Falling Home Prices Could Be a Good Thing

https://www.nytimes.com/2017/02/10/upshot/popping-the-housing-bubbles-in-the-american-mind.html?smid=fb-nytimes&smtyp=cur&_r=0

by prostoalex • 9 years ago

152 192 9 years ago

nytimes.com

throwawaydbfif9• 9 years ago

Could be? For anyone outside the boomer generation falling housing prices would be a godsend.

Millennials are starting to get priced out of entire cities, and it's generally the ones with the most jobs available.

It's starting to look like "millennial" will become an insult meaning someone with no job and no money, hilarious given that it applies to an entire generation.

zkms• 9 years ago

I strongly concur -- as a millennial who has been without adequate housing a few times, falling housing prices and rising housing supply (the latter tends to be a necessary condition for the former) is extremely good.

throwawaydbfif9• 9 years ago

I'm in the upper middle class wage quartile and my rent is so high that losing my job would ruin me completely. High rent(for a reasonable one-bedroom) combined with my student loan payments means it takes about $3700 a month just to pay bills and live.

I'm not in Cali or NYC either.

patrickthebold• 9 years ago

I think you mean it's good for anyone who's not a homeowner.

caconym_• 9 years ago

No kidding. I'm not an economist so my opinion on this isn't necessarily worth a lot but it seems pretty clear that it's more important for young people to be able to live financially stable lives near good job markets than it is for real estate to perform as a lucrative investment for those who are already well-off enough to own it. The former is clearly necessary for the future health of our society and economy; the latter seems easily replaceable: just invest in something else. Since we can't all live in the single most desirable place, it's always going to be a market in some sense, but I really believe that we could (and should) do a much better job making housing affordable than we do now.

throwawaydbfif9• 9 years ago

The biggest problem in most of these cities is current residents preventing new housing from being built. Most of these residents own property of their own and directly benefit from the higher prices that result.

Most of these residents are also old. It's literally the boomer generation fucking over everyone trying to move in for their own benefit.

autokad2• 9 years ago

i'm not a boomer and that wouldn't be good for me. it wouldnt be a godsend to cities either, with plummeting revenues (schools would be especially hit hard). home prices fell not long ago, and that was bad for nearly everyone.

home prices and jobs kind of come together, not always but mostly. its sort of like wishing no one would eat at your favorite restaurant so you wouldn't have to wait in line, only to see it go out of business.

millennials will have to do better than wishing people ahead of them get dragged down so they can jump ahead.

throwawaydbfif9• 9 years ago

This is only a problem for foolish states/cities that raise money mostly from property taxes. Besides, the main problem is current residents not allowing additional housing to be built. The additional income from new properties would more than offset the revenue drop from property values.

It's not about millennials "jumping ahead" either. This generation came of age during the worst recession since the great depression. They are on track to be the poorest generation in American history. The combination of funding cuts to state universities and rising housing costs in places with jobs available gives millennials less choice and more debt than any generation alive in the US.

This is a generation that is the best educated but poorest in our nation's history, coming right after one of the richest and prolific generations. The implications are clear. The previous generation maintaining the status quo. They voted for the funding cuts and NIMBYism that resulted in the lack of housing and student loan debt of the current generation.

monkmartinez5• 9 years ago

I disagree. One, property taxes didn't go down materially in my jurisdiction despite housing prices dropping precipitously. Two, schools have already been hit hard with horrible admin teams and the rise of open-enrollment. Three, jobs don't have as much of an affect on home prices as they once did. That is, investors|flippers|NAR shysters| and the government control far more of the housing market prices than we give credit for.

I am not a boomer, but they have been in charge for a while and have really messed things up.

Eridrus2• 9 years ago

Cities can raise rates if they need to, the problem was that in the recession, people didn't have the money to pay the taxes, which is not really a concern in any of the places which are overpriced.

hsitz2• 9 years ago

The idea that you need to buy a house, or that buying a house is always a wise financial move if you have the means to do it, is misguided. The question of whether it's a financially smarter decision to own a house vs rent (and invest the savings) is not easily answered, which alternative ends up better over the long term is different in different scenarios.

One thing that is true in most conditions, though, is that in comparing alternatives where a young person buys more house than they need (which used to be quite common) against renting a modest and reasonable "young adult" apartment, renting is likely to come out ahead.

throwawaydbfif9• 9 years ago

It's not fully about buying or renting either. Pricing effects both equally

RestlessMind4• 9 years ago

Today's first time homebuyer is typically 35 yr old[1]. Assuming people older than 35 too have (typically) purchased homes by now, you are looking at boomers + genX + genY, invested in the real estate market. In other words, falling home prices would devastate a broad portion of the society and would wreck the economy.

[1] http://www.zillow.com/agent-resources/download/todays-first-...

throwawaydbfif9• 9 years ago

Another way to look at it is that home buying in the millennial generation is at a historical low. They are the biggest generation besides boomers so the effect of this is somewhat magnified.

"Devastating" the housing market to make it possible for younger Americans to buy homes again will only decrease wealth inequality since the ones who own homes are generally wealthy.

It's not like the houses will suddenly go away if housing prices drop. They are hard assets, nothing is destroyed by the lowering of housing values besides speculative worth.

Sure some people would lose a lot of money but it would largely hurt the wealthy and help income equality along with leveling the gap a bit between those generations and poorest one in our history

Eridrus2• 9 years ago

I think devastate is a very strong word. Anyone who can afford a home in these overpriced areas is doing very well for themselves.

No idea how you sell that idea to voters though.

pdkl95• 9 years ago

While lower house prices would be great for "millennials", the real problem is the gap in income[1] that started a ~25 years ago. Housing prices wouldn't be nearly as bad if incomes were at their proper level relative to productivity.

[1] https://upload.wikimedia.org/wikipedia/commons/e/ef/Producti...

ArkyBeagle11• 9 years ago

Dean Baker places this at around 1980, so more than 25 years. There was the one span of time ( late '90s ) where it was suspended, and wages grew. He has a new book, "Rigged" and flogs the book on BookTv ( my "books for the post literate" source... )

ArkyBeagle11• 9 years ago

Policy has been explicitly designed to suppress wages. The Humphrey-Hawkins bill of 1979 is considered in Fed moves, but a vague notion of "price stability" gets first pick.

Retric4• 9 years ago

The average home price in 1950 was ~8,450$ or $84,151 today. Suggesting even 200k as a reasonable median seems excessive.

PS: Medain income was $4,237 in 1950 which works out to $42,195 today. So, it's not like the average american is all that much better off.

ebbv• 9 years ago

Land was a lot more plentiful in 1950, especially near urban centers. The population has also increased drastically. Inflation alone is not enough to do a reasonable extrapolation of what houses should cost today.

Retric4• 9 years ago

The US still has a lot of farm land in every state in the continental US under 5k per half acre. While it's true the population has flocked to a tiny fraction of city's that's more an issue poor planning than any fundamental issue. https://www.usda.gov/nass/PUBS/TODAYRPT/land0815.pdf

WillPostForFood4• 9 years ago

Houses are also bigger now, safer due to many construction regulations, more energy efficient (at least per sq/ft), all of which also add to the cost.

prostoalex2• 9 years ago

Definition of an "average home" changed though, which is why real estate industry uses $/sq.ft.

Beyond square footage there are also expectations on the innards of the residence - e.g. try to find a new construction listing that does not have "designer appliances", "hardwood floors", "cat-5/6 wiring" and a ratio of bathrooms/bedrooms closer to 1.5-2/1 vs 3-4/1 that was common decades ago.

Shivetya• 9 years ago

to further the point, many young couples would never accept the home they grew up in or their grandparents had with regards to square footage, number of bathrooms, and such.

then comes the status of living in certain neighborhoods, having a house of certain style and size, let alone kitchen outfitting.

people have been marketed into the poor house

techsupporter• 9 years ago

At the risk of sounding brusque, don't just read the headline of this article and then comment because the headline doesn't mean what it reads like on the surface. It's not "house prices are falling and this could be awesome." Instead, the article's thesis is:

So instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? People might expect home prices to go down instead of up. Homebuilders would probably spend more time talking about technology and design than financing options. Politicians might start talking about their plans to lower home prices further, as they often do with fuel prices.

The article is going over a paper[0] that asks what would happen to house prices if houses were treated as disposable consumer goods instead of a means of storing wealth. It also points out, correctly in my opinion, that such a shift would be monumental (if only because everyone would have to do it at the same time).

0 - http://realestate.wharton.upenn.edu/research/papers/full/802...

twblalock7• 9 years ago

Incidentally, this is what has happened in Japan, but with one big difference.

In Japan, people expect houses to be worthless after a decade, and they rebuild their houses frequently. This is partly because the poor quality of houses built in the first decades after WWII has created a bias against older homes that is probably no longer justified. Many buyers tear down homes and replace them -- this happens everywhere, but it is more common in Japan. People who have owned their home for a few decades will have it torn down and rebuilt every 20-30 years, and they will continue to live in the new one without any intention of selling the land.

On the other hand, while homes are worthless after a decade, land is extremely expensive. This leads to 40-year mortgages or to people building homes on land they lease for decades, and having them torn down when the lease ends.

I don't expect that kind of situation to develop in the US, nor do I want it to, but it's always good to learn about other approaches to home ownership, because it demonstrates that considering a home as an investment is not natural or inevitable.

toomuchtodo8• 9 years ago

But the problem is, if you've just spent 40 years paying a mortgage (which I assure you is probably a non-insignificant amount of your lifetime income in aggregate), you would expect to be able to recoup at least some of that expense, no?

In the US, your primary residence is usually your largest asset, and by its very nature, it becomes an investment that you want to protect. The depreciating nature of real estate in Japan is okay because they're a nation of savers. They have other investments to draw upon in retirement. This is not true in the US, and your home is essentially a forced retirement vehicle (unless you're just stripping out the equity all of the time, in which case you're screwed).

TL;DR It'd be fine if we pushed down real estate asset prices if people saved more and needed less income in retirement.

branchless16• 9 years ago

The cost in urban centres is the land, therefore this is a flawed approach. The land does not erode (unless you live on a cliff).

chadcmulligan4• 9 years ago

Is it though? - the reason the land costs more is because of two things - geography (ocean views, doesn't flood etc) and the infrastructure available. The second one is what adds to land value in cities - it's a network effect.

Like everything the cost of infrastructure is changing and the rate of change will increase - self driving cars will be a big factor, telecommuting, internet shopping etc. Water and electricity are others - electricity is probably also changing due to Tesla and others.

You could say the cost of land is directly due to the network it is embedded in. If the cost of network construction decreases then land prices will decrease.

edit: and of course social relationships are the other network effect - inner city lifestyles are an example of this

namlem4• 9 years ago

It's not just the land, it's also the cost of construction. Taller buildings cost more than shorter ones.

bloaf• 9 years ago

Isn't Japan a case study in treating homes as disposable? They frequently rebuild homes rather than renovate for a variety of reasons [1]. Some people believe that this attitude has contributed to Japan's slow economic growth: replacing all the homes every few decades is essentially wasteful.

[1] http://freakonomics.com/podcast/why-are-japanese-homes-dispo...

rtpg3• 9 years ago

On the other hand, rent for people in Tokyo is... 20% of what it is in SF/NYC? In cities where most people do not own, having most things be cheap means less economic output going to rent seekers.

It would be nice to have the "disposable" attitude without actually rebuilding all the time. Making as few people as possible profit from rising rent/home prices means it's easier for governments to take policies that prevent that.

Policies which, ultimately, improve society as a whole because less economic output is going directly into the pockets of people who are doing nothing except owning a good.

A theory I heard about economic growth in Japan is much simpler: Population growth has stalled, so economic growth has as well. Lack of labor means it's hard for companies to increase economic output without improving their processes.

hkmurakami• 9 years ago

I think that once we had pension fund and the like buy REITs for investment, it's become much much harder to consider moving to such a paradigm.

prostoalex2• 9 years ago

Most REITs are built on the assumption that commercial property loses value and follow IRS-provided guidelines on depreciation.

twblalock7• 9 years ago

I don't know what you invest in, but my REIT fund invests in office space rather than homes.

PretzelFisch2• 9 years ago

Isn't this how it works in the us? the property you own tends to keep appreciating. This is why house vs condo pricing is so different.

shawnee_• 9 years ago

The article is going over a paper[0] that asks what would happen to house prices if houses were treated as disposable consumer goods instead of a means of storing wealth.

We kind of already know the answer to this: "Rental cars get trashed." The same applies to housing: neighborhoods with mostly renters as opposed to owners are rarely as well-kept, clean, or as safe as those with primarily owner-occupied units.

Treating housing as disposable also creates a significantly heavier environmental burden which isn't entirely obvious at first:

- Cheap, short-term repairs and cosmetic fixes create more landfill waste. Estimations are 45 percent of landfill waste comes from "Construction & Demolition" or as the industry calls it: "C&D". When it comes to diverting C&D waste, it's usually only the older high-quality material that can be diverted and/or reused; the rest goes in landfills[1]

- Disposable housing neighborhoods targeted as toxic sludge waste-grounds[2].

More disturbing is that a nationwide trend to start treating housing as a "disposable consumer good" already seems to be underway. REITs got their own sector in the stock market late last year[3]. Invitation Homes (bankrolled by Blackstone) has recently unveiled a Ponzi-type scheme to buy up dilapidated houses, smack on cheap cosmetic fixes, rent them out at top-of-the-market prices... all in the name of creating "stock wealth". Invitation Homes IPOed last week. For more on what we can come to expect, see this[4].

In other words, we can expect continual upward pressure on rent not for the quality of the housing being rented, but for the landlords charging tenants more for their liability insurance.

No... it's not the supply of housing that needs to be optimized; it's environmental stewardship resultant from even the tiniest bit of unencumbered land ownership that we should be solving for. My theories around how to do this have been evolving on ecosteader.com.

  [1]http://www.ecy.wa.gov/beyondwaste/bwprogGBCandD.html
  [2]http://www.alternet.org/books/how-corporations-dump-their-toxic-sludge-areas-filled-poor-people
  [3]https://secure.marketwatch.com/story/stock-markets-new-real-estate-sector-gives-reits-a-home-2016-05-11
  [4]http://www.latimes.com/business/la-fi-blackstone-lawsuit-20140506-story.html

ArkyBeagle11• 9 years ago

I forget who it was, but they said "Everyone is born short on housing."

You bring up cars and TVs - for new cars, the thing actually being sold is not so much the car, it is the financing. This is less true than it once was[1], but it's still true.

[1] GM divested GMAC.

A/the reason to buy (in noncoastal or otherwise un-bubbly areas) is to save a couple hundred a month in rent. It's limited to people with good credit, so you trade a down payment and fees for a "discount" month over month.

There is only so much developers can to to push costs down. I've always bought homes a generation behind the current developments - that's been the happy valley between price and features for me. I also spend well less than 2x salary purchase price.

But so long as government policy actively pursues wage suppression, housing is much less of an investment.

avn2109• 9 years ago

This is interesting; can you elaborate on what levers they pull to implement wage suppression?

calinet62• 9 years ago

Yes, exactly.

This scared the [expletive] out of me until I read it and saw it was mostly theoretical, as I just purchased a home in the Boston area.

I think as you say the main issue (or challenge) here is that it would be a monumental change in perception, and that the perception itself is not insubstantial. In other words, people value homes because homes, land, neighborhoods, cities, and general living arrangements are valuable; not simply because they expect the monetary value to go up. Regulation of that system therefore might be an uphill battle against reality.

In addition, I've had many great conversations with friends in my generation (millennials and whatever the heck children of the mid-80's are called) and the consensus is that we don't actually think of owning a home as an investment much anymore. It's risky, it's unknown whether the value will go up or down in the short or long term, it's costly in a different way (time, energy, maintenance, stress), and it's more about control of your living situation and quality-of-life than anything.

In other words, me and my generation are buying homes if and only if we want to own a home, not because we're bent on investing in our future with property. We understand, for the most part, that you need a diverse strategy for investment and the home isn't by any means a sure bet.

jghn• 9 years ago

Children of the mid-80s are millennials. Millennials come after GenX which depending on who you ask ends in the late 70s/early 80s.

runeks• 9 years ago

The article is going over a paper[0] that asks what would happen to house prices if houses were treated as disposable consumer goods instead of a means of storing wealth.

What, exactly, do they plan on changing?

A house costs a relatively large amount of money to build, and is usually purchased by people without a lot of savings, hence the appearance of mortgages/MBSs. The consequence is that housing becomes a capital good, with an associated yield, and, as with all other capital goods, its price will rise while the long term interest rate is falling, as it has been for the past ~35 years.

As far as I can see, there's not much we can do about this, unless we ban mortgages. And I doubt that's going to happen, as younger people really do need a way to finance the purchase of a house with only an income.

pager86• 9 years ago

Houses can basically last an arbitrarily long amount of time and still remain functional. With most things, like a car, there is some nebulous end of life where its value is effectively $0, and the value of that thing will steadily decrease over time until it reaches that point. Because houses hold their value, people can sell houses when they don't need them, which makes it an investment. Of course value of housing and land change over time - the fact that there's a market ensures that - and of course people want to sell something for more than they bought it for if they are planning on selling. Housing as an investment is so intrinsic to its nature I don't see how to avoid it.

chadcmulligan4• 9 years ago

I'm not sure if that's true - houses depreciate the same as cars. What does appreciate is the house on its location, often old houses go for land value, sometimes less if they haven't been maintained because you have to factor demolition costs in.

WillPostForFood4• 9 years ago

I mostly agree with you, but want to note that there are exceptions to land appreciating. You can look at neighborhoods in cities like Detroit or Buffalo where the house and land have depreciated to almost nothing.

maxsilver• 9 years ago

Houses can basically last an arbitrarily long amount of time and still remain functional. With most things, like a car, there is some nebulous end of life where its value is effectively $0, and the value of that thing will steadily decrease over time until it reaches that point.

That's equally true of housing as well. Come on up to Michigan, I can walk you though entire neighborhoods filled with homes that are all functionally obsolete and valueless.

Homes actually get worse -- a home can have negative value. If an empty lot costs $60k, it's not uncommon for a house on an equivalent lot to be only worth $50k, because it's assumed you'll have to spend $10k to properly demolish and dispose of the existing home before the lot becomes usable. In this scenario, the homes value is effectively negative $10k.

Homes don't hold their value, land and zoning does. And with prices as crazy high as they are today, the actual home cost is almost an afterthought. I suspect if land and zoning actually became affordable, more people would opt to toss and rebuild their old homes with new modern ones, similar to Tokyo residential development.

bluthru4• 9 years ago

Houses can basically last an arbitrarily long amount of time and still remain functional.

Not anymore. Contemporary houses only last about 40 years.

branchless16• 9 years ago

Land is expensive because the banks will advance huge amounts against your future income. They have no constraint on this as when they advance credit they do so by creating it.

When wages go up, mortgage lending goes up (and by a multiple). The banks hoover up all productivity gains.

NYTimes might want house prices to go down but they have to take on the banks if they mean it.

Incredible that anyone could disagree with this, really, but downvote away.

mcguire6• 9 years ago

It seems difficult to argue with the idea that the reason housing in SF is more expensive that that in Detroit is because there is more money chasing it.

branchless16• 9 years ago

Apparently many think it's because people in SF have forgotten how to build. They are constructing inefficiently using expensive materials.

Credit sets the price. Banks issue as much credit as they can, leaving workers with enough to eat / heat / clothe themselves and no more.

I cannot understand how anyone can think otherwise. This is how we create money.

Where is all the money going in SF with all the highly paid devs? A big wedge to the landlords. Because all productivity gains flow into land because that is what the banks use to create new debt.

licnep• 9 years ago

Really sad you're getting downvoted, as this is one of the smartest answers in the thread that identifies the main reason for rising house prices.

Anyone denying the effect of banks is missing an important point. I suggest looking at positivemoney's articles or videos on youtube for an explanation of this process, it's pretty clear.

branchless16• 9 years ago

Hacker news cannot exist if one attacks usury.

monkmartinez5• 9 years ago

You are right, of course... however...

What about the power the government derives from taxing your real estate? Don't forget that either.

branchless16• 9 years ago

Land is the common wealth. Tax it. No income tax.

ArkyBeagle11• 9 years ago

Banks just provide a service. IMO, cultural norms are the problem - people have overbought housing chasing various subsidies. People are behaving as-if they can depend on rising wages when there's only been the one spot of rising wages in the late '90s, since 1980.

I think you're close, but take a look at "Progress and Poverty" by Henry George. The problem is the failure to capture rents through taxation.

branchless16• 9 years ago

I'm a georgist. I regularly recommend that book on here, including on this thread.

However banks do not provide a service as banks are not intermediaries. The create new money as credit.

https://bankunderground.co.uk/2015/06/30/banks-are-not-inter...

bluthru4• 9 years ago

They have no constraint on this as when they advance credit they do so by creating it.

It blew my mind that this is how money is created.

What would be the downside of banks having to buy this money from the government instead of creating it for free?

branchless16• 9 years ago

A bunch of scumbags who add no value would have less resources. Wait I guess that's not a downside.

Funny how money creation isn't on the curriculum, isn't it?

sologoub3• 9 years ago

By the paper’s calculations, a home in the San Francisco area should cost around $281,000.

This makes very little sense to me - San Francisco is surrounded by water on three sides and borders other towns/cities on the 4th, so how does one account for the demand of new housing once the existing housing is built?

In other words, let's say we increase density sufficiently, so that we flood the market with new homes (apartments for SF) and drive the price down to 281k. As time passes and population increases, with a fixed land supply, you'll need to build denser. But you have people already living in the homes you'll need to tear down. How do you force enough of them to move so that you always maintain enough housing stock to keep prices low?

It has been done with marginal success in non-market economies. For example, in USSR, when new apartment buildings were to be built where older ones currently stood, government simply ordered people to relocate to "improved" new apartments, usually located in undesirable areas of the city. This is hardly fair.

A US version of that could use eminent domain powers, but I somehow doubt the people of the city would support that.

Another question is whether people will want to live in that level of density. Eventually, you'll have price stratification based on height and access to sunlight. In NYC, you already see sunlight or lack of it as a significant pricing factor. Street noise is another factor.

That said, it doesn't mean there isn't some sort of sane middle ground. SF could use more development, just like the westside of LA, but it won't result in $281k price point.

rtpg3• 9 years ago

"The people of the city"

It depends on what proportion of the city owns their home. If most people are renters, of course they want the price of housing to go down! If there's one good rallying cry against capitalism as an effective means of societal advance, it's rent seeking and the conflicts it causes.

I bring it up every time this topic comes up, but NYC is not the only way to make a "big city". Tokyo is nice, high density, but there are trees all over the place. All for 1/5th the rent of SF.

A well designed big city is not one that just has taller buildings. It has better service distribution, so there are, overall, less cars. There aren't just a grid of avenues (that's too convenient for cars!), but many roads that are smaller.

Building development is not allowed to block out sunlight from other buildings. Street noise is handled by making only a couple large avenues, with most streets being extremely small and low-traffic. Yes, it makes traffic worse for some people. Don't have as many people driving all over.

mcguire6• 9 years ago

http://www.economist.com/node/13415153 [2009]

http://www.economist.com/blogs/freeexchange/2012/08/lost-dec... [2012]

https://en.m.wikipedia.org/wiki/Lost_Decade_%28Japan%29?wpro...

sologoub3• 9 years ago

I have not been to Tokyo, but I still don't see how you make a plot of land as small as SF support 4-5 million people without still creating serious compromises to quality of life for the lower end of the price range.

You still need to displace people for new development. Renters, just like owners do not want to move to make room for "new comers". Even if the move is close in proximity.

EDIT: Another example - Santa Monica, CA. Renters hold the legislative power (64.1% renter population), but the opposite of what you describe happens - the renter-elected city council members oppose growth and renter-led coalitions block development of great projects.

Sources: https://en.m.wikipedia.org/wiki/Santa_Monica,_California http://la.curbed.com/2015/8/21/9928090/pretty-expoadjacent-o...

Decade4• 9 years ago

San Francisco has a unique problem. Even though most people are renters, they still oppose policies that would lead to price decreases. That is why I support YIMBY Action and not the old Tenants Union. https://yimbyaction.org/about/

What happened is that the revolutionary anti-capitalists of the 1960s and 1970s passed into law such a thicket of tenant protections, that being a tenant gives you most of the benefits of ownership. If the building was built before 1979, the tenant even gets rent control, that prevents their rent from rising with the cost of maintenance. This is regardless of the tenant’s ability to pay increased rent.

The way the law was written, new construction is exempt from rent control. The old tenants union therefore opposes all new construction, especially new construction that destroys rent-controlled units. No new construction, in the presence of increased demand, raises prices.

mattnewton• 9 years ago

Easy, they build up on new places, which they aren't allowed to do now.

randomdata• 9 years ago

The parent asked about what happens after we've built up. Unless population growth grinds to a halt, the buildings will have to grow taller still at some point. If the market needs 20 floor structures today, and 40 floor structures in a decade, he asks how do you take 20 floors of people out of their homes in order to tear down and rebuild sufficiently dense housing.

TheCoelacanth• 9 years ago

You don't need a command economy or eminent domain to pursue lower prices. There are numerous policies that could be changed to have that effect:

* Get rid of Prop 13. It discourages property owners from selling or re-developing their property leading to higher prices.

* Get rid of the mortgage interest deduction. It is a subsidy to homeowners which causes higher prices.

* Get rid of zoning regulations that prevent property owners who want to re-develop their property from building higher density.

* Institute a land value tax. Instead of the current property tax structure which charges people who are under-utilizing land less than people who are utilizing it more efficiently, charge them the same amount to encourage the land to be used for the most valuable use.

mcguire6• 9 years ago

It is somewhat difficult to take seriously a paper that includes a statement like

"Vacant land sales are rarely observed in the United States,..."

I haven't gone through the economic model described in the paper, but it appears to be a traditional, static, linear thing that has a few issues.

If you want to live somewhere with fewer regulations, there are plenty of opportunities. Just avoid these things:

http://kotv.images.worldnow.com/images/6723723_G.jpg

And probably:

http://www.precisebuildings.com/images/uploads/build/400/dsc...

And keep in mind these may be your neighbors:

http://worldonline.media.clients.ellingtoncms.com/img/croppe...

lazyasciiart• 9 years ago

What are the first two pictures?

rhizome• 9 years ago

First one looks like a suburban chicken coop and the second a factory farm.

mcguire6• 9 years ago

The first is a pen for raising fighting chickens. The roosters are in cages; you need to keep them separated or they will (obviously) fight. Not all fighting chickens are raised for cockfights, but in largely-unregulated areas of the US, many are. The fights are illegal and rather unsavory, and tend to attract characters who are rather unsavory themselves. Not the kind of thing you want for neighbors.

The second is a building for raising commercial chickens. In my experience, they smell worse than cattle feedlots but better than hog packing plants.

The third is an oddity: many people seem to store their wealth in the form of junk in their yards. Not sure how that's supposed to work, actually. You'll occasionally hear of someone in a metropolitan area being forced to clean up, or having the city do it for them. This is not the case in the regulation-free rural areas.

0xC0DECAFE2020• 9 years ago

I'm in the process of researching alternatives to conventional housing. It's a fascinating area to research. The alternatives, particularly with regard to new building systems and modes of living, are available at reasonable cost. The road blocks in the way are breaking with tradition/mindset and filling the gap with regard to rent seeking revenues both public and private, but mostly public in the form of property taxes.

I see us being on the cusp of a change in attitudes and the way we value housing.

monkmartinez5• 9 years ago

This is cool, and I really hope it goes somewhere. I own a home, but think the whole thing is stupid.

S4M2• 9 years ago

I had a colleague at a previous job who was living in a boat. He once told me tnat the costs to rent a place in the harbour, to maintain the boat and the utilities were about 400 euros/month, which is about the rent he'd pay for a small studio in Barcelona. The rents arec cheaper there but maybe in New York or San Francisco one can save lots of money like that.

kogepathic• 9 years ago

I had a colleague at a previous job who was living in a boat.

Sounds like fun! Do you know what kind of boat (e.g. motor boat, sail boat, yacht) and how much he paid for the boat?

Looking at sail boats, they're surprisingly expensive for a reasonably sized one (e.g. seafaring).

pfarnsworth• 9 years ago

The real solution is to entice global companies like Google and Facebook to start building employment centers in areas like the Midwest. Having so many rich engineers competing for the same houses is what is causing prices to skyrocket. There's no excuse for contemporary companies to keep pouring more and more money into the Bay Area, when they could easily work remote.

Divert the demand to other geographic locations, and then you'll see the supply loosen and prices soften.

twblalock7• 9 years ago

The real solution is to entice global companies like Google and Facebook to start building employment centers in areas like the Midwest.

Why should they do that when the best engineers want to live in the Bay Area? The talent can come to them.

brutus12133• 9 years ago

I know many engineers at those companies. After a baby or two, everyone starts complaining about crazy home prices.

RestlessMind4• 9 years ago

I read the article and it just glosses over the political difficulties, which will be extremely hard to overcome. Basically, when the most engaged citizenry also happens to be homeowners, legislating any measure that reduces home values will be akin to political suicide.

Even while it acknowledges the hypothetical nature of its arguments, the article doesn't consider negative factors - like the massive number of middle class middle-aged homeowners, whose mortgages will be underwater in case home prices were to drop. Is there going to be bailout of all of them? If not, we are looking at a repeat of 2008. If yes, who foots the bill?

Maybe, this idea would have been interesting at the beginning before homeownership was entrenched with the personal wealth. Now? Not so sure.

Atheros• 9 years ago

Prices don't need to actually drop in dollar terms. They can drop slowly in real terms. That would be sufficient. No 2008-event necessary.

RestlessMind4• 9 years ago

You mean, rate of inflation being higher than rate of house price increases? Sounds good in theory, but how do you pull it off in practice in a somewhat free market like US?

Mikeb85• 9 years ago

Falling home prices is absolutely a good thing. When home prices are too high, it prices out regular consumers, only professional investors and landlords can afford them, they take economic rent, it's a drag on the economy and cost of living, and hurts the working class.

It's pretty easy to see in places like Vancouver, and while it's not as bad in many other places, it's still insidious.

anonu• 9 years ago

In the US, homes are the best way for the middle class to create wealth because the government essentially subsidizes this transfer. The entire financial system and tax code are designed to support this. There is no other country in the world where you can just get a loan that leverages you up 10:1 . This is where the cycle begins. Home prices have to go up now, otherwise these loans go underwater and we get another financial crises like the one we saw in 2008. Then, the tax code effectively gives you free money to do this trade. If you don't take advantage of it, you're probably missing out. Finally, this is why we always like a bit of inflation. Inflation devalues that loan and pushes the price of your house up. Falling home prices would be a disaster for America ... we've already seen this scenario less than 10 years ago...

dilemma• 9 years ago

The entire financial system and tax code are designed to support this. There is no other country in the world where you can just get a loan that leverages you up 10:1.

It's actually the same in most or all western countries.

jstanley• 9 years ago

There is no other country in the world where you can just get a loan that leverages you up 10:1.

That's a big claim, and possibly I've misunderstood it. I live in England and I had no trouble at all getting a mortgage with a 10% deposit.

pzone• 9 years ago

The entire point of the article is that this way of thinking is outdated. Yes, we have long considered homes as primary investments and as the best way to grow wealth, and yes, we have had falling home prices bite us in the ass before. But these things are not set in stone, and a world where houses are just one of many goods we own and consume would work out just fine too, and perhaps it would work even better.

We can change the tax code, and home prices don't have to drop suddenly like they did in 2008 and put people underwater. They could simply plateau.

namlem4• 9 years ago

Changing things isn't so simple. Homeowners aren't going to be very keen on voting for politicians who run on devaluing their homes or making them pay thousands of dollars of extra taxes every year.

dalbasal• 9 years ago

I wonder how much of the "shrinking middle class" is attributable to rising house prices in the desirable areas that these people live.

ArkyBeagle11• 9 years ago

The number of desirable places with good wages has declined.

We're struggling with this. Dean Baker has at least the start of a theory. His BookTv is here, soon ( it was on air yesterday, so they haven't posted it yet ):

https://www.c-span.org/video/?421857-2/dean-baker-discusses-...

kqr2• 9 years ago

His books are freely available online. His latest book is Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer

http://deanbaker.net/books/rigged.htm

Falling Home Prices Could Be a Good Thing

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