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Housing bubbles are universally destructive

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Re: Housing bubbles are universally destructive

#21

Post by thucydidesofusa »

timcederman wrote: post #8
AnthonyMouse wrote: post #7

Earlier quoted context omitted.

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation. Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.

>London, New York City, Hong Kong, etc.

These cities were successful despite high rent prices, not because of. Also, expensive rents are kind of a recent thing, tenement housing existed for a long time and workers were able to afford to live there and have decent lives / weren't as financially desperate as the working class is now. It's not coincidental that these cities have become playgrounds for the mega rich and rentiers.

Re: Housing bubbles are universally destructive

#22

Post by white-flame »

timcederman wrote: post #8
AnthonyMouse wrote: post #7

Earlier quoted context omitted.

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation. Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.

Capital appreciation is certainly a large motivation for those who already own homes there, and those who are involved in local legislation tend to be mostly from that group.

Re: Housing bubbles are universally destructive

#23

Post by kosei »

AnthonyMouse wrote: post #7
msvan wrote: post #2

It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. People thought that the internet would make location irrelevant, but it seems that the opposite has happened. I can think of many armchair theories as to why, but it's not a simple question…

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

Can you give a couple examples of this happening? I've lived in NYC much of my life and housing prices have continued to rise for most of 30+ years, so your statement isn't something that I quite understand from experience.

Re: Housing bubbles are universally destructive

#24

Post by _pmf_ »

msvan wrote: post #2

It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. People thought that the internet would make location irrelevant, but it seems that the opposite has happened. I can think of many armchair theories as to why, but it's not a simple question…

> I wonder if these these areas have simply become way more valuable than they used to be.

It will self correct once companies realize that by using middle managers with a modicum of domain expertise enables people to work remotely and not have to be at work for 8 hours just so their managers can visually check their presence for the contractually agreed amount of time.

Give it 500 years.

Re: Housing bubbles are universally destructive

#26

Post by timcederman »

AnthonyMouse wrote: post #19
timcederman wrote: post #13

Earlier quoted context omitted.

They said that about Australia 15 years ago and the heat in the market is only just coming off. Housing prices aren't just going up in San Francisco. It's the entire Bay Area. In the last collapse, houses in "good" locations didn't lose any value. There was a pause for a couple of years (or in cities like Palo Alto, none at all) and then they started going back up again. Other cities, e.g. Alameda ( http://rereport.c…

> They said that about Australia 15 years ago and the heat in the market is only just coming off. It is absolutely true that housing bubbles can span decades. But the longer they grow, the bigger the pop. Unless you deflate them first by increasing supply. > In the last collapse, houses in "good" locations didn't lose any value. The last collapse wasn't caused by the same things. What happened then is that banks loan…

I think we can agree to disagree given the subjectiveness of what we're evaluating. But I will completely disagree that I'm only considering "the most expensive houses". Relatively expensive houses, sure, but in the average (or median), not absurd.

Also, I want to point out that it was an anecdotal article asserting broad outcomes. I don't think you can be so reductive about the current housing market.

Re: Housing bubbles are universally destructive

#27

Post by scirocco »

msvan wrote: post #2

It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. People thought that the internet would make location irrelevant, but it seems that the opposite has happened. I can think of many armchair theories as to why, but it's not a simple question…

A good start is to look at the interest rate curve (cost of borrowing money has gone down dramatically). Here is the US Fed Funds Rate since the early 80's:

https://tradingeconomics.com/united-states/interest-rate

Re: Housing bubbles are universally destructive

#28

Post by bobthepanda »

timcederman wrote: post #8
AnthonyMouse wrote: post #7

Earlier quoted context omitted.

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation. Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.

Unless you're a foreign expat I would hardly consider Hong Kong a long term success for residents.

Extremely high housing prices, low wages, and no workweek legislation combine to create a terrible environment for middle and working class people.

Re: Housing bubbles are universally destructive

#29

Post by bobthepanda »

kosei wrote: post #23
AnthonyMouse wrote: post #7

Earlier quoted context omitted.

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

Can you give a couple examples of this happening? I've lived in NYC much of my life and housing prices have continued to rise for most of 30+ years, so your statement isn't something that I quite understand from experience.

NYC suffers from two distinct factors that have allowed it to sustain such a long boom in real estate prices.

As a global financial and cultural center, it has enduring appeal for outsiders and foreigners to buy housing. Very few cities have this. And since these outsiders tend to pay cash, they're hard to outbid. This can distort the market a lot, because wealthy people get pushed down into upper middle class housing, upper middle class people get pushed down into middle class housing, and the shit rolls downhill until the poor can't afford to live anywhere.

The other thing is that New York had really bad lows in the housing market in the 70s, to the point where people were burning down buildings because the insurance money was worth more than the property value. It's hard to go anywhere from there except up.

Re: Housing bubbles are universally destructive

#30

Post by llamaman »

mistermann wrote: post #20
AnthonyMouse wrote: post #7

Earlier quoted context omitted.

> It is true that housing prices in urban areas have risen astronomically in many regions of the world, and while we may well see a correction, I wonder if these these areas have simply become way more valuable than they used to be. They are, in the short-term. The problem is that high housing costs have a slow, long-term corrosive effect on a city. Companies have to pay higher wages for workers to achieve the same s…

> It's almost impossible to avoid this once the values are already ridiculous, but what the article suggests can mitigate it somewhat: Sustained moderate inflation combined with a large increase in the housing supply, so that real values come down even though nominal values are stable. I'm having trouble understanding what inflation means in this context. From the article: > There is a way out, but it’s not a pleasan…

I believe the author is referring to high inflation as measured by things that reserve banks look at (in Australia this would be the consumer price index etc); while house prices either stay stagnant or rise slower than said rate of inflation.

Thus, the nominal price of housing is maintained, while the real value tanks.

How this might happened is something I do not have the economics to know - as you mentioned, an increase in the supply of money would probably simply flood into the existing housing market, overheating it further. Arguably, that's what's happened in Australia post 2008 and the US pre-2008.

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