Priced out of home ownership

People just want a house to live in. That's it. They don't want a "broad based index fund" or investments or anything else. They just want a house to live in. With all the stability that comes with it. And then spend their free time doing more useful things. Also it doesn't scale; we can't all be investing all the time.

This kind of reductionism where everything boils down to financials is exactly how we ended up in this mess to start with. Maybe we shouldn't have structured everything around that because ... people just want a house to live in.

They're always the same reasons:

- Properties in world-class cities are in demand globally

- NIMBYism means it's hard to build new housing or increase density

- Resource costs and wages are high in world-class cities

The first one is a demand-side driver, the last two are supply-side drivers. There aren't any palatable solutions to reduce the impact of these drivers, at least not ones that do not negatively impact other sectors of the economy.

Honestly I'd love for some good data, rather than cherry-pick journalism. It's crazy how many news articles will simply parrot a narrative without actually investigating it.

The discussion on housing should start with one fact: the supply of housing has been growing faster than the size of the population, decade after decade, for a very long time.

This is why the number of people per home, has been dropping decade after decade. That is a measure of luxury. We can afford homes with fewer people. People can afford to be single and live alone. We can afford not to take in a roommate. Couples can afford to each have their own home. That's not an indication of a housing crisis or being priced out.

Then there is home size, it has been increasing also, decade after decade. We can afford to live in bigger homes. Again, a measure of luxury.

Anecdotes about 'my (grand)parents lived in XYZ home that's way bigger than mine' are just that, anecdotes. The data shows we live in bigger homes with fewer people, in fact we have double the housing that we had a few decades ago. In other words, the average person's lifestyle with respect to housing has greatly, greatly improved compared to previous generations.

What is often also not mentioned is that affordability is not a function of prices only, but of prices x the cost of money (i.e. interest rates). In the 1980s interest rates were as high as 18%, now it's 1/3rd of that at around 6%. That's the true cost of housing. Taking $1000 and paying off $1000 in debt has no impact on your equity, you're as rich as you were before the transaction. Paying interest however is money you'll never see again. That cost was 3x as high a few decades ago. Prices haven't tripled when adjusted for inflation and salaries, not even close. That's why affordability of housing isn't the disaster that many people think it is.

Here is an old source (2016), which you may think is outdated. But it shows a multi-decade trend that cuts across the same price increases we've seen in recent years:

https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-s...

For another source that runs to 2020: https://humanprogress.org/u-s-housing-became-much-more-affor...

I'm not even going into how the function of housing has changed. With today's connectivity (netflix, spotify, internet, food delivery, teams/slack, amazon etc), it has become more than ever: an workplace/office, a cinema, a library, a music studio, a game hall, a restaurant, a shopping mall. Its value has increased.

No, I'm not saying finding housing is super easy for anyone and everyone. I recognise many find challenges. But what is simply not true, is that it is any more difficult than the past. In fact it has never been easier. What appears true however is that our lifestyle expectations keep increasing faster than our lifestyles are improving.

That "control" is mostly a fantasy. I own an appartment and when I found mold damage I wasn't able to just fix it, I had to take the housing association to court and fought with them for 2 years. It's now fixed and I'm trying to sell the appartment and nobody wants to buy it. Then I read articles like this and it just makes me laugh at the absurdity of it.

Blaming foreigners is the trick local politicians love to use, but - at least in Portugal - very few properties are foreign-owned. Instead, people are reluctant to rent properties out in general. Real estate agents struggle to convince owners to put their properties on the market in a first place. Usually a family member dies or moves abroad and their relatives simply keep the place unoccupied. Often to convince them to rent out you have to play a match-making game: you have to know both lenders and prospective tenants for years and be a guarantor of their good character. The more contacts the two parties have in common the better. Portuguese society is very socially conservative, often connections matter a lot more than money, and rent market is one area of the economy where it is very noticeable.

To sidestep the whole "can we trust each other?" issue the owners may want to sell the property instead of dealing with tenants. Properties go to the market at inflated prices, because every house owner in the country hopes to sell to mythical "rich foreigners"* they hear so much on TV and online. Local buyers are essentially priced out of the market because the price-wage gap is simply too wide, one of the widest in the world. An average Portuguese family with two incomes can't afford a two-bedroom apartment even at a 30-year mortgage, even if we're talking about cities other than Lisbon or Porto.

So, properties stay listed for sale for years and years, owners do not maintain them in hopes of making a sale "soon", and buildings slowly degrade. Eventually owners realize they need to invest a lot of money to keep the house presentable, the money they usually don't have, and they start to lower the price way down. As a result, the market is split in two big distinct categories: something livable at exorbitant prices and places that need a lot of investment to even start living there. Like a GP comment said you can walk on a street and more than half of places are clearly unoccupied, with many of them slowly turning into ruins. If you want to describe a Portuguese urban landscape in one word the word would be "decay".

Meanwhile rent marked is under-served. All this is further worsened by the internal migration pressure. Lisbon, Porto and all towns on a narrow shore strip between the two are growing rapidly in past 30 years while the interior areas are getting deserted. Portuguese move to places where jobs are and developers can't meet the evergrowing demand.

*I recall I saw a stat that foreigner buyers account for only about 0.2% of sales each year.