Well there's also the MITC, but no, the market determines the price.
There is more to high house prices than constrained supply
151–160 of 229 posts
Re: There is more to high house prices than constrained supply
#152Corporate growth is a major culpit. Corporate growth means that corporations open up more HQs and offices and create more jobs in major urban centers.
By taking market share away from small regional businesses, corporations are destroying jobs in regional towns and creating jobs in big cities instead.
People are increastly forced to move to big cities to find jobs. As more people move to big cities, demand for real estate in those cities goes up.
Big cities struggle to increase the supply of real estate due to limited space.
By moving to big cities, value-creating workers are increasingly forced to compete against wealthy owners of capital for the limited supply of real estate. Wealthy owners of capital don't need to work for their money, so they're willing to spend a lot more to buy houses that they don't even need; this drives up house prices for everyone else.
Re: There is more to high house prices than constrained supply
#153Earlier quoted context omitted.
That’s not just a question of loans. Schools can always discount prices down to what people can pay. So, they charge families making twice as much more money each year.
It's insane what schools can get away with for price discrimination. Remember the uproar over Orbitz (and others) price discrimination based on Mac/iOS usage? [1] Schools have been doing the same thing in broad daylight for years and years with far greater consequence, basing their price on your parent's income levels.* And near zero public blowback. It's confusing. * This is all done through school scholarships, but…
> And near zero public blowback. It's confusing.
It seems like there should be a market opportunity for an above-median school that charges below-median tuition by just charging everyone the same amount, and then picking up slews of high quality middle class students.
I suspect what's preventing it is the state universities. The states with large middle class populations also generally have above-median state schools with below-median tuition for in-state students, so the market is already served and the public universities out-compete the private ones without an existing endowment because they're subsidized with public money.
It's also quite unfortunate because it locks everyone into the university of their own state, so they don't really have to compete with each other and the students in a state with a poor quality state university get the shaft.
What the states could do to improve this is to separate "in-state tuition" from the state university -- if you qualify for in-state tuition then you get that much money toward your tuition no matter which school you attend. It would probably devastate the state universities (because they wouldn't be competitive if people had that choice), but if the replacement would be better and cost less...
Re: There is more to high house prices than constrained supply
#154Earlier quoted context omitted.
That’s not just a question of loans. Schools can always discount prices down to what people can pay. So, they charge families making twice as much more money each year.
It's insane what schools can get away with for price discrimination. Remember the uproar over Orbitz (and others) price discrimination based on Mac/iOS usage? [1] Schools have been doing the same thing in broad daylight for years and years with far greater consequence, basing their price on your parent's income levels.* And near zero public blowback. It's confusing. * This is all done through school scholarships, but…
When we're isolated and not shown the schematic of how money is distributed, incoming and outgoing - and it's planned complexity like planned obsolescence, a subtle yet powerful design - it is a purposeful state of chaos/confusion created that leads to something similar to, if not the same, as decision fatigue (and in most cases this would require a lot of individual research to understand the underlying structures); you either don't understand and buy into it out of necessity (you need a place to live, you need education), and you either can afford it or not (loan), or you don't understand and don't buy into it because you don't understand or can't afford it - but then you can't move forward in life, at least not in as comforting as a way the path that "everyone" is seemingly following, or at least that indoctrinated systems and structured paths, industrial complexes, and marketing/advertising tells us "everyone" is doing and are important to do/solves a problem for us.
Society needs to decide that we want transparency, accountability/accounting, and I believe we need to focus on promoting a unit cost structure, so people can see the full relative cost; what are the different models, what ecosystems/cities are using which model, and how can I "vote" for that system model by spending/buying into the model that I want to be perpetuated?
Re: There is more to high house prices than constrained supply
#155Home 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…
> ...want you to spend every penny you can. Everyone benefits from higher prices except the buyer. Even if you're immune to it, there is enough pressure that the market as a whole tends toward the highest prices people can afford.
This is definitely an American cultural phenomenon. Taking on massive debt is no trivial matter, and I can't imagine people buckling to peer pressure on something that will affect them so significantly.
It's dumb, financially unsound, and irresponsible. I know for a fact that South Asian/Indian heritage will (generally) never allow themselves to financially shafted like this. (The Indian people I know are usually very shrewd, extremely careful, deliberative, and reflective when it comes to major decisions like this.)
What this sort of poor decision making and buckling to external pressure amounts to is a lack of diligence, and a serious failure to look out for your own self-interest.
Why and how this lack of self-care has become a part of American culture is puzzling/baffling to me, and is probably a good topic for sociological or anthropological study and research.
Perhaps the overflowing abundance of wealth in United States (and other similarly wealthy countries) has made people less careful and more reckless with their money? I'm reminded of an article that appeared on The Atlantic which talked about how many people love paycheck to paycheck (and have very little saved up, even for emergency expenses): https://www.theatlantic.com/magazine/archive/2016/05/my-secr...
But as counter-examples, Germany and Japan are first-world countries where people have a habit of saving quite a lot. So this culture of poor financial decision-making (and generally poor self-care) is seeming more and more like a uniquely American thing.
Re: There is more to high house prices than constrained supply
#156Home 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…
I just agreed to buy a house. It's very cheap. It's very small and strange, so thankfully banks wouldn't give a mortgage on it.
It was built around 1800, most likely when several people nearby got together and gathered a lot of stones to erect walls, and peat from a nearby bog and oat straw (which was grown locally) to make a roof. Over the subsequent hundred years it had a couple rooms added until it reached its current form.
The original owner almost certainly had no mortgage. How did they do it? Why can't I just gather materials and build my own house? Is it because of the inclosure acts? I'm not sure. It's also possible the house was owned by a wealthy local and used as housing for farm labour.
I suspect a lot of people _need_ mortgages purely because mortgages exist, so you're going to be competing against others who have them. It's slightly reminiscent of the two income trap. When a household wanted a home in the 1950's, they usually were competing with other single-income households. Once two-income households became normal, it was much more difficult for single-income households to compete.
Though this all still seems to relate to there being fewer houses than people would like to own.
Re: There is more to high house prices than constrained supply
#157Home 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…
This is really evident in Canada right now with the mortgage “stress test”.
Basically, new regulations were created that require home buyers to qualify at prime + 2%, even though mortgage rates might be prime + 0.5%.
This was done because the govt was concerned about how much risk the banks were taking on.
Since it was enacted (earlier this year I think), the brakes were slammed on housing prices and now major markets are starting to see price drops. Of course the stress test wasn’t the only factor.
Re: There is more to high house prices than constrained supply
#158Home 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…
The problem of “high house prices” is just imprecise language for “high cost of housing” - whether the cost is interest or principal is not terribly consequential.
> The problem of “high house prices” is just imprecise language for “high cost of housing” - whether the cost is interest or principal is not terribly consequential.
It actually is, because it affects what can be done about it. If costs are high because interest rates are high, buyers can lower their costs by paying down principal or taking a shorter mortgage. It's frequently the case that, because most of the payment is taxes, insurance and interest, a 30 year mortgage is e.g. $1500/month whereas a 15 year mortgage is only $1700/month, and the difference between them shrinks as interest rates rise (and original principal amounts fall). Which means more people can afford to stop having a mortgage payment after 15 years rather than 30.
It should also result in less resistance to densification, because people are less worried about home values when they're lower to begin with.
Re: There is more to high house prices than constrained supply
#159The 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…
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 part of the housing problem. There is more than enough foreign capital available to continue to keep housing prices artificially inflated no matter how many new homes are built.
No...that's not how anything works. Foreign capital is not infinite. And foreign capital invests in the US real estate market because it expects a return. If you change the expectation of supply, guess what happens? People don't want to invest in that asset anymore, and the capital dries up.
This is all a lot easier to see if you actually put yourself in the shoes of one of these 'foreign investors'. Don't think about them as an abstraction - think about yourself. If you were a rich Chinese businessman, ya, the SF property market is a great place to park your cash. Because it's supply constrained. But you better believe the moment that supply situation changes you're going to be running for the exit.
Re: There is more to high house prices than constrained supply
#160I purchased a van that I am going to rebuild into an RV and live in San Fransico at a fraction of what I would throwaway on rent and interest to the bank. Some googlers got the same idea and slept in the google parking lot! It does not make sense to purchase expensive properties with the record low interest rates. As soon as they rise again, your property will lose in 10s of thousands of dollars in value and you will…
Sounds most interesting. Are there any other people who have done similar things and publicly written-up their e.g. bill-of-materials, for comparison with non-SF apartment-rent costs?