Yes, that's the accurate horror of the situation here in Australia!

Even a slight economic advantage is being multiplied if you take advantage of housing and stock markets.

Just having comparable incomes and earning power is no longer enough to give you economic parity with your friends and neighbours. Which is not a good for overall social harmony :-/

Wage stagnation has meant that if you don't have real estate, investments and additional contributions into your super you are going to be in an entirely different wealth class to your peers once you hit your 50s and 60s.

This may not be a fun ride for many over the next 20 years...

Raw land is cheap. Housing codes are what keep people like myself out of the housing market. If I could just dump a yurt on the land, or a cabin like our forefathers, then housing prices would be a total non issue. But a bunch of selfish NIMBYs are so scared of the poors building a yurt instead of a 2000 sq ft brick house for two people and a dog, they'll never allow it.

Kinda. If I buy a 1M home at 2.5% interest, I have a $4,000 monthly payment. If rates go to 6%:

- Housing prices plummet to $600,000, assuming people are willing to spend the same per month.

- My monthly payments are identical to had I bought at $600k at 6%. If I stay there, I'm not much worse off. It's harder to pay off the home quickly.

- If I move out, and I rent out my home, it covers monthly payments approximately exactly.

The only time the owner is in danger is if:

1) They need to move.

2) They can't rent out the original property.

Rent works out since while the home is a liability, with 6% interest rates, the 2.5% loan is an asset.

As a footnote, what I expect is actually happening here is people are anticipating high inflation. If that happens, this isn't a bubble. Real housing prices might be fixed, at least looking out a few years.

I have a ~million dollar fixed rate mortgage. If rates go up, I’ll be sad that the value of my house went down. On the other hand, I’ll be very happy to have a large fixed rate loan. Let’s call my mortgage rate X%, and let us assume that rates go to X+5. Then I can invest money to earn at (X+5)%, which means my loan is essentially a $50k/year annuity. My only wish would be that I could make the loan even bigger.

On the other hand, if the fed decides to allow inflation instead of raising rates, then the value of my loan will melt away and my home’s price will keep going up (that’s what has happened so far).

The value of all yielding assets is tied to interest rates. The risk free rate is a bench mark for measuring any type of return, so any time you change that you’re going to influence the valuation of everything.

There’s also a very clear distinction between the idea of housing and home ownership. People need a place to live, they don’t need to have a property investment. You and I need healthcare, but neither of us need to own a hospital.

Home ownership is not an essential need. People aren't excluded from housing because of that risk. They can just rent from a landlord who's taking that risk themselves.

> if you take out a $1m loan and then interest rates go up, you're still liable for the whole $1m even though your actual asset might only be worth $900k now. I think this is one of the big dangers of having an essential need like housing cost such a large multiple of income.

You could always walk away. Better to be under water on a mortgage than own it outright. This is called a strategic default. Lenders know this which is why they require a substantial down payment (typically 20% in the US)

Most people wouldn't do it if they're slightly under water. But eventually many people would consider walking away and taking a hit on their credit score, which get totally wiped out after 7 years anyway.

Not if you get a fixed rate.

Agreed

Japan is really cool in regards to housing. You have a sort of dichotomy of either really old houses, or brand new. I forget which YouTube video I watched that explained that it's rare to find a house older than a decade or two in a Japanese city because people don't want to live in them. Houses are constantly torn down and replaced with new ones with the latest and greatest features.

I think something like that could work to reduce housing costs in the USA, but it would likely require a brand new city to be the guinea pig to prove the concept here. Something like those self-contained retirement towns that spring up, but maybe when the residents die, they rebuild them? Macabre, but interesting!

Add: interest rates for home loan is virtually minus for 10 years, thanks to gov's tax reduction for 1% of loan debt.

> Which is crazy, right?

No, because this is not accurate:

> Homebuyers will make purchasing decision based on their monthly mortgage payments, instead of the home price.

Homebuyers make their purchasing decisions based on the options available to them. They are not paying $x because they can afford $x+1, they are paying $x because that is how much they are willing to spend on that specific house in that specific location. The latter portion of that statement is important because implicit in it is the competitive nature of humans, and so it manifests as people competing to purchase land and being willing to pay as much as they can afford in exchange for the utility from that specific house in that specific location.

That utility can be in the form of access to income opportunities to lower future volatility of income, access to other people of similar or higher income so your kids can go to school with their kids, access to airports, downtowns, outdoor recreation, etc.

If you are projecting increased demand during your entire lifetime for the piece of land you are purchasing, then it makes sense to pay as much as you can afford, as it will only get more expensive. If you are projecting a receding economy and/or decreased demand for the land you are buying, then it does not make sense to pay as much as you can afford, but rather scale it to some measure of what utility you will get out of it.

As long as most people in the U.S. buy houses with 30-year fixed mortgages, the total cost of a house will be 30 * 12 * monthly mortgage payment. When interest rates are low but home prices are high, they don't pay any more over the life of the loan. (Someone who buys when rates are high but prices are low does have the option to refinance, though, which is not available to someone who buys when prices are high.) The change in interest rates effectively shifts which portion of the buyer's income goes to the lender vs. the seller.

This is similar to how increases in local incomes are actually captured by landlords rather than workers. If housing is scarce and people need it to live, owners of that housing have the bargaining power to raise prices to capture available income.

This is a way bigger problem in Canada, where fixed term mortgages are unavailable (and where price to income ratio is even more absurd than in the US).

> without considering that the declining interest rates that fueled past appreciation don't have much room left to move down

Negative is inevitable, imo

If the value of your home rises, you've effectively taken out a hugely profitable leveraged loan, which is historically pretty common. Which is far from guaranteed of course, but broadly speaking it was an amazingly lucrative move for many many people.

This is my worry too. I just sold, with the intention of buying back into the market (in a different city). I'm terrified by the amount of people maxing out their abilities to handle the mortgage even at today's incredibly low interest rate. I'm making sure I can handle a quadrupling comfortably – but also those of us acting like that suffer (or will suffer, when there's a crash) the consequences of the reckless ones.

I don't like the feeling of a market where trying to be a rational actor barely helps.

I don’t know how it works in US but can’t you just opt for fixed interest rates ?

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down.

This is such a weird home buying myth and I don't understand how it sticks around.

Interest rates are extremely relevant when institutional investors are such large players in the real estate market.

Also, the original submission noted that median homes cost 7x median income right now. That does not equate to 10 years of savings from responsible people.

Also, 5:1 leverage is extremely generous, and in a free market they would never happen because it’s insanely risky to the lender. That’s ignoring the fact that 20:1 is pretty common these days anyway. The only reason you can get such a generous loan is because the US government is responsible for it, and they’re the most inept financial institution on Earth.

This is not accurate. The average down payment is currently 5% per the latest Urban Institute Research.

https://www.calculatedriskblog.com/2021/09/urban-institute-m...

FHA loans require as little as 3% down. Payments are higher due to PMI, etc., but not a showstopper.

And to balance that out, also from your link:

>"The affordability gain from increased house-buying power, however, was offset by the third component of the RHPI, nominal house price appreciation, which reached a record 19 percent compared with a year ago, eclipsing the record for price appreciation of 17.5 percent set in 2005."

Awesome, thanks for sharing. Bookmarked.

In theory, a fall in nominal interest rates below the real rate of return of capital should spur investment, since entrepreneurs can borrow funds at a low rate to expand production capacity or start new businesses and obtain a higher rate of return. The reality is we don't see much investment going on, and at some point the ECB will have to face up to the fact that the low interest policy doesn't work.

Japan like stagflation ?

While I completely agree with you that any sane person _should_ want to know the final price and make decisions based on that, a lot of people actually don't and they only look at what they will pay per month/week for something.

I personally know multiple people that do this and like you I can't fathom why but they do. '"Need" a new couch? How much does it cost me per month? Oh yeah I can afford that.' Nevermind that the couch they don't really need (but want) costs them way more and they will very probably need/want a new one before this one is paid off. Same with cars and many many other items. Sellers perpetuate this, especially on bigger ticket items. I suppose it's a "natural progression". People can't afford the item they want. Sellers have no more buyers. But if you sell it to them with a loan and a small monthly payment, suddenly the buyers can afford it. How do you think 96 month car loans came about?

The point is that you have more purchasing power with lower income rates. In this example you can buy a house worth 25% more.

Pretty much all home buying decisions are normalized on a 30 year fixed mortgage. When figuring out what you can spend its easier to figure out what you can afford per month ans extrapolate your purchase price from there.

For that matter most car buying decisions are done the same way based on a five year loan (maybe seven these days).

Because the alternative is usually renting, where the monthly expense is similar, but there is no principal down or asset appreciation.

The duration of the loan doesn't change based on the interest rate.

In both of OP's examples the hypothetical borrower pays the same amount per month, for the same number of months. A lower interest rate does not affect the duration of the loan. In neither case can the bank simply extend the duration of your loan.

Generally because the point at which you stop requiring shelter is because you're dead - so forever is a good proxy.

You can do this with all your purchases though: anytime you buy anything, don't look at the sticker price - figure out the equivalent monthly cost for the expected lifetime of the item. This can have a dramatic impact on your purchasing habits.

And in Europe they have 100 year mortgages. US still have plenty of options to make monthly payments affordable.

Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is not one - in actuality all the houses people own are constantly depreciating while the land they're built on continues to gain value from age - they gain value from the increased shortage of supply - and they gain value from the constantly increasing cost of building houses (labour and materials - the material increase mostly also due to labour).

There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages).

1. In a very very infinitesimally unmeasurably minor manner.

Lots of money supply in Japan, and are their asset prices going up?

* https://fred.stlouisfed.org/series/MYAGM2JPM189S

Their central rate has been <1% since 1995.

Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.

I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about.

Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.

The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?

You can if you're in a liquidity trap. Question is, are we in one now?

This was linked in this submission: https://blog.firstam.com/economics/todays-house-prices-are-o...

Housing has become more affordable.

Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation.

People worry about inflation, but forget how awful deflation is.

(And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)

I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi

Is there a difference in the property tax there for multifamily vs single family dwellings? Around here people pay almost double their mortgage in property taxes for a single family dwelling, but landlords have managed to get much lower taxes for multifamily dwellings.

The amount a household can spend on housing scales at a faster rate than income. Say, a family is making $2000 a month with one person working, and spending $800 on housing. If another person goes to work making $2000 -- spending, maybe $300 in work-related expenses, gas and such -- that household now has $800 + $1700 = $2500/mo available to spend on housing, while maintaining an otherwise similar standard of living.

So doubling of income tripled the amount that could be spent on housing.

But wait, there's more. People buy housing with debt, and a doubling of the monthly payment on a mortgage more than doubles the price that can be afforded. So that household paying $800/mo could move from their $195k house into a $600k house with a $2500/mo payment.

So, a doubling of income has the potential to increase the amount of house a household could afford by six. Granted, this ignores things like taxes, and most people don't spend their entire raise on housing. But this fact is probably what helped drive prices in places like California into the stratosphere.

The crux of the problem is probably that income follows a roughly pareto distribution. When housing is limited, the poorest households drop out of the market. And when populations grow but a town doesn't, housing gets bought by people higher up in the income distribution curve. And past median, incomes climb quickly.

If you have 30k houses, in a town with 60k people, then housing will be affordable to a median income. But if the population grows to 120k, but housing doesn't, then only the top 75% of households can afford a house. Median income, to top 75% is a huge jump.

This is something that Elizabeth Warren and her daughter Amelia covered in their book "The Two Income Trap." I'm aware that recommending a book by a political figure is fraught, but I'm not aware of any economists who took umbrage with the claim, either. They make the observation in chapter 1 that "Even as millions of mothers marched into the workforce, savings declined, and not, as we will show, because families were frittering away their paychecks on toys for themselves or their children. Instead, families were swept up in a bidding war, competing furiously with one another for their most important possession: a house in a decent school district."

Housing is a great way to establish a level of security for your family and kids; but there's a finite number of houses with proximity to good schools, jobs, and other necessary resources, and so families needed to dedicate larger and larger portions of their income to compete against other dual-income families that were bringing new money to the housing market.

I've often wondered about this myself.

E.g. it's a lot easier to have two working people in a couple make $300K total vs only one person making $300K. It would be interesting to go back in time and correlate the rise of dual working couples vs housing prices adjusted for other factors e.g. inflation

This seems unlikely given that the share of dual income households has been flat for 30 years.

https://www.pewresearch.org/ft_dual-income-households-1960-2...

People are working, unemployment has been falling like a stone since 2017. That money is going to go somewhere (and for most that is not 'the bank'). It's going to get spent or put into investments. We're going to continue to see strong commodity prices (and most of these have been rising into the headwind of a stronger dollar) until unemployment creeps up, or real wages falls too far behind inflation rate. I think the increased commodity supply that would normally rebalance pricing before demand does is going to be delayed. Why? Though interest rates are low, loans aren't going into commodity capital projects (because risk and returns ratios don't look good to lenders when compared to inflation rate? not sure).

Why not invest in the market then?

I agree with your comment, and just want to add that interest rate changes alone can explain a lot of the appreciation.

If you have the exact same income and rates are at today's 3% vs 2008's 6%, the payments on a $1.0MM home mortgage would be $4.2K vs $6.0k. The difference between those two payments is about $40k/year of gross income difference.

A person in 2021 with the exact same income as 2008 would be paying the same for a $1.4M mortgage per month as the person in 2008 at a $1.0M mortgage.

I don't own a home, so I'm not saying this to justify my purchase, but if I just take the info in the graph, I actually wonder whether there is a lot more room to go in the market. I wonder if we are looking at another 20-30% appreciation before the top?

I have no idea.

https://fred.stlouisfed.org/series/MORTGAGE30US

I don't have all of the math for all the scenarios you describe, but still, overall you're completely correct.

If you account for inflation and interest rates, and look at median home price, a home earlier this year was CHEAPER than home in 2005. Roughly the same monthly payments before accounting for inflation, because of the interest rates (6.X% vs 2.5-2.8%ish). That alone makes a huge difference.

People are also becoming more financially literate. Once folks are able to crunch all of the numbers on their own, start calculating how much rent costs, how much money they will make from asset valuation, how much they can save from using HELOCs instead of credit or other types of loans, they're willing to spend more, too. There's the tax deductions, but that got gutted, so it's not that big anymore.

one can say the down payment increases, but it increased slower than the market did, so if you just sat on investments since 2005, you can make a BIGGER down payment now than then, proportionally. At current interest rates, even with PMI, you're potentially better off doing a 3% + PMI than putting a large down payment (unless you're expecting a market apocalypse the likes of which the US has never seen).

We could crank up the interest rates to 10% and home values would tank. It wouldn't reduce monthly home costs any though.

> Economics is a weird subject, even economists get predictions wrong all the time.

It's because economics is seen as a science but ignores (not completely) human behavior. You can't test economic theories with the scientific method because there is simply no way to create a market vacuum to test.

This is why behavioral economics is so interesting IMO. It's not definitive but it at least it provides explanations.

I think of economics as having the classic two sides of theory and practice, but with the quirk that the practice is grossly inefficient because it's a dynamic feedback system based on itself.

Engineering takes theoretical principles and pits them into practice. Here's what the free body diagram of a structure might be, but how do you ensure it stays up with abnormal conditions and a client who's going the extra mile to cut costs?

Imagine if in engineering, constants changed the more precisely they were measured. pi is different in the USA because China measured it more precisely yesterday. Or if weather patterns changed to exploit the weaknesses of a building to maximize damage.

I don't think econ is theoretically irrational, it's just that the application in the public eye is seldom isolated to simple, static systems. When applied to simple systems, I think econ is quite reasonable and makes accurate predictions.

...and what actual effect any of those actions has! That's the part that's mysterious to me and would be particularly interesting to learn.

And more to the point, what can or should I do on an individual level?

The OP was about home price to income ratio, and just like in one of the threads, I basically shopped based on monthly payment, not total price. I don't have any anchoring on the value of a particular structure or lot. Should I have made different choices?

> For 99% of you that means living far away from your preferred locale among people you probably loath.

Parent comment is vitriolic but not actually wrong. Myself, I take great comfort in the idea of huge swaths of liberal, well-educated millennials and xennials migrating out of coastal cities and into small towns across the South and Midwest. Can you work remotely? Want to own your own home on a multi-acre lot for $100k, and live in a place with sunshine and warm weather nine months out of the year?

Sure, you'll end up living in the most conservative parts of deeply red states -- but try it. Live among people you disagree with -- we're all still Americans, it'll be OK -- and if enough of your friends and fellow Ivy alumns make the jump you'd be surprised how easily you could turn Texas or Georgia nicely purple.

We've got to end the big sort, at any cost. And the hilarious difference in cost of living is probably our last, best hope.

State level reform is important. Here in Oregon, we have HB2001 that allows for up to 4-plexes everywhere. City council's can't stop it. A local NIMBY lady ginned up a bunch of opposition to its local implementation and even put a full page ad in the newspaper. It went through anyway.

The folks at YIMBY Action are a great resource if you're serious about making progress on this kind of thing.

> Providing supply will suffer the wrath of BANANA/CAVE/NIMBY anywhere you dream of living

TBH I would have said the same thing 5-10 years ago, but I think this notion is outdated now.

I live in a famously NIMBY city (Seattle) and things have changed a lot in the last 5 years. I would guess that single-family zoning will be gone within 5 years.

Although I don't buy it, some people even argue that SFH zoning is already gone in Seattle due to ADU/DADU reforms.

And yet no one is promoting vasectomies. I know exactly how to reduce demand without increasing supply, but it'll take about 30 years.

California being terrible is only a recent phenomenom. It used to be common to convert your sfh into an apartment complex. There are 5 story single lot brick apartments on my block that are still illegal to build on a neighboring lot today with SB9 and 10.

Even just straight up rolling back to zoning codes that existed in 1960 without much further change would do a lot for supply. Los Angeles in 2010 had a population of 4 million and was zoned for 4.3 million homes. Los Angeles in 1960 on the other hand had a population of 2.5 million and was actually zoned for 10 million homes.

It consistently shocks me how rarely this is brought up as a solution. Price of something too high? Increase the supply.

The solution, like it's been for pretty much all of American history, is to _move_. We're a migrant people; when opportunity calls or the cost of living where you are gets too high, we go west in search of greener, cheaper, less heavily-zoned pastures.

Seems fitting that in the 21st century we flip that on its head. Cost of living in SF or Seattle got you down? Go East, young man! Head down to Texas or east to Ohio, and register to vote when you get there.

Be the change you want to see.

The issue then becomes silly games with shell corporations hiding how many homes people own, which pushes homes into the hands of larger landlords who can afford to pay someone to play those silly games.

What other ideas do you have for drastically raising the price of rent?

The simple solution is to build more.

That's still way lower then older generations.

Indeed. Canadian home ownership is a decades long high yet housing affordability is a hot topic.

It's not so much that they're the loudest as it is that the other 50% of us are busy living in affordable parts of the country and getting on with our lives.

Not the OP, but I'll guess that it's because both of them strongly erode property rights. Another, more freedom-preserving, approach is to make it easier to build build build. Planet Money had a decent introduction a couple years ago.[0]

In the current NIMBY climate, my neighbor is struggling with the red tape to repave her driveway. Building a new home around here seems about as improbable as a hobbyist making the first human Mars landing.

[0] https://www.npr.org/sections/money/2019/03/05/700432258/the-...

Rent control really doesn’t make sense. If we could make things cheaper by passing a law we’d do it for everything.

Rent control won’t work for the same reason a price control for food or cars won’t work.

https://freakonomics.com/podcast/rent-control/

Draconian is a strong word (but cool-sounding) and what I really mean is "antiquated". But they are also somewhat blunt instruments and have historically lead to unwanted consequence. We already have more modern, market-oriented solutions, like vouchers and tax-credit housing, but those have problems too. My bigger point was, Millennials tend to react big when specific issues rise to the forefront, and if there aren't better solution than what is already on the table, we risk people clinging to whatever ideas do exist, which in the realm of housing, are mostly shit ideas.

Econ 101 says that rent control (in effect a price ceiling) just results in scarcity (people are unable to get ANY housing), rather than actually reducing the cost of housing.

Doesn't that sound insane from a mile away? By the time you are done making exceptions, you'll have infinity carve outs. This is not a solution so much as a way to squish the problem into a different, weirder shape.

1. Everyone is forced to sell their lakehouses, cabins, ADUs? Detached mother-in-laws? (wtf is "Exactly one house?")

No one is ever able to rent a single family home ever again? Right now 14.5 million households / 44 million residents rent single-family homes in the United States. They're... out of luck? On the street? Gotta save for a down payment? If those houses are force-sold, don't you think people-other-than-the-current-inhabitants will come in and buy them?

Actually, can anyone ever rent ever again? Or is it a buy-vs-homeless dichotomy here? Or do towns have to become miniature companies and play landlord? Or states?

2. Timber companies are forced to give up their land, bankrupting all of them and driving the cost of wood sky high. Mobile home land must now be sold, except no one can buy it. Farms except for sole proprietors are forced to give up their land (sorry partnerships, amish, people with discontiguous lots, and everyone who wants to eat this year, you're out of luck)

IMO you should focus on laws that let people build more (eg, ADUs, duplexing) rather than getting out the stick and hoping there won't be huge side effects.

Even "simple" solutions like those you've proposed so often wind up having unintended consequences.

For your first proposal, I wonder about folks buying a house through an LLC or trust as folks often do to protect their privacy. Are we banning that? I also wonder about inheritance - if I own a house and my parents die, leaving me their house, how long do I have to sell one to be "in compliance?". Maybe their house needs work and I'd like to spend a few months or a year fixing it up to maximize what it'll sell for. Is that ok? And speaking of timing - I remember during the wave of foreclosures after the last housing bubble, banks kept a lot of houses off the market for a while to moderate prices, rather than listing everything at once and panicking the market further. Seems like banks ought to have some leeway to maximize their return (e.g. if a house has a pool and is foreclosed on in the late fall, maybe they judge that waiting until spring would get a better response from buyers).

> Exactly no one needs to rent houses if mulit-fam exists and actual houses aren't speculative instruments or places where foreign nationals hide their money.

okay, but what if I have (an opportunity for) positive cashflow, minimal savings, and want to move away from my parents' house? does it just suck to be me or what?

There are good reasons to be a renter, it’s hard enough getting an apartment in the time between accepting a job offer and your start date, I couldn’t imagine hunting for a house/condo in that time.

Where do you expect rental housing stock to come from in this scenario?

1. Just bans people from renting houses to other people. This reduces the supply of rentable houses to 0. Reduces the supply of rentable stock in general. And very slightly marginally reduces the price of houses.

2. Can corporations still own commercial property? And can foreigners own corporations ?

Who builds new homes if builders can't own them pre-sale? I imagine you have a carve out for that, but who qualifies as a builder?

What about people who want to live in cities? How do they come together to build say a small condo building? Do we only allow co-ops? How is that financed?

When you say "Americans", do you only mean citizens or permanent residents? Where do temporary residents live?

How do people move to new cities/states? Where will the new housing come from?

Yeah a lot of older millennials grew up on shows like Friends. We were disappointed in our mid-20s when we discovered our entry-level job wouldn't afford that large condo in downtown SF or Manhattan.

But it has got out of hand. I earn 90% more than most full time workers. And like 50%+ of "households" out there, it's just me, so no dual income. And I don't think it's appropriate to expect 40 year olds to still live with a bunch of roommates like they did when they're 22.

Forget the 2K ft^2 apartment in Manhattan or Mission District, I can't even afford the starter home out in Jersey or East Bay or Beltway DC. These aren't the mythical "McMansions" that everybody always uses to deflect from the affordability crisis - these are the exact same properties on tiny lots that a single-earning non-college-educated factory worker or postman or paper pusher could easily afford for his family in previous generations.

And if I - earning 2x-3x more than most workers - can't afford these basic homes, how the hell does everyone else who earns the median income of $60K do it?

Absolutely.

Although it's more likely that they'll just remain stagnant, which would be just fine.

Well, and most people have fucked up views on what defines "upper middle class". There was a topic on reddit the other night where the most popular posts were saying, without jest, that upper middle class starts at $10 million bucks in liquid savings (and ends around $50MM).

That seems to be a typical view on income and wealth in this country: people's opinions are wealth are out or proportion with reality by factors of like 100. For reference, upper middle class technically starts at around $120k/yr, so $10MM could pay 80 years of an upper middle class income. So there's no conceivable way an actual upper middle class family could actually save enough to be consider what the public thinks of as upper middle class.

For comparison: Sydney has a median house price of AUD $1.4M right now, and a house on the water is $2M-$6M easily.

Median income is $56K for Australians in general, and about $90-$110K for areas of Sydney that have water views.

Recently the federal deputy treasurer made a speech that younger residents of the city should consider moving to the country to afford a home. The not so minor issue with this statement was that you have to go very far down the list of towns by size in the state to get to a place where he himself could afford a home on his government salary of well over $200K a year!

That income tax statistic is misleading. Most Americans do pay social security payroll taxes, which are income taxes, they’re just not called “income tax.”

Tax is the solution, though, because we should treat owner-occupied homes differently than investment homes. Owning a home to live in it should be more accessible than owning it for capital gains. The market doesn't and can't price in this externality any other way.

> Why are the rich getting tremendously rich? Because the Federal Reserve has printed money at an astonishing rate, which inflates asset prices. Who owns the most assets? The rich do.

This is exacerbated by capital gains and dividends being taxed at a lower rate; if the gains due to asset inflation were being taxed at 37% instead of 15%, then at least all this money printing would help balance the budget a bit...

Analyzing taxation by headcount doesn't provide much insight.

The top 10% of Americans own about 85% of the wealth in America, and the entire bottom 90% only own around 15% of it.

> 61% of Americans pay zero income tax.

This was just last year. The norm is far lower, but was inflated by stimulus checks.

Agree! It's also the densification of urban areas. Where once each occupant had a private office, now 5-6 SW engineers occupy the same office space footprint. That has implications for already dense urban office and associated housing needs.

> there should be penalties for buying houses to rent or for investment purposes outside of ones primary residence.

There are lots of people who don't want to own a home (e.g. who value the mobility/flexibility of renting), and people who are unable to afford the fully loaded homeownership costs. In these rent-vs-mortgage discussions people often overlook the non-mortgage homeownership costs which can be very significant and hard to predict. I say this as a person who found myself needing an unexpected $25k+ roof replacement in my first year of homeownership.

I suspect living standards for the bottom quintile would actually fall if they had to maintain their own homes. E.g. how are the people who can't put together $400 in an emergency, the minimum wage employees living hand to mouth, etc going to be able to afford to replace an unexpected leaking roof (a $10k+ problem) or a broken water heater (a $5k problem) or refrigerator (a $500+ problem)? A lot of basic amenities are legally mandated for landlords to provide that I think low-income tenants would not be able to maintain on their own. A landlord with a larger net worth is better able to absorb these cashflow problems and keep the property in a healthy state.

Anecdotally, I live in rapidly growing, tech-friendly metro and track housing data in the area. The county assessor's office exposes homeowner's names and you can easily spot the "private equity" owners. They are very few and far between.

> The amount of private equity in housing

I think this issue is, at least at the moment, overstated. Could be a problem in the future though.

I think the problem is as much in the ownership as it is in anything else.

In China, where housing costs are skyrocketing as well, there are protests when enough housing is built to start to make it affordable again.

Putting the majority of a person's life savings into their house is, in the end, a pretty bad idea.

> That sort of exists in the mortgage interest tax deduction but with rates near 0 that’s become far far less effective.

FYI, mortgage interest on an investment property is also tax deductible. In fact, there's no limit on it like there is on your own personal-use home. It's basically treated like a business expense (which, arguably, it is).

It doesn't matter so much if a country is taxing their own rich if they allow rich people from other countries to buy real estate.

Corresponding post:

* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...

This is very interesting but I wonder if the housing crisis is not reflected in that chart because it's an average of presumably average American mortgage rates. What about California mortgage rates? I'd love to see that last chart restricted to California where the prices have skyrocketed.

> How do you keep so big part of the population working all their lives otherwise in jobs they don't like if not by necessity?

Why do you need this? I always expected working time to keep decreasing but it doesn't. Humanity generally achieved 8x5 work week but doesn't seem progressing any further. If I had more spare time with same income I would continue my education and spend more time on hobbies, side projects, leisure, fitness and family (all these can still keep people busy contributing to the economy).

> How can you earn as much passive income as possible (landlords, investors)?

Why do you need this? As every normal person I would love to have passive income covering all my needs but "as much passive as possible" sounds like a waste of effort. I only want as much as I can reasonably spend without wasting my time on inventing new problems.

The main problem with that solution is that most young-ish people know that if they ever want to own a house, they need to get into the game early so they can build equity.

Besides that, rentals are often way too expensive (matching or exceeding a mortgage payment in big cities) without providing a similar amount of value:

- Can’t do what you like to the interior, like painting walls.

- Not built with the same sort of layout homes have. For examples, loads of three bed/three bath rentals meant to be split by roommates, but not many with a nice room for a home office.

- Often does not provide an important amenity (like AC).

- Almost definitely less space.

- Likely less peaceful, especially if noise insulation between units is poor. (Getting bothered by a neighbor is a lot easier.)

If we want to attract the type of people who want to buy a home to instead rent for the long term, those aspects need to become better. Apartments need to be more desirable than houses.

And that means the folks building apartments and the apartment management companies need to offer a lot more for less. And since apartment buildings are also investments, that will never happen, because the ultimate goal is profit.

I feel like in both cases, it comes back to the fact that property is an investment. It doesn’t make sense for anyone to loose value on an investment, which means there is an inherent pressure to make prices go up over time

> The only solution I can possibly see is moving more people from single family houses in to apartment buildings which allows virtually infinite supply within close range to jobs

This is convenient in a lot of ways (e.g. apartment-first cities have better public transport and less segregation) but doesn't really solve this particular problem. The apartments still are very expensive and the prices grow rapidly. Again nobody except rich entrepreneurs can afford buying them without a mortgage and the rent still is everyone's single biggest expense. I even suspect even Hongkongers living in "cage homes" still spend the most of their income on these.

I would add government requirements to the list of problems. You can't just build a house the way you like/can and live there like you could in the past. Today you have to get the authorities approve every detail in your house construction design, hire licensed builders, use certified materials etc. This makes sense in cities but is required in rural areas too, all over the developed world. As a kid I spent some time in a number of houses built by their owners out of scrap and "hobby market" materials with just their hands, simple tools and no serious design and that was great.