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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#31

Post by bradlys »

bcrosby95 wrote: post #18
sologoub wrote: post #16

Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply and encourages ani-development stance by removing the tax consequences of appreciating property)

I doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.

All the blame? No.

Most of the blame? Probably.

The same that happened to your parents happened to landowners of huge properties. They still pay peanuts for property tax 40 years later. In the end - it helped people who got there first and then screwed everyone else over. It helped rent seekers more than anything.

Re: Home Price-to-Income Ratios

#32

Post by JimmyAustin »

thatfrenchguy wrote: post #28
newnewpdro wrote: post #19

Earlier quoted context omitted.

By far the majority of renters I know in CA, in SF and Santa Monica, have largely abandoned any hope of homeownership and live incredibly spendy lifestyles while they can afford to be in the area. Eventually, they will wise up, move out of their expensive rentals and turn frugal - likely outside of these cities with a good possibility of leaving the state. In their absence, new young folks in their high-earning high-…

> supply fresh, gullible, overpaid talent, working not just to pay high rents but high everything, including state income tax, while saving very little IDK, most people in know in California seem to be saving 30-50% of their post tax income. That's clearly not the case anywhere else in the world.

And 30-50% is A LOT more in absolute dollars than it is outside of Cali.

Re: Home Price-to-Income Ratios

#33

Post by mikeyouse »

bcrosby95 wrote: post #18
sologoub wrote: post #16

Over 8x seems to be a CA thing mostly (one tile in Oregon bordering CA). Wonder if we can thank prop 13 for that? (Frozen property tax that constrains supply and encourages ani-development stance by removing the tax consequences of appreciating property)

I doubt you can lay all the blame on prop 13. It passed because CA home prices went crazy in the 70s. My parents bought a home in 1973 for $34k and sold it for $95k in 1978 (the year prop 13 was enacted). A 3x increase in 5 years.

Just out of curiosity, I tried to 'ground' those figures to median income to compare against what's happened in the past few years.

Per the US Census[1], median income in 1973 was $10,500, so the price of your parents' home increased by 3x median household income.

Looking at a completely unremarkable house in the sunset of SF on Zillow[2]. It sold for $1.725M in Nov of 2019 after selling for $997k in June of 2014. Household income today is right around $60k, so an increase of more like 12x median household income in 5 years.

Just madness. (And yes, I know that the median household income in SF is higher than the nationwide, but that'd apply in the past too.)

[1] - https://www2.census.gov/prod2/popscan/p60-096.pdf

[2] - https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...

Re: Home Price-to-Income Ratios

#34

Post by OJFord »

Jaygles wrote: post #24

I almost don't want to buy property as a protest to the horrible policies we have regarding basic necessities. Why should property owners be entitled to a major portion of my productivity/success? I'll rent the cheapest apartment I can find until the next housing crash or we have some sensible policy put through that negates the investment aspect of housing.

Is property ownership a basic necessity though?

Or is its prevalence as an ideal a product of a burgeoning middle class through the last century?

I understand it's not even so common (or common as a goal) now in continental Europe, they think it's some silly English thing to care so much about home ownership.

Re: Home Price-to-Income Ratios

#35

Post by flukus »

thundergolfer wrote: post #22

In late 1980s Melbourne, Australia my dad and his best friend were accountants and bought their houses for ~$40,000AUD, ~3 times their annual income. According to the best friend, this was considered a lot to pay for a home. In 2020, those houses are around ~$1.8-2M, so ~22.5-25 times the annual income of someone that has their job today. In Melbourne and Sydney generally, housing is 10 and ~13x annual income. Above…

Mine did the same in the early 80's on a cleaners salary, granted the money was better for cleaners back then (no several levels of contractors) and in a less desirable location (Gold Coast), but on my top decile for the country salary there's no way I could afford the same house today. It was also a single income household since they started a family about the same time. It shows how much our standard of living has dropped in four decades.

> Among my college-educated friends, the only one's thinking of buying property are either high income (doctors, investment bankers) or buying in markedly worse (thus cheaper) areas than they lived in as children.

Personally I scaled down expectations and bought a small "affordable" apartment. It's fine for me and achieves some financial stability but I wouldn't want to raise kids in one.

Re: Home Price-to-Income Ratios

#36

Post by zik »

mdasen wrote: post #26
ianmobbs wrote: post #3

I wonder if this is due to stagnant wages, excessive home price inflation, or both.

Housing supply has been increasing at far lower levels recently than it has historically. Lots of good jobs have been flooding certain cities and which means people with the money to bid up the existing stock. Since people are coming for the jobs and they have money and there isn't new housing to soak up that demand, those people end up bidding up what supply exists.

I don't think it's as simple as that. In Australia we've had a massive housing boom and consequently the market has been flooded with houses. Strangely this hasn't led to lower house prices. There's a large amount of housing which is purchased and is sitting empty, mostly investment properties which people bought with the intention of re-selling at a much higher price so they're not concerned about renting them out. This has led to a perverse situation where very expensive houses are being built and left empty and prices continue to rise to support this.

Re: Home Price-to-Income Ratios

#37

Post by tamaharbor »

newnewpdro wrote: post #19
KoftaBob wrote: post #14

Say what you will about Texas government, but they know how to stay out of people's way and let housing supply keep up with demand efficiently. California on the other hand, is absolutely pathetic when it comes to this. So absurd watching a state whose booming economy is funneling most of that money to property owners pockets. A huge and abject failure that will be in future economics textbooks as the example of how…

By far the majority of renters I know in CA, in SF and Santa Monica, have largely abandoned any hope of homeownership and live incredibly spendy lifestyles while they can afford to be in the area. Eventually, they will wise up, move out of their expensive rentals and turn frugal - likely outside of these cities with a good possibility of leaving the state. In their absence, new young folks in their high-earning high-…

Back in the day, we wouldn't let 'The Man' (landlord) control our lives, and would look for other alternatives.

Re: Home Price-to-Income Ratios

#38

Post by sien »

thundergolfer wrote: post #22

In late 1980s Melbourne, Australia my dad and his best friend were accountants and bought their houses for ~$40,000AUD, ~3 times their annual income. According to the best friend, this was considered a lot to pay for a home. In 2020, those houses are around ~$1.8-2M, so ~22.5-25 times the annual income of someone that has their job today. In Melbourne and Sydney generally, housing is 10 and ~13x annual income. Above…

In the late 1980s Australian interest rates were 17% so the repayments required were much higher on the same level of debt.

However, your point in general stands that houses in Australia are much more expensive than they were 30 years ago. But a better metric is the proportion of income required to pay for a house.

It's also worth noting for Australians and Americans that these housing cost issues are a global issues in many successful cities around the world.

Some cities and states have avoided these issues. In particular Texas in the US has seen huge growth and has managed to keep prices down.

Re: Home Price-to-Income Ratios

#39

Post by ianai »

Jaygles wrote: post #24

I almost don't want to buy property as a protest to the horrible policies we have regarding basic necessities. Why should property owners be entitled to a major portion of my productivity/success? I'll rent the cheapest apartment I can find until the next housing crash or we have some sensible policy put through that negates the investment aspect of housing.

That’s essentially what I’m doing, but not as a protest. Prices just don’t make sense to commit to at these ratios. I wouldn’t suggest staying out as a protest though. Maybe look for loopholes - at some point it may make sense to buy a beat up home in an undesirable place for very low and either fix it up and resell or use it for casual purposes and tax incentives.
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