Why Rent Is So High and Pay So Low • Hacker News Board

Re: Why Rent Is So High and Pay So Low

#191

Post by gnaritas » Sat, Aug 08, 2015, 2:42 PM UTC

jihjijbjib wrote: post #44

nostromo wrote: post #6

This article doesn't answer the question and seems primary based on nostalgia. My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it. Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably. So, the Fed has the pe…

How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful? fed policy only encourages malinvestment and inefficiency. How about tax and regulatory reform instead of the current corrupt regime of barriers to keep out the innovative and new for the old and established. There's so much which would help, but completely corrupt status quo serves the powerful at everyone e…

> How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful?

How about neither. How about addressing inequality by pumping money where it belongs, down to the poor, lowering taxes on the 99%, raising them on the 1%, and fixing the source of all the actual problems rather than simply treating symptoms? Markets aren't naturally good and crony capitalism isn't either, they both need tamed.

Re: Why Rent Is So High and Pay So Low

#192

Post by coldcode » Sat, Aug 08, 2015, 2:44 PM UTC

If the rich keep getting richer and the poor poorer, eventually either the poor will die of starvation or disease or the rich will die in the guillotine - History.

Re: Why Rent Is So High and Pay So Low

#193

Post by varjag » Sat, Aug 08, 2015, 2:57 PM UTC

spiralpolitik wrote: post #108

tcbawo wrote: post #74

Earlier quoted context omitted.

This is a gray area. If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever. Same with banks. As much as we detest bailing out bankers, allowing the US to economy to be cut off from credit would create lasting collateral damage.

The counter example is Iceland who told the banks to get lost and is the only European country who's economy is now ahead of where it was in 2008. http://www.independent.co.uk/news/business/news/three-charts...

Ireland, the example shunned by krugmanites, has followed the IMF/ECB advice and is in better position than it was in 2008.

Re: Why Rent Is So High and Pay So Low

#194

Post by [deleted] » Sat, Aug 08, 2015, 2:58 PM UTC

danieltillett wrote: post #172

enraged_camel wrote: post #160

Earlier quoted context omitted.

>>GWB got a SAT mark that implies a IQ over 130. Huh? He scored 566 on verbal and 640 on math for a total of 1206 points -- around 140 points below his Yale classmates. I'm not sure how this implies an IQ of over 130, unless you believe that Yale is attended by pure geniuses (hint: it isn't). Furthermore, both SAT and IQ scores are highly correlated with the quality of education one receives. They don't measure innat…

We can argue over GWBs's IQ, but nobody with an IQ of 125 is a dummy - half the population have an IQ under 100.

[deleted]

Re: Why Rent Is So High and Pay So Low

#195

Post by BocceBaal » Sat, Aug 08, 2015, 3:02 PM UTC

gmarx wrote: post #19

Funny, if you look at news and popular media from the 1970s you get the impression is was an awful time economically and pretty much everyone agreed we were doomed. Rents were cheap in NYC in the 1970s? I don't doubt it; ever seen "Taxi Driver"? Yes rent control is great for people in rent controled apartments. The flip side is that as demand rises everyone who hasn't been in NYC for 40 years is SOL...which seems ana…

The author is either ignorant of economics or intentionally misrepresenting the facts to advance his pro-union agenda. I can't take his piece seriously.

He ignores the fact that rent control causes housing not to be built and so raises prices for everyone who doesn't already have a rent controlled apartment.

Reagan was elected in no small part because of the high unemployment + inflation under Carter. If the 70's were so great would Carter have lost to Reagan by 10 points? If Reagan was so terrible would he have been reelected in a landslide in 1984?

Re: Why Rent Is So High and Pay So Low

#196

Post by mrec » Sat, Aug 08, 2015, 3:06 PM UTC

eots wrote: post #187

webosdude wrote: post #36

Earlier quoted context omitted.

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration…

Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?

People tend to judge affordability based on repayments, not prices, so lower interest rates mean you can service a much larger debt for the same monthly repayment.

Where housing is scarce prices are determined by availability of credit more than anything else, so "you can" rapidly becomes "you'll have to, otherwise you'll be outbid by somebody who will".

Over the long term it's a shitty, negative-sum game for everyone except the banks.

Re: Why Rent Is So High and Pay So Low

#197

Post by tim333 » Sat, Aug 08, 2015, 3:07 PM UTC

I think the author is kind of mixing some different effects

1) The switch of bargaining power from workers to capital with Thatcher and Regan. I basically agree with him at least in the UK and US. Less so in places like France.

2) High asset prices - largely due to very low interest rates.

3) Rents to wages. Outside of popular cities like London, NY, SF I'm skeptical it's got much worse. I don't have that much data but here's a graph for NZ for the time period and it kind of goes up a bit and down a bit without much of a trend. http://transportblog.co.nz/wp-content/uploads/2014/07/Rodney...

4) Rent to income in NY, SF, London

In the old days where people worked in mostly industry and agriculture it made sense to be where that was happening. Now when a lot of people are information workers it makes sense to go where the smart people are at so everyone piles into the top cities even if it means packing twice as many into an apartment as used to be the case.

So if your rents so high relative to your wages it's probably because you are in a popular location with a restricted supply of property.

Re: Why Rent Is So High and Pay So Low

#198

Post by tinco » Sat, Aug 08, 2015, 3:44 PM UTC

eots wrote: post #187

webosdude wrote: post #36

Earlier quoted context omitted.

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration…

Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?

Low Fed interest means you can't make good money safely by loaning it to the central bank. So it makes the alternative loans more attractive, mortgages are a relatively safe and profitable investment. When the cost of mortgages goes down the amount borrowable goes up so the people can buy more expensive houses. The immediate result is that their prices go up.

Re: Why Rent Is So High and Pay So Low

#199

Post by touchofevil » Sat, Aug 08, 2015, 3:49 PM UTC

I spent a few minutes posting a comment on this article only to find in the morning that the comments had been disabled. Not a great way to encourage discussion! Anyways, here's my comment that was deleted:

I really enjoyed this article, however, I think you have glossed over what really led to the 2008 banking crisis. The banks bundled subprime home loans into securities that were then sold off to investors. As I understand it, what actually put the banks at risk was that banks were selling "Credit Default Swaps" (CDSes) on those bundled mortgage assets. These CDSes were essentially unregulated insurance policies that banks sold to insure the bundled mortgages against losses. Since the CDSes were not technically insurance policies (even though they really were) the banks did not have to keep money put away to cover those insurance policy payouts if the mortgage-backed assets went bad. This resulted in the banks selling many more CDSes than they could actually cover. I'm not an economist or banker, but as I understand it, the unregulated CDS market is what really put the banks at risk in 2008. I highly recommend the book The Big Short by Michael Lewis for anyone interested in the 2008 crash.

Re: Why Rent Is So High and Pay So Low

#200

Post by jdawe » Sat, Aug 08, 2015, 3:53 PM UTC

eots wrote: post #187

webosdude wrote: post #36

Earlier quoted context omitted.

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration…

Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?

Lower interest rates mean it's cheaper to borrow, which makes borrowing more affordable to more people, which increases demand, which increases prices when supply is limited (artificially or otherwise, see San Francisco).