There is more to high house prices than constrained supply • Hacker News Board

Re: There is more to high house prices than constrained supply

#111

Post by wwweston » Sat, Nov 24, 2018, 7:25 PM UTC

thaumaturgy wrote: post #105

yholio wrote: post #9

The price of houses is driven by market rents compounded with access to financing. If lenders are willing to finance an investment with 3% yield, then house prices will jump to 33x their annual rent value - it goes without saying that's only possible in low interest markets. The rent itself however is controlled by supply and demand - there needs to be a real person there earning a paycheck and he must have no other…

> The rent itself however is controlled by supply and demand No, it's not. Folks have got to stop using simplistic remedial high school economics classes to explain complex social problems. They just aren't that simple. During the 2008 financial implosion, a single investment company called Blackstone Group went on a buying spree around the US. As of this time last year, they owned, through a subsidiary company, full…

> They are more than happy to let some percentage of their properties remain empty rather than decreasing rental prices, because they can claim the lost rents -- at the prices they set -- as taxable deductions.

How is it that a tax deduction can offset the opportunity cost of leaving a property vacant?

Or does it only offset the cost of what the unit would actually rent for at rates that naturally clear the supply/demand curve?

Could a vacancy tax fix this?

Re: There is more to high house prices than constrained supply

#112

Post by Jack000 » Sat, Nov 24, 2018, 7:31 PM UTC

ttul wrote: post #94

clofresh wrote: post #78

Earlier quoted context omitted.

I've noticed this annecdotally when trying to buy a home on separate occasions in the New York and LA metro areas. I'm not sure it's foreign capital, but the majority of winning bids were all cash offers above the asking price. I'd love to see a retrospective analysis on Vancouver's protective measures to see if they did actually help, or if buyers found loopholes, or it wasn't Chinese buyers to begin with.

Of course it’s impossible to say with complete certainty, but... Vancouver’s housing market has stalled since the foreign buyer tax and vacancy taxes started to bite. Inventories are high and stubbornly stuck there rather than falling as they do toward the end of the year. Prices on high end homes are down a great deal - 20-30% for homes priced higher than $3M. I would say that at this early stage it looks like the n…

I think the confounding factor is that the tax would move the market whether or not foreign buyers are an issue. The price drops are also mostly at the top end of the market, which benefits wealthy buyers.

Re: There is more to high house prices than constrained supply

#113

Post by Apes » Sat, Nov 24, 2018, 7:31 PM UTC

thaumaturgy wrote: post #105

yholio wrote: post #9

The price of houses is driven by market rents compounded with access to financing. If lenders are willing to finance an investment with 3% yield, then house prices will jump to 33x their annual rent value - it goes without saying that's only possible in low interest markets. The rent itself however is controlled by supply and demand - there needs to be a real person there earning a paycheck and he must have no other…

> The rent itself however is controlled by supply and demand No, it's not. Folks have got to stop using simplistic remedial high school economics classes to explain complex social problems. They just aren't that simple. During the 2008 financial implosion, a single investment company called Blackstone Group went on a buying spree around the US. As of this time last year, they owned, through a subsidiary company, full…

So let me make sure I'm understanding you correctly.

You're positing that the proof supply and demand is not applicable to the housing market is that a private investment company has greatly increased demand beyond what the housing supply can support, which is driving up prices.

And the fact that demand exceeding supply is driving up prices is proof that supply and demand does not apply to the housing market?

Re: There is more to high house prices than constrained supply

#114

Post by ip26 » Sat, Nov 24, 2018, 7:39 PM UTC

will_brown wrote: post #82

ip26 wrote: post #48

Earlier quoted context omitted.

Hmm, forgetting land entirely, actual replacement cost is a lot higher than most people can afford directly (literally, the cost of materials and labor, a very competitive market) so I think instead of arriving at the true price of the house the market would instead be dominated by those who hold capital (as with industry), and we'd basically all be renters.

The credit based system is already dominated by people with capital. And I admit that same general bias would likely appear in homeownership statistics in a non credit based system. But the systemic problems of indebtedness and lack of access to credit (either bad credit or no credit) would disappear. Your greater point may be right, that leveling of the playing field will be all for not because the still existing we…

To your last point, it all depends on the location. Somewhere in Ohio, you might have $100k or $200k of house on $10k of land. Where I live, I'm at about 50/50, if insurance's adjudication of replacement cost is accurate.

Re: There is more to high house prices than constrained supply

#115

Post by jseliger » Sat, Nov 24, 2018, 7:42 PM UTC

thaumaturgy wrote: post #105

yholio wrote: post #9

The price of houses is driven by market rents compounded with access to financing. If lenders are willing to finance an investment with 3% yield, then house prices will jump to 33x their annual rent value - it goes without saying that's only possible in low interest markets. The rent itself however is controlled by supply and demand - there needs to be a real person there earning a paycheck and he must have no other…

> The rent itself however is controlled by supply and demand No, it's not. Folks have got to stop using simplistic remedial high school economics classes to explain complex social problems. They just aren't that simple. During the 2008 financial implosion, a single investment company called Blackstone Group went on a buying spree around the US. As of this time last year, they owned, through a subsidiary company, full…

Foreign cash investment in real estate is a major cause of high rental prices. But the data on this and investment companies like Blackstone Group is spotty and difficult to follow [3], on purpose.

That's not true. Zoning is the big problem: https://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B... or see Zoning Rules! by Fischel.

Blackstone's investments only make sense because of artificial supply limits. Remove those, and their whole strategy is destroyed. The situation really is primarily about supply and demand.

Re: There is more to high house prices than constrained supply

#116

Post by lazyasciiart » Sat, Nov 24, 2018, 7:44 PM UTC

ttul wrote: post #94

clofresh wrote: post #78

Earlier quoted context omitted.

I've noticed this annecdotally when trying to buy a home on separate occasions in the New York and LA metro areas. I'm not sure it's foreign capital, but the majority of winning bids were all cash offers above the asking price. I'd love to see a retrospective analysis on Vancouver's protective measures to see if they did actually help, or if buyers found loopholes, or it wasn't Chinese buyers to begin with.

Of course it’s impossible to say with complete certainty, but... Vancouver’s housing market has stalled since the foreign buyer tax and vacancy taxes started to bite. Inventories are high and stubbornly stuck there rather than falling as they do toward the end of the year. Prices on high end homes are down a great deal - 20-30% for homes priced higher than $3M. I would say that at this early stage it looks like the n…

Seattle's housing market has stalled too, with no tax introduced.

Re: There is more to high house prices than constrained supply

#117

Post by charlesdm » Sat, Nov 24, 2018, 7:44 PM UTC

mabbo wrote: post #20

phkahler wrote: post #13

Home prices vary inversely with interest rates. Here's how that works: 1) person tells bank they'd like a mortgage to buy a house. 2) banker asks for info on income, expenses, etc. 3) banker estimates persons maximum monthly payment. 4) banker figures out max loan amount based on #3 5) buyer is encouraged by everyone to spend the full amount from #4 Everyone - the seller, their agent, your agent, the bank, and maybe…

> Ultimately your payment is determined in step 3 and has nothing to do with interest rates. This presumes a single purchase. You've got to go 'macro economic' to see where this breaks down. When prices start rising because of increased max loan amounts, you get things like bidding wars. Toronto has been terrible for those in the last 5 years. Both the bank and the seller win when people start paying (and borrowing)…

Until the music stops. See how much those condo's sell for during the next downturn, if you can even sell them.

Re: There is more to high house prices than constrained supply

#118

Post by fallingfrog » Sat, Nov 24, 2018, 7:45 PM UTC

I have to say I just don’t understand why anyone would willingly pay the kinds of prices for housing that I see people paying. It seems like the consensus is that you should pay 2.5 times your household income on a house; I see people around me paying 5 times or more. That’s bonkers. We paid 1.25 times our household income and we’d never have considered more. I’d rather live in a double wide than put that much of my income into a sunk cost like that. No way. Everyone is just behaving in a totally irrational way and I don’t get it.

Re: There is more to high house prices than constrained supply

#119

Post by 01100011 » Sat, Nov 24, 2018, 7:45 PM UTC

zippy5 wrote: post #57

mabbo wrote: post #20

Earlier quoted context omitted.

> Ultimately your payment is determined in step 3 and has nothing to do with interest rates. This presumes a single purchase. You've got to go 'macro economic' to see where this breaks down. When prices start rising because of increased max loan amounts, you get things like bidding wars. Toronto has been terrible for those in the last 5 years. Both the bank and the seller win when people start paying (and borrowing)…

However, the problem is that loans are an extrapolation of 30 years of income. So in a boom portion of the cycle, we over project an unsustainable income but in the bust portion, we under project. There is an inherit recency bias in the loan approval process. When coupled with an interest rates that are far below the historical median, there is an implication that a buyer can take out more debt than in any other econ…

And on the flip side, you can assume some level of inflation which makes that 30 year bet on your income less crazy. Sure, I don't expect to make 200k+ in inflation adjusted dollars for 30 years, but I might make that much after inflation devalues the dollar.

Re: There is more to high house prices than constrained supply

#120

Post by bognition » Sat, Nov 24, 2018, 7:49 PM UTC

fallingfrog wrote: post #118

I have to say I just don’t understand why anyone would willingly pay the kinds of prices for housing that I see people paying. It seems like the consensus is that you should pay 2.5 times your household income on a house; I see people around me paying 5 times or more. That’s bonkers . We paid 1.25 times our household income and we’d never have considered more. I’d rather live in a double wide than put that much of my…

> Everyone is just behaving in a totally irrational way and I don’t get it.

A lot of people don’t have the luxury of paying only 1.25X their salary.

Take Boston for example. You’d need to live more than an hour out of the city or in a city with terrible schools to find a house that cheap.

Lots of people are optimizing for more than just price. Things like quality of education and commute also factor in.

So please realize housing is incredibly complex before judging everyone else as irrational for not making the same life choices as you.