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Home Price-to-Income Ratios

jchs.harvard.edu

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Re: Home Price-to-Income Ratios

#141

Post by chii »

jedberg wrote: post #128
jjtheblunt wrote: post #66

Earlier quoted context omitted.

Would that mean that, since California + Federal taxes are something like 46%, post tax income is roughly 54% salary? If so, they're saving only roughly 15-25% income?

> California + Federal taxes are something like 46% 49.3% is the top rate you'd pay in California at the highest bracket (or 50.3% if you make over a million) . If your income is over 2 million a year you'd pay an effective rate of 44%. If your income is $200K, your effective rate is about 34%.

at higher and higher incomes, it makes more and more sense to try and deduct income via investment costs (such as interest on borrowing). So your optimized effective tax rate would be a lot lower.

Re: Home Price-to-Income Ratios

#142

Post by foogazi »

thundergolfer wrote: post #133
foogazi wrote: post #131

Earlier quoted context omitted.

> 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 Something has to have changed since then. What was the interest rate like back then and what kind of terms did he get for his loan? (edit spelling)

> Something has to have changed since then. In 35 years an awful lot has changed. What are you thinking specifically? Interest rate wouldn't be too hard to find, though it'd be a lot of trouble to find out the terms of the loan. One thing I can comfortably say though is that they'd been living at home and saving for a while, so could pay quite a lot of the full housing cost up front. Maybe 30-50%. Nowadays it's a jok…

I was thinking maybe it was a time when purchases were made in cash or seller financed

But siem already posted that interest were around 17% and someone else mentioned 10% inflation in the eighties

Then you throw in immigration and global markets and a somewhat clearer picture emerges

Re: Home Price-to-Income Ratios

#143

Post by nunez »

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…

Tell that to Austin and some areas in Dallas.

Re: Home Price-to-Income Ratios

#144

Post by leetcrew »

sgc wrote: post #138
leetcrew wrote: post #130

Earlier quoted context omitted.

> One potential contribution to a solution would be to tax investment properties/second homes at a very different rate than primary dwellings (which should be taxed at as close to 0% as is practically possible). as a renter, that doesn't sound like a good solution to me. my landlord would just pass through the "investment property" tax to me, while homeowners in my income bracket would be getting a fat tax break. peo…

I understand the renter dilemma. The goal would be to propel you towards home ownership. If taxes were higher on investment properties purchase prices would get pushed down, thereby reducing the amount your landlord would need to charge for rent. Rent will go up with inflation regardless, since landlords optimize for profit. But all of a sudden there is less of a difference between what rent costs and a mortgage paym…

so I have two main objections here. the first is that tax breaks for homeowners tend to benefit the middle class at the expense of those who are just below the threshold to qualify for a mortgage. unless you just give them the money or have the government guarantee their debt, this is going to be a problem. if your idea works really well and housing prices drop a lot, this could be a pretty small group, but it's still worth thinking about imo.

my second (and very self-interested) reason, is that I don't want to be propelled towards home ownership. if I really wanted to I could buy a home now (and probably break even; I live in a low price-to-rent area), but I like renting. I'm quite happy in a 700 sq ft apartment, and I don't want the work that comes with a larger dwelling. I'm not exactly hurting for money, but I just don't see a compelling reason why the alternate version of me who bought a house deserves a tax break. I'm not sure I'm convinced by your argument that this policy would also lower my rent, but I'm not an economist so I can't really say.

> At the same time there is a basic philosophy I espouse that all people have a right to a home and a piece of land, and unless absolutely necessary to society, they should not be renting from the government.

just wanted to say I can certainly respect this, but I have a very different philosophy. land, especially in cities, is one of the only truly scarce things in the world, and its value depends almost entirely on what other people are doing near you. in our era of prosperity, I can agree that people should be entitled to a place to live, but I don't believe they should get to control a specific plot indefinitely.

Re: Home Price-to-Income Ratios

#145

Post by cjhopman »

mikeyouse wrote: post #132
cjhopman wrote: post #61

Earlier quoted context omitted.

That's a bad example, that home was completely remodeled between the two sales.

Fair to a point, it was merely a random click on a recently sold property, but it was a $20,000 kitchen remodel (permit 201608084481), a $7,000 bathroom remodel (permit 201408113562) and a new roof for $7,500. So not sure if it's really a bad example when 5 years + $35,000 in investment adds over $700k in value to a home. You can review the permits here: https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType...

That's really cool thanks, didn't realize you could just look up the permits like that.

I'm not sure what those values in the permits really mean, but they can't be the total costs. Hell, the kitchen remodel probably has $20,000 just in appliances.

According to https://blog.housemanager.calstate.aaa.com/blog/how-much-wil..., the price for a mid-range kitchen remodel in SF is ~$83,000, $65,000 for the bathroom and $30,000 for an average roof replacement.

Looking at the pictures of the kitchen (https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) and bathroom (https://www.zillow.com/homedetails/610-Rivera-St-San-Francis...) those numbers seem like they're probably closer than the permit numbers.

It looks like they also remodeled the half-bath as it matches the remodeled master.

It's probably more like $100-150k in renovations.

Re: Home Price-to-Income Ratios

#146

Post by pedrosorio »

greedo wrote: post #111
JimmyAustin wrote: post #50

Earlier quoted context omitted.

Australian tax law is incredibly geared towards home ownership, and the culture of owning your home is very, very strong. See https://en.wikipedia.org/wiki/Australian_Dream . Personally, most of the people in my age cohort (mid 20s) who've bought homes, have bought in areas considerably further away from the city than they were raised.

I think this is an expectation thing. We grew up in houses that our parents owned in their 40-50's, after building their careers and wealth. Yet we expect to buy them in our 20s. That doesn't align with where my parents were in their 20s.

Your parents were in their 40-50s when you were born? That's certainly not the norm.

Re: Home Price-to-Income Ratios

#147

Post by pmiller2 »

mNovak wrote: post #91
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.

I'm not sure if this argument makes a lot of sense.. If you're renting, property owners are definitely still acquiring the fruits of your productivity. Moreover you lose out on all aspects of housing security and can readily be displaced if said 'cheapest apartment' stops being so affordable. If you're imminently expecting a housing crash, then sure, go for it.

My rent cannot go up by more than the Consumer Price Index, and I cannot be evicted without just cause, except in very limited circumstances (owner move in, condo conversion, etc.). How much housing security have I given up?

What I’m really giving up in this situation is the right to make significant improvements to my unit, and such. In exchange, I don’t have to pay for any repairs due to wear and tear. I don’t think it’s a terrible deal, but I would like to own a home, simply so I can have a living space that I alone fully control.

Re: Home Price-to-Income Ratios

#148

Post by salty_biscuits »

kaybe wrote: post #99
salty_biscuits wrote: post #40

This plot suffers from my pet peeve for geographic display of data. Small areas will have all the interesting details (e.g. extreme outliers in inner city areas), and you just can't see them from a zoomed out perspective.

Do you have a favourite solution for this problem?

No, but I would love to hear about one.

Re: Home Price-to-Income Ratios

#149

Post by mikeyouse »

cjhopman wrote: post #145
mikeyouse wrote: post #132

Earlier quoted context omitted.

Fair to a point, it was merely a random click on a recently sold property, but it was a $20,000 kitchen remodel (permit 201608084481), a $7,000 bathroom remodel (permit 201408113562) and a new roof for $7,500. So not sure if it's really a bad example when 5 years + $35,000 in investment adds over $700k in value to a home. You can review the permits here: https://dbiweb.sfgov.org/dbipts/default.aspx?page=PermitType...

That's really cool thanks, didn't realize you could just look up the permits like that. I'm not sure what those values in the permits really mean, but they can't be the total costs. Hell, the kitchen remodel probably has $20,000 just in appliances. According to https://blog.housemanager.calstate.aaa.com/blog/how-much-wil... , the price for a mid-range kitchen remodel in SF is ~$83,000, $65,000 for the bathroom and $3…

Yeah the city sets prices based on the square footage being renovated and:

> "The valuation data is based on information provided by a variety of sources, including without limitation, local contractors, design professionals, cost estimators or nationally published construction cost data books or websites."

https://sfdbi.org/sites/default/files/Cost%20Schedule_0.pdf

So it looks like SF figures $98/sq ft. + $10,561 for the kitchen remodel and $8/sq ft. for reroofing, etc.

In either case, even if it did cost 3-4x that permit amount, we'd be talking about 10x the median household income instead of 12x over those 5 years. Still just a crazy situation.

Re: Home Price-to-Income Ratios

#150

Post by OJFord »

pedrosorio wrote: post #146
greedo wrote: post #111

Earlier quoted context omitted.

I think this is an expectation thing. We grew up in houses that our parents owned in their 40-50's, after building their careers and wealth. Yet we expect to buy them in our 20s. That doesn't align with where my parents were in their 20s.

Your parents were in their 40-50s when you were born? That's certainly not the norm.

Average age of the mother at birth in Australia (which doesn't sound unusal to me, but it's Australia specifically being discussed) is ~30:

https://www.theaustralian.com.au/nation/health/average-age-o...

And GP said 'grew up in' not 'born into', so average mother ~40 at 10 years old and ~50 at 20.

So yes, average Australian baby has a 40-50yo mother while 'growing up', especially for the purposes of house expectations which I'd have thought would more likely be formed over adolescent than younger years.

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