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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#81

Post by flukus »

sien wrote: post #38
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 the late 1980s Australian interest rates were 17% so the repayments required were much higher on the same level of debt.

Inflation was also in the >10% range (https://www.abs.gov.au/websitedbs/D3310114.nsf/home/ABS+Chie...) so if your wage kept up with inflation and you could weather the high interest rates for a few years then your mortgage:income ratio shrunk very quickly.

Re: Home Price-to-Income Ratios

#82

Post by gowld »

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…

How is that even possible? At interest rates that's 100% of income. Or it's becoming a rich area and next generation of up and comers needs to find a new frontier like the old generation did

Re: Home Price-to-Income Ratios

#83

Post by sharkmerry »

dv_dt wrote: post #74
bradlys wrote: post #31

Earlier quoted context omitted.

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.

That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).

It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes.

The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes

Re: Home Price-to-Income Ratios

#84

Post by souprock »

gonehome wrote: post #44
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-…

Most of the renters I know in the bay area rent a house with 3-4 roommates and pay reasonable rent with that split ($1400/month -> $1900/month each for a room in the house). Then saving as much as possible and hoping stock or RSUs will get you the rest of the way there to buying something (or buying a 1 or 2 bedroom for ~one million once you find an SO and working from there).

"reasonable" is relative to what you get, and nothing in that area is reasonable. In no way is $1400 to $1900 per month reasonable for just a room. For that price you ought to get a 1500 to 2200 sq ft detached 3-bedroom or 4-bedroom house on a quarter acre lot.

Re: Home Price-to-Income Ratios

#85

Post by gowld »

ggm wrote: post #73
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…

I'm one of your dad's generation and we like to call this "inter-generational theft" because it kind-of sums it up: the spending patterns we established, are predicated on leaving our kids (and grandkids, probably) worse off. Not because of a debt burden, there is nothing wrong with long term public sector debt financing. The problem is the asset bubble in home ownership prices. We should have 10+ year secured reside…

What happens to those houses when you die? Are they mortgaged with no equity? If you leave an inheritance, you are giving the wealth back/forward.

Re: Home Price-to-Income Ratios

#86

Post by dv_dt »

tspike wrote: post #80
dv_dt wrote: post #74

Earlier quoted context omitted.

That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).

Zoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.

Right but it's unclear how Prop 13 drives that. If you repeal Prop 13, presumably it forces more people to sell, but that just means different people with closer to market price mortgage ratios. Would make it more or less likely to oppose new development if they're at risk if something changes and the price goes down on their homes?

Re: Home Price-to-Income Ratios

#87

Post by mdasen »

zik wrote: post #36
mdasen wrote: post #26

Earlier quoted context omitted.

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.…

That can happen for a time. Investors might sit on things hoping that it will appreciate in value. However, many times there's a myth of "empty houses" used to justify not building more. Some people have cited non-owner-occupied condos as "empty" when they're merely rented. When a large new property comes on the market, often the owners take time selling off units so as not to flood the market and drive down their investment (just as one doesn't want to unload shares all at once and overwhelm demand). There's always a certain level of vacancies and a lot of the time when people think there are a lot of vacancies, it's not actually high. They just notice a couple fancy buildings that aren't full.

Prices are also sticky. If you bought a home at $X, you're going to psychologically want to get that back when selling. If you're a buyer, you've seen prices at X and you've become accustomed to thinking it costs that.

And a lot of people say that there's been a "massive housing boom" when production is a tiny fraction of historical levels. This can be understandable. If your area used to increase housing by 1% per year from 1920-2007 and then shrunk down to 0% per year from 2007-2015, increases of 0.5% per year might seem like a boom. However, it's below historical levels and might be coming after a near decade of under-creation. As such, there can be huge pent-up demand combined with a level of building that's still well below normal (but seems high compared to post-mortgage-crisis levels).

EDIT: https://twitter.com/TweetBenMax/status/1218712012114538497/p...

This isn't the best graph because housing production had already dropped off by the 90s, but it's still pretty clear. Everyone in expensive US cities thinks we're building lots of housing. However, when you look at it we're just not. Compared to the dip after the mortgage crisis, we're definitely building more. However, these expensive cities are also seeing historic levels of high-income job growth and migration towards them while having building at lower than historical levels. Maybe Australia is different, but it's probably just a comparison with post-mortgage-crisis lows and not actually a building boom. Even with new stock coming in, it can take years (think 5-15) to settle.

Re: Home Price-to-Income Ratios

#88

Post by PHGamer »

tspike wrote: post #80
dv_dt wrote: post #74

Earlier quoted context omitted.

That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).

Zoning is a big issue, neighborhood associations almost universally oppose new development and they have a lot of say in the process.

which is a big government problem which is a california problem (though some townships in rural american can be quite big government themselves). Zoning should be illegal imo but I get that assholes make it some you need some rules. The problem is everyone adds to their rules to control their fifedom.

Re: Home Price-to-Income Ratios

#89

Post by dv_dt »

sharkmerry wrote: post #83
dv_dt wrote: post #74

Earlier quoted context omitted.

That is a flaw of Prop 13, but I don't see how it drives home prices up? Wouldn't it motivate devleopers to build properties to rent out because of a long term margin improvement in the profit? (because the property tax rises are constrained below most inflation).

It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes. The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes

> It drives home prices up by reducing velocity of home sales because people can afford to stay longer without higher taxes.

Why? It doesn't change the total inventory, nor the ratios of how many want a home vs have a home.

> The issue that seems to have developed is that towns are building commercial property, as it brings in sales taxes or payroll taxes which total a lot more than property taxes

Commercial property also includes apartment complexes too doesn't it? In my town there is an excess of commercial retail and office property, and builds are shifting to apts/condos as far as I can tell.

Re: Home Price-to-Income Ratios

#90

Post by souprock »

treebornfrog wrote: post #70
souprock wrote: post #58

Earlier quoted context omitted.

You picked the wrong Melbourne. The one in Florida is a far better deal. Median household income is $40,000, and the median house is just $150,000. The house is 3.75 times the income. Of course, it is even lower for the typical people here on Hacker News.

Are we looking at income post tax here?

Pre-tax I suppose, but it hardly matters. The local and state tax is only a 6.5% sales tax, excluding food. The only income tax is federal, which is approximately nothing for people at that income who have children.
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