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There is more to high house prices than constrained supply

economist.com

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

#171

Post by ktosobcy »

johnpmayer wrote: post #53
will_brown wrote: post #35

Housing prices are artificially high because of debt and finance. If loans/debt/financing/mortgages were made illegal, then these artificial high housing prices based on the credit line one can obtain rather than what one can actually afford, prices would come down to fair market value. I know people will claim credit is based on what one can afford but that is mental gymnastics (foreclosures, student loan defaults,…

Credit allows people to purchase things beyond their current wealth but rather within their future means to pay (their future productivity and trustworthiness). This is particularly useful for those who aren't born into wealth: Credit is practically the only way for normal folks to access productive capital, such as a home that allows you to avoid paying rent, or an education that in theory makes you more productive…

If you are not born into wealth you shouldn't be controlled by it - you should be able to get "free" education (tax based) so you wouldn't end up with a collar on your neck when you finish your studies and you should be able to get sane leaving conditions. Anything above that is "bonus" for the hard work that you put into making your live better.

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

#172

Post by darawk »

thaumaturgy wrote: post #169
darawk wrote: post #159

Earlier quoted context omitted.

Basically none of that makes any economic sense. The fact that Blackstone can own 1.5% of the property in Sacramento is a supply issue. I.e. we are back to supply and demand. The entire rest of your post hinges on there being no supply response to demand. So yes, once again, everything is still and always will be mediated primarily by 'remedial high school economics'. > Building more housing is not going to fix this…

These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan ma…

> These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices."

Huh? Let's talk about the rice market, rather than housing. Let's say you dump 1 trillion dollars into rice. What's going to happen? The price of rice rises, dramatically. However, rice farmers the world over see that price rise, and they start growing more rice. If you keep buying 1 trillion dollars worth of rice every year, the rice farmers will grow more rice in response, and the price will start to fall.

You, being a rational rice investor, will see that happening. And unless you're an idiot, will stop dumping your money into the rice market.

The only reason that houses are any different from rice is that housing is supply constrained, whereas rice is not.

> Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan market is now an international investment vehicle.

This question doesn't make any sense. You don't create homes so everyone can outperform the S&P. That's like asking "how many stocks do we need to create for everyone to be an early investor in a decacorn?".

The question you're trying to ask is: How many houses do we need to build until the rate of return on buying property equals the rate of return of the stock market, adjusted by risk. To be precise, you want the number of homes that need to be built for the Sharpe ratio of the residential real estate market to equal the Sharpe ratio of the stock market.

That question is going to vary by geography. Many housing markets already dramatically underperform the S&P. It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P.

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

#173

Post by pjmorris »

mooreds wrote: post #4
baybal2 wrote: post #2

>Low interest rates and innovations in the mortgage market may also be to blame Low interest rates and innovations in the mortgage market are to blame You are simply letting a person to buy more of any big, expensive asset. And the thing does gets out of control fast when there is a even minimal expectation of appreciation, and inflation fears. And that on top of the fact that real estate is the only "investment" pos…

All real estate is local. Certainly the innovations mentioned are part of the issue for most markets, but for some markets there are other impprtant factors: * The flood of expat money (Vancouver) * Supply constraints due to geography and/or Nimbyism coupled with net in migration (Bay area) * Builder hesitation plus in migration (Front range of Colorado) Hard to paint one picture. However, making mortgages easier to…

Real estate supply is local; real estate demand, via capital, is not.

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

#174

Post by lifeisstillgood »

South East England has an interesting problem - for a decade or more Dirty Money from Russia, China and elsewhere has poured into London, as bankers and lawyers turned a blind eye.

As the "big" properties in London went into the multi millions the original owners moved out one rung, and those owners moved out one and so on. The commuter belt is apparently shored up by billions of dirty money

But now it's drying up. Maybe tougher enforcement, more likely competition from NY / Nevada and Brexit uncertainty but it seems to have tanked the market.

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

#175

Post by s4vi0r »

mmirate wrote: post #44
s4vi0r wrote: post #37

Earlier quoted context omitted.

Or just destroying the entire cancerous concept of landlordism and housing as a commodity. No need to get all complicated, the solution is pretty simple.

What exactly would remain after this "destruction" of yours?

Not sure why, but I couldn't respond to your comment for quite some time.

I'm not sure what you're asking re: what would remain. Housing as a human right, I guess? There's no good reason for landlords to exist, nor do I understand why you would want housing to be a commodity especially considering we live in a post-2008 world.

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

#176

Post by projectramo »

phkahler wrote: post #42
projectramo wrote: post #31

Earlier quoted context omitted.

You have the mechanism right but I think you draw the wrong conclusion. Your max amount changes with interest rates. So if interest rates rise your max amount goes down for the same payment and house prices go down.

>> Home prices vary inversely with interest rates. That's exactly what I said. inversely means opposite.

Well then this is just false: “Ultimately your payment is determined in step 3 and has nothing to do with interest rates or home prices.”

You can’t have it both ways.

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

#177

Post by RA_Fisher »

space_fountain wrote: post #129
RA_Fisher wrote: post #123

Earlier quoted context omitted.

Close! The Fed printed many more dollars. Society gradually learns to revalue things and it starts with assets. The same reason Bitcoin and liquid assets are falling, the Feds destroying dollars. It's not that these things are falling but that USD are becoming more scarce.

I don't understand how that would work. Are you saying the fed printing money has meant that things like Bitcoint have gone done in value? Shouldn't it be the opposite since there's more or less a fixed supply of Bitcoin? Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply? That doesn't make sense to me either as I've never hea…

I'm saying this one,

> Or are you saying that Bitcoin went up because they printed money and is now falling again as people get used to the increased monetary supply

It's pretty amazing, but it's true. The Fed can alter the countable Dollars in existence ("money supply"). They have a gov granted monopoly on 'em.

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

#178

Post by RA_Fisher »

gammateam wrote: post #144
RA_Fisher wrote: post #123

Earlier quoted context omitted.

Close! The Fed printed many more dollars. Society gradually learns to revalue things and it starts with assets. The same reason Bitcoin and liquid assets are falling, the Feds destroying dollars. It's not that these things are falling but that USD are becoming more scarce.

Almooooooost The fed printing more dollars is done in a way designed to push people into riskier products. The literal point is so that people put their money into the economy instead of parking it in a savings account. So even though your favorite personal finance guru is having you celebrate 1.75% in an Allied Savings account in exchange for referral commissions, the point is for that to be an unattractive use of y…

Okay, so you mention what the Fed buys, but what does it sell? The same stuff, right? Assets. Assets become less scarce (Fed sells), prices go down. At the same time, Dollars become more scarce as the Fed sells their assets.

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

#179

Post by thaumaturgy »

darawk wrote: post #172
thaumaturgy wrote: post #169

Earlier quoted context omitted.

These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan ma…

> These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Huh? Let's talk about the rice market, rather than housing. Let's say you dump 1 trillion dollars into rice. What's going to happen? The price of rice rises, dramatically. However, rice farmers the world over see…

I think I'm getting your comments. I don't think you're getting mine.

> What's going to happen? The price of rice rises, dramatically.

Yes, which is what has been happening in housing.

> However, rice farmers the world over see that price rise, and they start growing more rice.

And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money.

That's where my earlier comment came from: the amount of new housing required to satisfy this equation from the supply side would be enormous, as would be the environmental destruction it would cause.

> And unless you're an idiot, will stop dumping your money into the rice market.

Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles.

> It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P.

Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it.

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

#180

Post by MrTonyD »

fbonetti wrote: post #138
MrTonyD wrote: post #77

Earlier quoted context omitted.

I read an article where they did a supply/demand analysis of tuitions, and found that tuitions might simply be responding to demand. Obviously, there are a lot of factors to consider. But they looked at broader economics for demand (jobs, unemployment) and existing college sizes (instructor and class volume) and found that pricing were correlated with supply/demand changes, with loans playing only a minor role in edu…

That demand was artificially created by the government disallowing the discharge of student loan debt through bankruptcy.

Ummmm...no, at least not according to the study I read. The study identified lots of reasons for demand. Mostly, it was the economic situation. When jobs get scarce, or people get fired, they often go back to school (or stay in school). That increases demand. And changes in population between areas also increases demand in particular regions. Demand also varies with percent of population at an age where they go to school. There was more to the study - but I read it a couple of years ago and never tried to memorize the details.

I'm trying to be generous in my response, and assume that you aren't simply trying to justify a philosophical position.

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