure, I agree.
Gred's post however strongly implies that the only outcome worth considering is death. That might be true for them, but I'm not sure if that applies broadly.
Speaking from experience, losing your house to a fire is traumatic, expensive, and you lose things that can't be replaced. Even when there are no deaths.
No but eating McDonald’s or drinking alcohol kill more yet we do it anyways
How is this related to the conversation? I'm not sure what point you're making.
The point is the risks of health/economic issues from home fire is something most Americans would gladly have for reduced housing price.
Are you sure it's a 5x difference in material?
Like, a big reason for fires in the 50s was paper covered and underspeced wiring.
Safe wiring simply uses plastic instead of paper.
> Houses are much bigger. Houses have almost tripled in size [2].
I know the numbers support this but I always wonder why my observations are so different.
When growing up (I'm Gen X) all my friends houses and mine were pretty big. Most of us were lower middle class so these were cheap houses. Land was dirt cheap so houses used the space and still had huge yards. Houses were simple, but spacious.
By the 90s houses had shrunk, since now land was quite expensive so builders had less space.
All the construction going on right now in my town is even tinier, since land prices have skyrocketed, so builders have the incentive to stuff as many tiny units into tiny plots as possible.
So, where are these 3x larger houses these days?
I just had this conversation with my grandmother today. She was describing her own grandmothers house- and how huge it was. The large bedrooms, a whole room dedicated to the telephone even! The way she described it, it was a straight up mansion.
I was curious what this house looked like, so I asked the address. Looked it up on Redfin. It was less than 2400sq ft. The house she was standing in and comparing to was twice that size.
Older homes had more usable space, so they felt larger. They could fit 4-5 bedrooms in 2400 sq ft or less.
Care to explain where you think the space went?
The big houses are REALLY big. And, while I can find a small apartment, new homes under 2000 sq ft are tough to find. The house I grew up in was 1500 sq ft and plenty for a family of four. I wish I could own a 1100 or less sq ft home but they’re all very old
I suspect that something has changed in the way square footage is calculated. Perhaps there are more finished basements or something. I was very involved in several moves my family undertook when I was younger. I feel like I got a good sense for home sizes. Many of the ones listed for 3000 sq ft. today look more like the 2000 sq ft. houses from yesteryear.
I also think about Louis Rossmann's quest to find a NYC storefront for his repair business a few years ago. He brought a laser measure with him, to document how the actual space squared with advertisements. I don't know that he ever found a place that wasn't lying. Yes, New York and, yes, commercial, but I wouldn't be surprised to see similar tactics in place for residential, across the country.
Almost all of the middle class tract homes built in California (for example) in the 60s/70s are around 1200sf. They also used cheap materials, had no insulation, maybe 2 bathrooms but often 1.5, very simple kitchens, etc.
The stuff that people buy now are much bigger and much more luxurious even at the bottom end.
Looks like normalizing to price per sqft might make the price flat at least in some parts of the US? I always debate with my brother, an architect, why people consider an 80-sqm apartment big enough for a family of 4 (Europe), but wouldn’t aim below 150 sqm when considering a house.
Much of the US housing stock includes homes built before 1990 (30 years ago). If most of the median home price increase was due to build quality there would be a bimodal distribution of housing appreciation with newer homes having appreciated more than older homes.
Most of the appreciation in housing is due to higher household incomes due to two income households.
I would change your last sentence to: is due to higher household incomes due to two income households without a similar increase in the supply of housing near where jobs are.
Why bimodal? Houses are being built every year. So maybe houses built in 2023 have appreciated 1% more than in 2022, and those have appreciated 1% more than 2021, and so on, leading to a smooth distribution.
sorry what do you mean by saying "Desirability has changed. For example, the number of sports teams have tripled since 1950." ? I am like not American and I do not get how that is related to housing
If I understand correctly:
Houses near desirable locations (e.g. sports stadiums) are more expensive. There are more of those desirable locations now (more sports teams = more sports stadiums). So the average is driven upwards even with no change to the housing itself.
Is living near a sports stadium really that desirable? I lived a few blocks from the Giants stadium in SF, and I'll never make that mistake again.
Running a 15 minute errand on a game day could take hours. It was impossible to get my car out of the garage or get on/off the highway. The food/trash left on the streets was terrible too, which made walking my dog a PITA instead of a pleasure.
I think the point is that if you live in an American city with a professional sports team, you’re living in an area that offers way more than just a sports team; there are many things of note to do within a 20mi radius.
People who choose to live, say 250mi from the nearest major professional sports team are going to have a ton less job opportunity, things of note to do, but will generally have a lot less to pay because no one else wants to live there.
Ah that makes more sense, thank you! I wasn't looking at it as a proxy for surrounding development, but now I can see why that might be a more nuanced metric than just region size/population.
>Is living near a sports stadium really that desirable?
For me? Absolutely not, haha. But I'm sure it is for others. I have no idea what the average American would say.
Yeah, it's the sports stadiums and not where the paying jobs are. KISS. People want to be comfortable and secure. To be secure you need wealth. To be wealthy you need a high paying job. To get a high paying job you need to live in an urban center. To live in an urban center you need to compete with millions of other like-minded, capable individuals.
If the market was flooded with options nobody would be talking about housing prices. People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense. People are hard: they want a big house that isn't damaged on a nice plot of land above the flood plane where they don't spend 3 hours a day commuting to their job.
>Yeah, it's the sports stadiums and not where the paying jobs are
Who said that?
>People don't give a single thought about sports stadiums or if you're near a highway/airport or any of that soft nonsense.
You might not, but other people definitely do. It's common for people to have criteria when looking for a house (e.g. not having an airport or train station directly in your backyard, being near a good school, being close to x and y amenities, being on a main bus line, etc.). They don't go to a real estate agent and only say "I want a house". Being close to work is a starting filter. Most people apply more filters.
Stadiums were just an example of what people might consider desirable. I think the broader point hervature was making was that what is considered a desirable location (and the cost of being near those locations) has changed in the last 70 years. That is an effect on housing prices which is not clearly captured in the article's analysis.
That conclusion assumes there are options when there are not. There are millions of people priced out of secure housing. People buy what they can. There's no reason to hunt for patterns in noise.
I don’t think it is causative at all. The statement sounds like an AI hallucination. But this is testable. You do probably see some gentrification in the immediate area but you also have the negative externality of parking…
Sure, I have no idea. I was just trying to interpret what the parent poster said.
Not only an increase in square feet, but an even bigger increase in square feet per person.
Yes exactly - my parents and inlaws had homes 2x the size of what they grew up in, and also had half the children their parents had.
Indeed. Growing up in the 80s -- in a fairly middle class family -- a lot of my friends had bunk beds.
Now "living wage" calculations assume that every child has their own bedroom.
Let’s go further and:
- take the average household size in 1950 vs 2020 to calculate median house price per person in a household
- then take the average square feet per person and find out what % it has increased in the past 75 years
Then layer those stats on top of the inflation adjustments to hopefully remove some of the confounding factors?
I think this is likely a distortion caused by zoning regulations, resulting in "missing middle" housing.
Basically, if you are only allowed to build single family housing on a plot of land, it doesn't make sense to build anything other than a large luxury home.
The size of a single person has also increased. Considerably.
> Things are much safer now than in the past.
I wonder, should arguments like this be used to justify the issue? With technological advancements things should become better (i.e. safer in this case) without raising inflation-adjusted costs. Wouldn't it be very similar to saying that processors should have become more expensive because they became faster or hard drives because they have larger capacity? Additional costs built into the new codes should decrease over time as builders become more efficient at implementing them or technological advancements allow them to become more efficient.
Not every safety item is necessarily an extra expense due to inefficiency. The simplest example would be electrical wire. 2 lead, paper insulated aluminum wire is less expensive than 3 lead PVC insulated romex, regardless of manufacturing efficiency. There's not a lot of modern AL electrical wire for price comparison, but Home Depot lists a 1000ft spool of #2 AWG USE-2 AL wire from Southwire for $0.80 / foot. The same spool from the same manufacturer in CU is $2.32 / foot. So while not a perfect comparison, if you imagine going from a 1950's 2 wire AL situation to a 2024 3 wire CU situation, you're talking a baseline price increase of over 4x with modern efficiency. And that's before you consider that modern building codes also require many more outlets and circuits than they used to. My home, built in the 70's has 3 circuits in the kitchen. 1 counter top, 1 fridge, 1 range. IIRC the modern building code is 1 circuit for every hard wired appliance, 1 for the fridge, 2 accessory circuits and a circuit for the room walls in general. If you assume a modern house with a fridge, range, dishwasher and over the range microwave/hood combo, that's 7 circuits minimum for the kitchen. So in addition to the 4x increase in wiring costs for the existing circuits, you also have a 2x increase in the number of circuits for just that room let alone outlet spacing requirements in other rooms and the like.
How much of the dying in a fire decrease is just because of decreased smoking, and the use of smoke alarms though?
This can't be it, much of the housing stock is from pre 1950s and adding those finishes or code improvements does not make a house 5x as valuable.
My theory is that we simply don't allow building anywhere near the rate of increasing demand, which is reflected by the anemic supply growth compared to population increases.
My grandmother compiled a book of letters from families in my hometown that she gave all of the grandkids a copy of before she died.
One of the letters talked about how common fires were and how the standard practice was to just pull up a chair in the middle of the street and watch it burn.
- Surface-level "finishes"
- Square-footage-maximizing floorplans, with a 3-foot wide lawn that your HOA still wants in pristine condition
- "Open floorplans" so you can listen to the roar of your dishwasher, washer, and dryer from the comfort of your living room (is it cheaper to get rid of interior walls and doors?)
- Mandates to use more-fireproof sticks and boards, and non-carcinogenic insulation
- Incremental improvements in the technology of home appliances, no thanks to home-builders
I hate that's the sum of "progress" in housing quality. I wish more expensive homes meant something more than extra bedrooms with the same race-to-the-bottom construction and townhouse-level neighbor-separation as the next development.
It would also be interesting to see the numbers relative to mortgage rates and availability. It looks like the 1950's had mortgages starting around the 5% range, but that steadily increase to a peak of near 20% in the 80's before dropping through the 90's and bottoming out around 2.5% in 2021. Along with that I imagine qualifying / getting a mortgage in 1950's was more difficult than modern times with 0% down first time home buyer loans.
It's a valid and good point, but it's also important that there is very often no other option available in new construction.
When the zoning/permitting process limits the building of new houses, builders are going to build what gives them the biggest return: large, luxuriously finished houses.
> builders are going to build what gives them the biggest return: large, luxuriously finished houses
In a lot you could build one largish luxurious home and sell it for 1.5 to 2.0M
Or do 8 tiny townhouse units and sell each for 800K for a total of 6.4M
I don't see how the single home will ever be more profitable if a builder is doing it.
We're seeing a lot of these 8 townhomes per lot (4 on each side with small driveway in between) popping up everywhere, precisely because it maximizes profit per lot for the builder.
You can't do the 8 tiny townhouses if that isn't permitted.
Many zoning codes prohibit building even a duplex in a "single family home" area.
Maybe this is starting to change in some areas.
Exactly that: you've got a limited number of lots and a limited number of units that can be on those lots, so max the value of those units. With the lot supply and zoning, that equals replacing whatever might already be there with a giant McMansion. This drives up housing prices while also deleting the middle out of the market.
> that equals replacing whatever might already be there with a giant McMansion
That's the opposite of what we see around here. Developers buy houses from the 1940 to 60's (big houses on big lots), tear them down and build an 8-pack or 6-pack (depending on lot size) of tiny townhomes.
The only people building large houses are wealthy individuals building for themselves (as opposed to a development company building to sell) because they can afford to take the potential-profit hit and just build what they want.
Yup, it's entirely down to zoning.
Exactly, the single home will only be more profitable because the townhomes will never be allowed to break ground in many neighborhoods in the US.
The luxury finishes are high margin..
Houses are bigger, but seem less thoughtfully designed with a lot of useless space that seems to be there to maximize the sq. footage to justify high prices.
Hard no. I've been going to many open houses and there is a strong trend towards more functional layouts over time. The 1940s houses might have a large number of square feet, but the % of that taken up with unusable walkways and narrow rooms is much higher than things built later. 1960s era is better, 1980s better still, and best of all are new builds.
Median cost per square foot might be more informative.
I disagree, each marginal square foot is not equivalent. (Access to owning the first few hundred over zero are in particular market is very important!) I think overall housing supply vs overall demand is still a useful way to look at it, because it captures how we're under building cheap housing.
The short answer is that a house is no longer a place to live, but an abstract financial asset. The problem with divorcing occupation and use from finance and ownership concerns remediation of grievances. The benefit of such a system concerns maximizing the building's utility. I'm personally in favor of a more boring housing market, in addition to automatic tenant enrollment in equity-sharing programs (ie, due to living in a building and paying rent, the person who experiences hardship and loses tenancy still has some small, depreciating ownership based upon what they paid as rent). This helps solve the problem of financial engagement for the less financially literate, in addition to enabling higher-density housing to be built.
Bingo. People love to go into some deep analysis of housing and "agh it's a really hard problem", but it's simple at the end of the day: we have constructed, and continue to construct, a society where housing is not considering a right, but instead a way to inflate your bank account. It smells like this from the prospective house buyer at the bottom all the way to the government propping up the system at the top. Time to change the system. I refuse to believe that out of all the great things humanity has achieved, effective housing (shelter, of all things!!) is unsolveable.
The system will not change because the folks in charge profit and maintain power from a system of accelerated financialization. They then wring their hands and clutch their pearls as young people take rational actions by not having children (rapid fertility rate decline), worried what happens to the pyramid scheme as it runs out of steam. Their crisis is the young cohort's survival mechanism.
Young people have to do their best to survive in an unfavorable macro for the life they have left, and old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).
https://news.ycombinator.com/item?id=40338619
https://www.ted.com/talks/scott_galloway_how_the_us_is_destr...
https://www.youtube.com/watch?v=u-PinTQcuik
https://www.axios.com/2024/07/25/adults-no-children-why-pew-...
> old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).
A lot of those old folks have children who will inherit their homes.
I think there may be something in this point. Lots of generational wealth in my area. Property investment is nearly a sport. The entry bar for which is lower if you already have wealthy parents providing you property (or equivalent buying power) for yourself, so the eye turns to property for investment. I know people in their early 20s, decently well off, already thinking property investment is the correct option for them. The rich get richer and the poor get poorer.
I think the common case is for medical bills to drain retirement savings and home equity.
And a lot of folks don't have parents leaving them a portfolio or a high value asset they can live in. A material amount of people 55+ have no retirement savings, have material amounts of debt, or are in similar situations where the house might have to be sold versus be conveyed to children at death to break even (healthcare, senior|nursing home, memory care facility costs until death).
If you are lucky enough to inherit an unencumbered (or one with a mortgage you can at least afford) residential property you can live in as a young person when your parent(s) pass, that is fantastic luck. Take the win if you can get it. That is not the mean experience, based on the data.
https://www.gao.gov/financial-security-older-americans
https://www.nbcnews.com/business/consumer/generational-wealt...
https://www.nytimes.com/2023/05/14/business/economy/wealth-g... | https://archive.today/fpbNK
https://www.deseret.com/business/2024/09/10/millennial-gen-z...
This was the case with my dad and he isn't even 55. His house wasn't even worth all that much relatively speaking, but he had too much debt, not enough income, and too many expenses (more kids).
It's fairly likely we won't see any inheritance from him. The 2 of us who can realistically work for a living might make more, but it's not looking likely either of us will ever be able to retire. On the other hand, if I chose the same life, it's plausible I could buy a house eventually, but buying a house in my home town isn't worth the trade of living in my home town.
Not advice, educational purposes only. Speak to an estate planning attorney. Depending on resources and objectives, a property can be transferred into a corporate or trust entity. Parent rents from the entity, this covers the mortgage payment. Upon parent's death, property basis is stepped up (no capital gains), beneficiaries retain control of the asset. If children wanted to rent it out to cover the mortgage, they can. Federal statute prohibits a lender from accelerating the note when a property is transferred from parent to child(ren) (Garn-St. Germaine Act). This preserves the equity in the asset while shielding it from creditors (potentially, strongly contingent on state creditor law). Speak to an estate planning attorney.
Primary residence equity is the largest component of wealth in most family estates, ergo maximize efforts and opportunity to protect that wealth. When it’s gone, it’s gone. Good luck.
Thanks for the detailed suggestion, I do appreciate it, but it's gone. I just hope he's able to relieve himself of a few burdens and find a way to earn a better income for the rest of his life, although it's a pretty bad time to hope for that.
in my experience its normal that old folks have lots of children and inheritance works out that the house is sold and revenue shared among children instead of one of the children moving in
Im a rube but it my knee jerk reading tfa is there has to be some correction or young people are financially and domestically doomed. The solutions you listed here seem great. Is there momentum behind establishing these in the US?
Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely? If the latter, what are smart people expecting?
You are correct.
>Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely?
As a layman, take this with a huge grain of salt: it depends. By established rules, a major correction should be imminent. In fact, it should have happened one of several times already.
Examples of catalysts include a bond liquidity crisis in late 2019, the flash crash at the start of the COVID pandemic, the Gamestop debacle in early 2021, the collapse of the Chinese real estate market later in 2021, and the US bank collapses of early 2023. There are also others, though several venture into conspiracy theory territory.
In every example I mentioned, unprecedented action was undertaken to prevent a catastrophic event that might have lead to financial contagion across global markets. There will be probably be more. It remains to be seen whether authorities will continue undertaking steps to shore things up when the bubble threatens to pop. (Trump's return to office is an interesting wrinkle; grab another grain of salt, but it's my opinion that the Gamestop thing only got as bad as it did because the regulatory regime under his tenure was asleep at the wheel.)
It should be noted that a correction doesn't necessarily lead to affordability if purchasing power simply continues falling or remains stagnant, as a result of a weaker job market. There are people who believe that sellers will simply refuse to drop residential real estates prices, as they have with commercial properties. Consolidation of ownership under large entities - as we've already seen to some extent - would allow owners to simply squat on properties, perhaps renting then out. Who knows what happens to the algorithmic rent fixing lawsuits, that might have brought those costs back to Earth a bit, after this year's electoral red wave.
A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask. There is not enough labor to build more units at any reasonable rate, so it'll be a slow burn as the system reaches equilibrium over time (new housing comes into the market when owners must sell, demand destruction due to pricing). Due to demographics, a lot more housing could be satisfied by smaller units accounting for reduced forward looking family formation, but the challenge remains in sourcing labor to build these units.
With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
https://www.voronoiapp.com/demographics/Over-Half-of-Househo... ("Over Half of Households in the U.S. Don't Have Kids")
https://www.fanniemae.com/research-and-insights/perspectives... ("U.S. Housing Shortage: Everything, Everywhere, All at Once")
https://www.fanniemae.com/media/45106/display ("Fannie Mae: The U.S. Housing Shortage from a Local Perspective")
https://www.marketplace.org/shows/marketplace/the-housing-se... ("APM Marketplace: The housing sector droops under a labor shortage and price hikes")
https://www.businessinsider.com/baby-boomers-housing-wealth-... | https://archive.today/OsNgL ("Business Inside: Baby boomer homeowners got rich from skyrocketing house prices. Now they can't find retirement housing.")
https://www.bloomberg.com/news/articles/2024-09-18/us-faces-... | https://archive.today/Lyr5t ("Bloomberg: US Faces a Deficit of 6 Million Workers in Less Than a Decade")
https://www.axios.com/2024/06/27/labor-shortage-workforce-ec... ("Axios: Labor shortages are the new normal")
https://www.axios.com/2023/08/27/labor-shortages-air-traffic... ("Axios: Labor shortages plague high-stakes industries")
https://www.axios.com/2023/05/08/us-labor-shortage-older-wor... ("Axios: Why labor shortages could be here to stay")
Never say never, but yes, agreed. And that shortage depending on how it’s calculated may be more pronounced if we look at where people plan to live in the future. Central Ohio where I live is on track to gain in population while the state as a whole loses population. A house in a rural county doesn’t necessarily count/help, even if it’s included in official “here are many houses we have” statistics.
Home builders, especially with a risk-free 4% return today, do not have any incentive to build “cheap” or “affordable” housing, and as material prices continue to increase because there are 330 million people in America who also want those resources, new builds will have to continue to increase in price and perhaps decrease in quality, depending on how much oil goes into the construction of the house. Home builders, absent clear evidence of industry collusion will simply increase their profitability and will not build ‘starter homes” or “affordable housing”.
We can address the issue in a few ways, for example removing artificially limiting zoning practices, generally speaking, or perhaps the elected government can just pay for cheaper housing, or we can craft good legislation.
But on its own I don’t see a good catalyst right now that will cause home prices to “correct”* without a treatment worse than the disease (economic depression or global war or something else that is otherwise catastrophic).
* The term “correction” is popular but misused. The current price of an asset is always correct. When an asset decreases in price, that decrease is no more correct than a corresponding increase in price.
Great points, great comment. An additional measure to solve for this would be by making remote work a protected labor right (assuming it does not overly burden the employer and such), so workers can move where the housing is, or the housing is cheap. But we'd rather let old, status seeking folks at the top of the corporate ladder "show workers who is in charge" and maintain control while workers get extracted from for higher than necessary rent or mortgage payments near an office (where housing is in demand but very slow for additional supply to come online, if it ever does at all).
https://news.ycombinator.com/item?id=39037589 ("HN: Remote work doesn't seem to affect productivity, Fed study finds")
https://www.stlouisfed.org/on-the-economy/2024/nov/why-do-wf... ("Federal Reserve Bank of St Louis: Nearly half of people working from home — who moved to a different state — moved because of housing.")
People argue about paperclip maximizers that don't exist yet while being unaware of the one they live their lives in today.
Thanks - back at you!
> A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask.
I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".
For NZ, this doesn't hold up when looking at actual statistics.
- Prices rose x4 between 1995 and 2021 (inflation adjusted).
- The total number of households to total number of dwellings remained relatively unchanged over the same period.
- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).
Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).
I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).
US institutional ownership is too low nationwide to be material compared to new housing build rate when considering overall supply shortage. Of note, there is institutional concentration in certain local markets, which diminishes purchase supply in those localities (and potentially contributing to price level firmness in those localities).
https://nlihc.org/resource/gao-releases-report-institutional...
https://www.gao.gov/products/gao-24-106643
https://www.census.gov/construction/nrc/pdf/newresconst.pdf
Thanks.
When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.
Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.
This is a misconception that gets perpetuated because of a conflation of a shortage of physical housing units (which does not exist) and a shortage of affordable units (which does)[1]. This shortage is highly local, as your Fannie Mae sources discuss; it is best characterized as a mismatch between local resources and opportunities. This suggests that it's not merely a matter of market failure, but additionally (if not principally) one of municipal mismanagement.
The solution is already known, as it has been executed successfully in many places, including Singapore, the UK[2], and the Soviet Union: the government builds units directly and either sells or rents them according to affordability rather than cost. This will destroy housing as an investment, which would certainly have knock-on effects, but in terms of solving the problem at hand - "Are there enough places for people to live?" - it's adequate. Chalk up any resulting difficulties as a redistribution of the externalities of letting the problem fester for so long.
>With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.
Please see GP for examples of situations where just that exact scenario happened (China, relevant because of the potential for financial contagion) or almost happened (the rest). It's unwise to bet the labor market on the ability of officials to pull novel remedies out of thin air every time a systemic threat appears.
[1] https://www.tandfonline.com/doi/full/10.1080/10511482.2024.2...
[2]https://www.youtube.com/watch?v=jZpLiJdIGbs
Every time there is the potential for a correction (2008 being close to mind) the government just hands the banks a ton of taxpayer money because they're "too big to fail".
So I wouldn't expect a correction until the US is unable to borrow more money or defaults on its debt.
Much like climate change it will already be too late by the time young people have the power to change it. So I'm not surprised many of them have sort of checked out from the "spouse/house/kids" grift/grind
This is all well and good but as someone who just went through a renovation, the cost of labor and materials is astronomical. Yes the land is expensive too but it’s not like it was free to get construction crews out either.
So while it is a financial asset, the cost is still tied to the cost of physically constructing the thing.
The part I found strangest about the house-buying process (in 2015) was that the real estate agents, mortgage brokers, etc., had a fundamentally different conceptual framework than we did. I thought we were looking for a place to put our stuff, where we would stay basically permanently. They were assuming we'd sell it in 5-10 years. I didn't understand this unstated premise at first and it led to some confusing moments.
Another short answer is that actual inflation could be much larger than the "official" inflation numbers use for these calculations.
> The short answer is that a house is no longer a place to live, but an abstract financial asset.
This line of thinking is commonly repeated, but it fails to take into account the old “location, location, location” thing. If you bought a house that was once in the middle of farmland 30+ years ago but now that house is on (let’s say) two acres of land in the middle of a coveted suburb of a large city where the average house sits on .2 acres, why _wouldn’t_ that house (or more accurately, the land) have appreciated greatly in value?
A LOT of these houses that “boomers” bought were once out in the boonies, and now those places are desirable, developed areas.
Henry George is screaming from his grave. We know how to fix these sorts of problems but we will never take the steps to actually fix them.
There should be no tax on selling a primary residence if and only if you buy another primary residence. Otherwise tax it like capital gains or higher. Make it economically unfeasible for people to own more than one house. I’m generally a capitalist but i’m okay with this because the housing situation is ridiculous.
Hedge funds and other corporations should be disallowed from purchasing single family homes. Period.
This sounds interesting. Where is it typically put into practice?
People don’t have the right to simply live in highly desirable areas for very cheap.
It is time for people to accept that if they want affordable housing they should look at some lesser developed areas in the country. Otherwise it’s pay to play.
People don’t have the right to simply live in highly desirable areas for very cheap - I find that it's less people can't afford to live in their dream locations as people can't afford to live where their jobs are, or within reasonable commuting distance.
And the jobs? The amenities that make areas highly desirable require workers who can actually commute to them.
It's a game of chicken. The people who live in these areas and expect to be served without complaint either acquiesce to density and lower property values, or risk (occasionally fiery) demonstrations against the unfair and unworkable situation. Their goal is to keep the game running, so that everyone else doesn't decide on one or the other end state. Essentially, "Highly desirable areas that are too expensive for low/middle-income workers," is a transition state.
In my city, the homeless are offered free housing that is away from the downtown area. They do not want it. Preferring instead to camp in downtown where they want to be.
Cheaper housing is available if people are willing to move to less densely populated areas.
At the end of the day, housing is all about supply and demand. Like most other things in life. There is not enough supply in the areas where people want to live. And no country has been able to figure out a solution for that problem.
> And no country has been able to figure out a solution for that problem.
Minor nit, the "solution" is well known, it's to increase supply of housing by removing zoning regulations and letting the increase in demand pull more supply out of the market. It's just not politically popular, everyone is for it in the abstract but campaign against multifamily homes being constructed in their backyard. Basically, we know how to build homes but do not know how to convince people that neighbors who can't afford McMansions are still desirable neighbors.
What about when housing is equally unaffordable in the less desirable areas? Keeping in mind that wages are probably less in those areas.
Also, less desirable areas are not necessarily constructed to be any more functional or sustainable, so why should we promote that? Areas that are "less desirable" in my city are swathes of oversized, copy-pasted houses massively spaced apart with near zero amenities. 100% car dependent. Near-dystopian land use, really. We don't need more of that. Instead, I'd much rather take amore sustainable approach to housing across the board.
What happens in society when every city is filled with the retired rich and zero actual workers?
Look at Aspen, CO - the indigent commute in from far away because they are priced out and disposable.
In places like Lisbon and Milan, the rich live in the center and the young folks live on the outskirts. The outskirts then become trendy and cool and filled with bars and restaurants and cafes (can also look at Brooklyn, and now we are seeing a second Harlem Renaissance as well). Eventually the rich realize this and move to that place, and then the young people move again. But no matter what, the young people always end up living in the most desirable area because they commune with each other and create a desirable community in that place; meanwhile retired wealthy people are inherently uncool and consume more than they contribute.
The price of houses will fall and the price of basic services, food, etc. will skyrocket as people flee the stagnant cities and core economic activity moves elsewhere. It will never go this far of course (zero actual workers is an asymptote), but that's the way it will trend.
This is already happening in many neighborhoods in California. I imagine elsewhere in the US too. People who keep it running have to commute long distances.
There is nowhere someone can live for $200/mo, as they could in some lesser developed countries. The floor has been established by speculation, building codes, and minimum services. It sounds like a good idea to make sure all dwellings have electricity and running water, but when the alternative is a tent under the freeway, it's actually much worse.
been noticing this for years.
solar and starlink keep on improving. i continue to be surprised remote work communities arent commonly developing in scenic, non-traditional locations. it seems idealistic, but makes a lot of sense on paper
100%. I myself am waiting for less fringe "network states" to appear so I can join one.
We're past that and to the point of neighborhoods voting against any development and supply increase.
Would be useful to see the cost of just the land as well if thats possible. As others have pointed out, the size and feature expectation inflation has to be factored in here. The little "wartime 4" I grew up in north of Toronto was smaller than a lot of "garage-ma-halls" these days and didn't really have insulation. It was a regular feature in winters to get ice on the living room window. My "modest" (by today's standards) house would be a rich persons place in the 70s.
That kind of goes both ways, though.
I live in an affluent suburb in a rich city in a sleeper town just outside Toronto. My home was built in the past twenty years and is in a "McMansion" style neighbourhood. It's a relatively large home, but in many ways things have regressed.
Craftsmanship is non-existent. The kitchen cabinets look like Ikea specials with shelves held up by little plastic pegs. All of the various particle board doors are installed laughably poorly with giant gaps. Sound travels through the home with ease.
It's well insulated and has good multi-pane windows, but automation and mass production should bring a lot of that just with the passage of time. I would expect that all else being equal the same work should by better windows and insulation and so on than fifty years ago.
Regarding land value, it is interesting how in denial we are about land values. The city gives me property tax statements valuing my land at 1/10th the price of the dwelling...yet people are buying $1M homes on smaller lots and immediately tearing the home down to build new. More than a few cases of that demands that we completely upend our valuations.
There is an equation they use that might be biased toward improvements. In Seattle/King county at least they are gradually changing the equation to value land more and improvements less, so our property taxes have been going down each year even though our value is going up (since we are a narrow townhome on a small plot). This is to ultimately encourage more density and make it more expensive to hold unimproved land.
I think quality is something at least there is choice on. But even then, the lowest quality of materials now seems way above anything my 1940s war-time-four that I grew up in in Willowdale. It was just tarpaper "brick" over the frame. We didnt feel "poor" or anything as thats what all the houses were. I was lucky to buy my first house in 97 at the bottom of the market in Waterloo. An 1890s house on a 133x66 lot. House was absolute mishmash of "left over parts" as one contractor friend of mine described it. My wife and I saved up and did a full teardown in 2016 (again as luck would have it) at a low point in construction costs. My general contractor said it would now be 3x to do the same project due to labour and material costs. But, going through the process I could do anything I wanted. Fresh timber, or timber that was properly aged. Steel beams, or wood. You can choose "quality" it just is gonna cost. But that 3x jump (not even taking into account land costs) pre-covid vs post covid is.... eye popping.
Your windows likely would still ice up today, except they are double pane with argon or another gas inbetween the panes so they are comparatively insanely well insulated.
My garage (22x30) is over half the square footage of the house I grew up in. Which didn't even have a garage. Yard is three times as big as well.
The US M2 in 1950 was <$300 billion and in 2024 was >$20,500 billion (70x increase). The article is using an inflation estimate of ~13x. The author doesn't give an average but the top 3 states by population (California, Texas, Florida) saw increases of 65x, 39x and 44x respectively.
I think it is more likely that house prices have slightly decreased in real terms and they are tracking closer to the M2 as houses are assets not consumables. This gels with home ownership [0] which is generally stable or higher than usual, it doesn't look like people are actually struggling to acquire homes all that much. Especially since I expect household size is shrinking.
Most of the pain people are feeling is because of the insanity leading up to and flowing from the '07 crisis if the home ownership rates are good evidence.
[0] https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...
The wikipedia article you linked showed only a decline of 1% home ownership as defined, but mentions a massive decline in "home equity" down to around 34% owning the home outright - this means that people are struggling to own homes in the classical sense of the word "ownership" to me, and the ownership rates are being papered over by long periods of access to cheap loans.
The article isn't about how easy it is to own homes though; it is about whether the real price of homes is changing over time.
Article suggests it is, I'm suggesting that the CPI is an inappropriate index to use and I suspect the trend is - if anything - probably in the other direction. Relative to the money printing that has taken place, the real price of homes appears to have dropped a smidgen which is what we'd expect given technology improvements.
I do agree that houses are probably a lot less affordable. All that debt is expensive. But that has little to do with the real value of the house, it depends on how the financial system is architected.
If the real price of homes is increasing we would expect people to be able to afford them less, per your original comment. I am arguing owning less equity is equivalent to owning less homes in a highly financialized system with cheap credit access. I am not sure about your argument here.
My argument is that the CPI is an inappropriate index to use, it hasn't done a good job of measuring general inflation. My interpretation is that the price of the house is staying about the same (probably slightly down) and real incomes are dropping a bit faster than that (which'd be consistent with real incomes tracking metrics like energy availability per capita & the relative lack of capital investment in the US compared to Asia).
There isn't a particular reason why the real price of houses would go up. A house today is more or less the same good as in 1950, and technology improvements suggest that if anything it is probably easier to build cheap houses today than back then. And on the other hand, the money printing being done is entering into the economy through loans so it probably turns up first in things like house prices. I can imagine scenarios where the real price rose, but the more likely explanation for affordability issues is that real incomes dropped.
Keeping money supply the same in the face of a growing economy leads to deflation. Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill. What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?
There is no evidence that deflation is bad for economies. There is evidence that collapsing economies may deflate, which is different.
> Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill.
(1) If any economy ever has been killed by deflation, you should include it on the the Wikipedia page for deflation. The list of economies that experience deflation [0] is almost a whos-who of places I'd be happy to live - it is often a precursor to economic success.
I don't argue that it is a good thing, but inflation is actually a way to kill an economy because it can get completely out of hand and regularly does. Deflation isn't and doesn't.
(2) It doesn't make it any harder to get a loan. When making a loan, you estimate the real return (say 2%) and adjust for inflation/deflation. So if there is 1% inflation you loan at 3% and if there is 1% deflation you loan at 1%.
Deflation does put a floor on what people will loan money for. The argument that this is a bad thing is very questionable indeed - why we should want people borrowing investing in low-return activities when they could be not-borrowing and resources could be going into high-return activities is a mystery to me. Lending money doesn't make real-world resources appear out of nowhere.
And again, lending can be good or bad so I'm not arguing against it in the abstract. But encouraging lending in marginal and risky gambits is stupid, it causes regular collapses and seems to me to be be making society relatively poorer. People don't save enough as a starting point, end up broke in their retirement all too often. They shouldn't be punished for putting money aside on top of that.
> What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?
The election is behind us, people can stop with this silliness. The US economy is obviously not growing. Countries don't put a Trump in charge twice when economies are growing. Global hegemons don't get overtaken by China when the economy is growing. The US has very visibly not been growing strongly for the last decade, it has been papering over cracks with money printing. Maybe that is fine, growth has to end sooner or later.
[0] https://en.wikipedia.org/wiki/Deflation#Historical_examples
Not at a computer due to thanksgiving so unfortunately can’t get in depth here but as far as deflation being horrible look at the 20 years after the civil war. Deflation is very rare due to everyone realizing how awful it is. 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. It is better to not loan at all than to loan at 1% because of that. Exceptions are bonds from massive institutions but small business is absolutely fucked.
> look at the 20 years after the civil war
That time period was the best performance of any economy in history up to that point and has been largely unsurpassed in "Wow!" factor until the miracle that is modern China. The post civil war era was when the US established the foundations of the economy that became globally preeminent for a century. If that is the economy being killed, maybe we should kill more economies.
This sort of thing drives me crazy. I ask for examples of deflation being a bad thing and I get "well there was the time the US became a global economic colossus, that was pretty bad".
Fun youtube video for reference: https://www.youtube.com/watch?v=kFl4YdvDE_8
> 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money.
1) You missed the argument. The argument is that if a loan doesn't make economic sense then it is stupid to adjust the entire monetary system to encourage people to do stupid things.
2) The argument is just wrong. I'd lend money at 1% if I was making a real return.
But you wouldn’t make a return because some loans default and the person you pay to screen debtors costs than you make. At the end of the day your business would have less money than it started with.
The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
> But you wouldn’t make a return
That is absurd. The premise here is there are different nominal scenarios with the same real return. It isn't possible to make the same real return and be worse off. The risk of default hasn't changed.
If you think 2% real return is too low you can just pretend I chose a higher number. It doesn't change the argument.
> The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
So your position here reads a lot like the economic situation that led to a civil war was the good part, but the era where the US set themselves up and overtook the British and Chinese empires was a good example of an economy that is best described as "horrible" and "killed".
Are you sure that this is the best example you have of deflation being a bad thing? You might want to pick a different example - maybe one from an era that wasn't characterised by rapid improvements in economic power leading to a century of commercial dominance. I haven't even got to the point in the thread where I bring up that this horrible era was just after, you know, a civil war. It might be that that was the reason people felt badly off rather than goods and services getting cheaper in nominal terms.
There is a floor for nominal interest rates below which operating the business costs more than the business makes. That floor is higher than 1%. We were not too far from it during Covid. If we had deflation real interest rates would have to increase because nominal rates can barely go down. Real rates going up is again very bad for the economy.
> I think it is more likely that house prices have slightly decreased in real terms and they are tracking closer to the M2 as houses are assets not consumables
Still means homes has became much more unaffordable than in the past since you have to use your income to pay for the house.
Yeah homebuilding got absolutely murdered due to the financial crisis. 2009 was the lowest number of new builds since 1959 and we haven't yet reached the 2005 peak.
https://ipropertymanagement.com/research/housing-starts
[flagged]
I don't think it leads to productive conversation to simply say that people who think there is a problem here are entitled.
If 101 people want to move to a city that has 100 houses, and they are prevented from building more, then house prices will be bid up as high as they can afford to pay.
The only solution is to legalize building more homes, especially at higher densities that allow more people to live in desirable locations.
Upzoning is the only way, most of the classic neighborhoods we think of are just completely illegal to build now.
There has been incredible inflation for items that cannot be exported in the US. Think healthcare, education and housing. Things that could be sent overseas like TVs, Computers, Clothing has seen their prices deflate. The combo of the two is what is called inflation but the later hides the fact we have increased our money supply incredibly since 1950 and that will show in the things that did not find a way to get cheaper.
I only want to add that in 1950 a significant number of homes still did not have indoor plumbing, and I'd guess that a lot of existing housing stock was small square footage. I don't want to say there wasn't housing inflation, but I do think the the nature of housing stock has changed too.
> I do think the the nature of housing stock has changed too.
Ultimately it doesnt change the fact of affordability unless one can also find homes w/o indoor plumbing to make up for inflation.
Hedonic adjustments are important but, as you point out, have issues.
But, affordability isn't represented well by inflation, either. Median family income in 1950 was equivalent to $45k today; the actual number is $100k.
A big part of the issue is that workers stopped benefitting from productivity growth in the mid-1990s. That's what's really made the housing crisis particularly sharp.
>A big part of the issue is that workers stopped benefitting from productivity growth in the mid-1990s.
Distributing the benefits of increased productivity to the workers was never part of the capitalist motto. That was what socialism was for.
Capitalism seems to have done a far better job at that than socialism despite not being an overt goal though
It has, because people are greedy and self centered and capitalism exploits this better. Nobody's gonna work harder and smarter if they know they'll get the same outcome as those who don't, as per socialism.
That's why Europe is falling behind the US at tech innovations. People aren't gonna put in the risk, the grind and the hours if they'll get the same living standards as a unionized tram driver.
Pray tell, which tech innovations?
In a lot of states there was a more than 3x increase in price which I think is hard to justify as a difference in stock. Median square footage for homes now is only 1835 square feet (https://fred.stlouisfed.org/series/MEDSQUFEEUS). There are also a lot of arguments like how quality has gone up but building technology has vastly improved. Either way that the price increase is mostly a function of housing quality doesn't seem convincing to me (I've seen really garbage houses go for crazy amounts recently).
One example is my grandparents' home was built in the 1930s. It's a small home but in a good location and they said when they were younger it was worth ~200,000$ (I don't know the exact decade they were talking about here but from context it was somewhere in the 50s to 70s). The literal exact same house is now worth around 3,000,000$. The house now needs a lot of work (it actually decreases the value of the land) but the price is still 15x higher.
> It's a small home but in a good location and they said when they were younger it was worth ~200,000$ (I don't know the exact decade they were talking about here but from context it was somewhere in the 50s to 70s). The literal exact same house is now worth around 3,000,000$. The house now needs a lot of work (it actually decreases the value of the land) but the price is still 15x higher.
If this is true, and using 1960 as our middle of the road, then this isn't exactly "egregious". 200k in 1960 is 2.1M today just accounting for inflation. If we use 1950 it's 2.6M and if we use 1970 it's 1.6M. Now sure the house needs work, but I also. bet the area even if it was "good" when they built it in the 1930's how many more people are living in the same location now all vying for the same plots of land? People often gawk at what their parents or their grand parents paid for their houses, but rarely consider what living there would have been like 30 or 60 years ago. I have some relatives that bought a house outside a developing area about 30 years ago that's probably seen an easy 3-4x increase in value (of which only 2x would be accounted for with inflation. But the difference between then and now is that when they bought that home, it was 1 of 6 on a street in the middle of nowhere, surrounded by fields and undeveloped land. There was a single main road that ran through "town" about 5 minutes away that had 2 gas stations, and 3 fast food stores and a grocery store. For anything else you were driving 20-40 minutes into the nearest city (or around). They commuted every day 45 minutes into the city. Today that same area is bursting with new homes, there's now 2 exits / entrances onto the highway within 10 minutes of their house, the main street is jam packed with businesses and filled with strip malls and shopping centers with multiple grocery stores, and a good chunk of the main "national brands" you might expect (Home Depot, Lowes, Walmart, Gamestop etc). And just about anything they don't have along that main street and it's adjoining centers can be found 15 minutes away in the shopping centers and neighborhoods that sprung up between them and the city. In short, the house they live in today is in the sort of place some folks looking to move into a thriving and growing area would want to move into, and the house they bought 30 years ago was in the sort of backwoods sticks that such people would be avoiding as "too remote".
I never said that all or even most of the change in price is simply a function of changes in housing stock. I simply stated that changes in housing stock is something you must account for.
Also, your example of your grandparent's home is long tail. Some places have seen skyrocketing prices that have everything to do with the location (and zoning restrictions limiting stock of housing in area). Example would be Santa Monica. Lots of coastal towns in California. But median, not mean. Think about all the one-room shacks that used to exist. You don't see them anymore because ... why would someone keep them around now? The homes that survive are the ones that retained enough value to make it worthwhile to keep up/restore.
Here in southwest Virginia, an empty lot near town might be about $40k. A house built on that will have multiples of that value.
In our area, it doesn't matter what shape the house is in. Most of the buyers seem to be corporate buyers, and they often gut and rebuild.
They pay cash, too, which many sellers like.
If it was significantly cheaper, I'd do my own plumbing. Wouldn't you? Much better than having no home at all. But it's not even an option - I'm required to pay for the plumbing.
I'm curious how much the equivalent modern home would cost in 1950? Also the medium salary has almost doubled. I suspect modern homes are a much better value although more expensive.
Depends if it's a liability or not. For many it's like a big savings account. The bigger the better. Inflation protected. You can't trust the government not keep printing more and more money and diluting your after tax savings. But house prices are linked to physical structure. Government can't just print more houses out of thin air. So they appreciate against inflated paper currency which they do just print out of thin air sometimes.
Also, having owned older built Canadian houses, they're a constant maintenance. Many were not well designed and don't age well (wood construction). So for them to still appreciate tells you how much government has been busy printing. Where does all that money go? I sometimes wonder.
Indebted servitude to banks, a good chunk of a lifetime of work to pay off one of these mortgages. And waging so government can take most of it in taxes. I'm not sure if this is sustainable much longer without a revolt in Canada... at least younger Canadians may one day decide it's not a good system and turn the tables. Average house price in Canada is like 700k now, average wage is like 54k.
It needs to account for the difference is sizes. Average square footage in 1950 was just under 1000 sqft; in 2024, it's more like 2300.
In Texas, for example, the inflation adjusted cost per square foot was $79 in 1950, and about $130 in 2024. Still a steep rise, but a 60% jump instead of the 285% without considering square footage.
I think this is largely because of zoning regulations forbidding multifamily homes. If you have to build only a few single family homes on land per zoning regulations, you maximize your profits by building really big homes. But it's hard to separate out how much of it is zoning versus genuine consumer preference for larger homes at larger costs (+ easy access to cheap mortgages for many years) because of the ubiquity of these zoning regulations.
It doesn't matter if you aren't shopping by size. I would like a house (or a generic dwelling unit, but let's call it a house). I don't care the ones today are twice as big as the ones in 1950 - both have the same value to me.
Prices from 1950 is relatively useless because they don’t count the effect of women entering the workforce in the 1970s and 80s. Once women were working en masse in the 1980s house prices spiked because there was now 2 incomes that could be used to pay for the house. This inflation is seen in the data but you can’t see it from this map.
The higher house prices get the more desperate people are to use every cent to buy a house. That’s why things like mortgage tax deduction is useless because that money immediately gets factored into increasing the amount of mortgage you can get and spikes the house prices.
It’s fascinating and sad because we are at the stage now where hedge funds are driving up the prices of single family homes so that millennials and gen z become renters for the rest of their lives.
Makes you wonder how much of that added productivity from women workers was sucked up by the wealthy increasing the disparity.
Given that even in the least attractive locations, home prices have grown around 100 per cent, we can probably chalk those 100 per cent up to general improvements of homes (size, appliances etc.) Neither homes, nor cars, nor planes are the same as they were in 1950.
The rest is the "true" growth.
I believe these kind of data is slightly misleading, because the price is directly affected by everything else that surrounds building a house these days.
Just some examples zoning/land use, building standards codes (electrical, plumbing, mechanical), permits, compliance, inspections, water, sewage, etc etc.
I am not advocating a wild west for building, but rules & regulations always increases and with that comes more costs.
This of course also drives higher rents, and if you think they are high now...
Anecdotally, the biggest driver I've seen in California is the large pushback against multifamily housing and large apartment buildings. In many of the hot real estate markets they would be able to get so much more value out of a parcel with these larger buildings but are forbidden to build them per zoning regulations.
I wonder how the price per sqft has changed, anyone have that ?
What kind of inflation? Bc inflation numbers are artificial and are often doctored. Like here in NL where they conveniently adjusted the "basket"
Inflation figures in all manner of goods are available, at least in the UK, I assume in your country too.
A "basket" is chosen as a realistic example of how a typical person spends their money. Your personal "basket" is going to be different to mine.
If you don't think the typical basket is representative, then be honest and come up with your own basket and work out what your personal inflation is.
Some will have inflation far higher, others will have it far lower, that's the nature of a generalised number.
None of this means that the figures are "doctored"
You don't have teams of economists go over your grocery list to minimize inflation?
Next you'll tell me you can't eat iPads.
It has an apple on it
Houses can be a good investment or they can be cheap.
A good investment outperforms its alternative asset classes. We chose policies that ensured they’d be a good investment. For housing to become cheap in our lifetimes, existing homeowners will need to experience an enormous capital loss.
This has been exacerbated by the long-term decline of interest rates. Sticker price and interest rate are roughly inversely correlated since the monthly payment a prospective owner can afford is roughly fixed. Over the past fifty years, boomers have been able to regularly refinance their loans into lower and lower interest rates as prices skyrocketed. This also made it easy to move since you could trade up on your home’s increased value relative to the remaining mortgage.
That pathway isn’t as available to millennials who bought at sub-4% interest rates, and it likely never will be.
Should also also adjust for price/sqft and energy efficiency/insulation savings, lack of plumbing in some and ~15% without electricity. And also externalities of 1950s air conditioning designs that would have depleted the ozone by now if we stayed with them, and things like lead paint causing mental development issues.
Median wages are up since significantly since 1950 (most stagnation was after 1970s), and house building is expected to be heavily affected by purchasing power parity, using a heavy portion of local labor.
Occupational deaths in construction went from 8 per thousand workers in 1950 to below 2 per thousand today, but I couldn't find numbers for residential. In the 1950s, if there was as much highschool attendance as today, out of each medium sized highschool you'd expect a higher than 50% chance of one of your peers to eventually die in a construction accident.
I'd love to see this for Canada; expect it's even more striking.
I suppose what this illustrates is that, while the CPI does include rent (or “owners equivalent rent”) in its calculation, the equivalent rent is either not representative of the median home, or house prices have grown much faster than rent over the past 75 years… and yet the apparent popularity of being a “real estate investor” seems only to have increased, which suggests to me that the rent/buy ratio has gotten more favorable, not less
None of the above, the disconnect is that median income has risen (much) faster than inflation in the last seven decades. See my comment elsewhere. The whole post is an exercise in failing to recognize confounding variables.
I may well be completely wrong, I am not a social scientist or involved with the housing market; my sense of it is that building has been ever harder, while demand - more people with more money - has continued to rise.
Prices, accordingly, have risen.
I think what we see here is primarily a function of constrained supply.
It's almost as if supply has increased slower than demand.
They’re making too many people.
Using the Tor Browser, I kept trying "New Circuit" and it eventually showed the page. It took ~6+ tries though
Does this account for sq ft? Mobile site isn’t easy to read.
Signs of a healthy economy and growing middle class!!
Or a huge warning sign of the wealth disparity between the rich and lower-income group - it's a reality that lower middle-income group today cannot afford to buy homes; they are lucky if they can inherit one.
That's not what the data says. https://www.pewresearch.org/social-trends/2020/01/09/trends-...
Income and wealth inequality is increasing, not decreasing. Meaning people's quality of life is decreasing.
Can this be compared to the S&P 500?
No, the S&P500 wasn't formed until 1957
You could use the Dow though. It varied from 2700 to 2900 in 1950, and is now about 45,000, so about a 16x increase, while inflation over the same period has been about 30x. However the index price doesn't account for dividends, so total return has been much larger.
It's tricky to say if the Dow is really a good measure across time like that. Exactly two of the companies on it were there in 1950; the other 28 were added in 1976 and beyond. It's not clear if the price weighting really accounts for that much of a shift in composition.
Now the next question is why? Why the houses prices have surged in the past decades. And why is it a worldwide situation (at least in developed countries)?
too many people and not enough land in areas where people don't have to drive 3 hours to work.
Want pricing to go down then we need to build more dense housing even an hour drive from the city. The days of wanting a big backyard are coming to an end for most home owners.
> Want pricing to go down then we need to build more dense housing
You need mass transit and transport integration. House density can only move you so far (and it's not very far).
Luckily, density is what makes mass transit viable. It's more cost effective to run a driverless metro every three minutes in an urban core than to run a mostly-empty bus once an hour in a distant suburb.
> Luckily, density is what makes mass transit viable.
Up to some point, and it's not even that high...
What really makes mass transit viable is integration.
What if we put the jobs closer to the people instead of making the people get closer to the jobs? Just drop a big ol’ tech park in the middle of Oakland?
Who is the “we” in that sentence? Is there a Central Planning Bureau that forces “jobs” to be placed in certain locations? What jobs would you place near the people, whatever that means?
I often see comments in the theme of "dense housing is the panacea."
You can't really run power tools in dense housing, correct? Or fix stuff yourself? Sounds awful.
I was born, raised, lived in dense cities. I've lived in semi-suburban life as well. Unless you're into some hobbies that requires such tools, you just never use it? And when you have to... you just use it? I live in an apartment building in a city, and once a month or so, during daytime, people use tools and it's no biggie.
To each their own though. I definitely grew to understand that if someone was raised in rural or suburban life, it would be extremely hard to adjust to hardcore city life, and vice versa. But I don't think we should be blocking build ups for one, if there's demand.
We just bought a place in a dense area of The Hague, and I run a table saw + shop vac frequently as we renovate. No complaints yet, just keep my hours between 10-6. Lots of other neighbors doing similar stuff too.
There are lots of benefits to density. Our grocery store and day care are less than ten minutes away on foot, because there's a ton of people so we can support these kinds of businesses (also weed, hair salons, bars, cafes, boutiques, secondhand stores, restaurants, play cafes, etc etc.)
More people want to live in the city than ever in the history of humankind for various reasons. See gigantic rental price drops in mid-2020 when people briefly thought city-life will never return to normal. Housing prices mostly went up during the year, but they're much stickier than rental and that flight didn't last long enough for people to sell their homes (well, it's much easier to drop your rental for another, than sell and buy somewhere else).
When demand starts slowing down or supply is caught up (it's happening everywhere outside of Tokyo in Japan, and somewhat in HK and other places as well), they stabilize or go down.
New home sales are at a near 30 year low at this very moment, at least in the US. No one is really buying, but prices are still inflated drastically. The people that -are- buying homes, are people that already have them. Houses in rural and suburban areas are also super inflated as well. It's not just a city phenomenon. There is clearly something very broken in the market. It really comes down to NIMBYs, entrenched interests and ZIRPs massive distortion of the market that locked a ton of people into a low rate.
Many current homeowners have their wealth in their home, they want it to (in some cases) to continue to out-perform the S&P 500. Since they live there, they bully the local governments to not allow more building so there is less supply to compete with their asset. State and federal agencies are going to have to step in at some point to incentivize local governments to upzone. Not even mentioning this isn't remotely sustainable as a tax base in most instances, because subdivisions and infrastructure to deal with the sprawl this a bill that will come due in a harsh way making higher property taxes inevitable pricing out many of the people that were in. The #1 reason people are fleeing California and New York is due to costs...and in turn they are about the lose electoral power in Congress and Electoral college.
People who intend to continue living somewhere don't care about the price of their asset per se (they're not going to sell it), and dense zoning tends to increase land prices anyway. Opposition to density is about quality of life.
In a related phenomenon, people will pay more to be around better neighbors (which you can see reflected in price differences across similar houses in similar areas but in different school catchment areas). It makes some sense that people will pay as much as they can to be in a better area with better kids when you look at the state and direction of public education. If you can't afford private school, that's basically your only lever to try to buy quality. If you can, you still have a tradeoff that you could spend ~13k/yr/kid on tuition or add 200k/kid to your home budget to live in an area with better public schools. Living in a more affluent area carries other QoL benefits as well of course.
Yeah I agree with basically every statement. But house prices are extremely sticky with 30 year mortgages. Less stickier in Canada because of 5 year mortgages. There’s actually a big drop in rental prices in my very-in-demand city. SFH still sell like hotcakes though. Since rates might be coming down again, it’s incentivizing people to move and lock in for 5 years.
My take as someone living in the northwest and witnessing exponential growth over my lifetime:
That is easy:
1. bigger houses
2. a lot more equipment in it: electricity, plumbing, AC
3. zoning restrictions reducing supply to increase the value of existing houses; owners benefit from that, local government benefits even more from higher property taxes and also from permitting taxes
4. increase of demand due to different factors, like lifestyle changes (back then almost nobody lived on their own in a house, single people were very rare by comparison), unequally distributed immigration and internal migration to some cities)
5. very different and more expensive safety requirements for new houses
6. more expensive workforce building the houses
7. huge reduction in self-building houses and price gouging by the developers
and more
> 1. bigger houses
also 300 sqft condos.
sqft per person hasn't changed much since 1980s.
It's not just "developed" country problem any more. It is also happening in developing countries, like India and Vietnam for example. In India, real estate prices have sky rocketed over the past 30+ years. Part of this is because of the rise of property development firms. Government encouragement too has played a role, I think, because construction (and the construction industry) does create a lot of jobs. Real estate is also a vehicle to hide black money, and that's another factor here in India.
(I wanted to strangle Trump when he once commented that real estate in India and other parts of Asia, are still "undervalued"!)
Should have say "high-income countries" instead of "developed" countries. Thanks for pointing that out.
Had no data for low/middle income countries, but thanks as well for reporting that it’s a global issue.
Doing median price over CA makes no sense
It makes a lot more sense than doing the mean.
The typical home is a reasonable basis for comparison.
California is so big and vast - it’s like 6 states.
All the high prices “now” are concentrated on the coast - where was that wealth 80 years ago ?
Homes now are probably 3 times as big as before
These first two statements are the exact reasons one would choose to use the median instead of the mean.
Now do price-to-income ratio over the same time.
10x-15x+ price to median income is common in many desirable areas. Completely ridiculous, but also what you might expect after a decade+ of QE, asset inflation, and the last four years of core inflation.
That's because "desirable" areas aren't fixed over these timescales. Today's gated suburbs in the Bay Area were literally dust bowl farms in 1950! Like, literally Steinbeck wrote a famous novel about it.
Steinbeck's books were mostly late-30s, no? Which one are you thinking of? Grapes of Wrath is mostly around Bakersfield, Cannery Row and East of Eden are Monterey/Salinas Valley. I'm not sure of anything set that far north.
I have family photos from back in the 50s showing lots of good orchards in the Bay Area. Certainly no dust bowl stuff. If I remember correctly, my grandparents bought their 5BR tract house in Santa Clara in the mid-1950s for somewhere around $15 or $16k, which was ~40% more expensive than the median California house back then. The Bay Area has always been expensive!!!
Ooph, HN is being HN. The point is that California was not remotely exclusive or expensive in the mid-century, it was a target of emigration from the rest of the country for its relative affordability and low density. The point to citing Steinbeck wasn't to claim he wrote about Silicon Valley in particular, it was to show that this effect was well-known to basically everyone at the time.
I mean, no, "good orchards" aren't desirable homes, by definition. There's at least an order of magnitude delta in real estate price between the two! And sure, your family found a very nice neighborhood in the south bay. That doesn't mean that South SF wasn't a dump or that Fremont wasn't completely uninhabited.
Because my upthread point was, and remains, that you can't look at the history of "desirable homes" over a 75 year scale because by definition desirability changes much more frequently.
To say nothing (apparently) of decades of allowing the wealthy to absorb most of the created wealth of the last few decades.
I think about this and wonder if it's supported by data.
I wonder because no one speaks about the poverty created by the last few decades, which might contradict what you wrote, or might not. I also wonder where one could track creation of wealth and creation of poverty.
(living outside income, for example, i think of as creating poverty)
Still not that bad comparing to other countries, like those in EU.
The longest history I could find using FRED data is this: https://fred.stlouisfed.org/graph/?g=1BPi3. So median house price to family income rose from 2.9 to 4.3 between 1963 and 2003, based on the series https://fred.stlouisfed.org/series/MEFAINUSA646N and https://fred.stlouisfed.org/series/MSPUS.
Getting long historical series of economic data is often a challenge due to changes in definitions and sampling methodology over time. FRED has a bewildering array of both income and house price series, all with subtly different definitions, most with pretty short histories.
Yes, comparing to median household income is the right way to do this. CPI isn’t actually useful in this case.
TLDR; it's the density death spiral.
The most expensive part of a house is the land it stands on (which also determines the building codes and the local labor price).
This is still a bit spun though. Median income has risen even faster!
Some quick unverified googling says that in 1950 US Median income was $3300, and that inflation since 1950 has been a 10.89x increase. US median income today is $80k.
So indeed, housing has gotten a lot more expensive in real terms. But we've all gotten richer, and on average A US Household is spending less of its income on housing today than in 1950, not more.
California, it's true, is sort of out of control. But that's clearly a local thing in two metro areas, not a problem with the economy as a whole.