As a new father, I share this perspective. To get an anecdotal sense of our financial struggle, we have 2-4x the net worth that my parents when they were our age, but cannot afford the same house that I grew up in and doubt we ever will.
I’ve been thinking about this lately. Similar to you, the house I grew up in is much more less affordable now than it was when my parents bought it.
However, in my case it’s not really the same house any more. At the time, the location was thought to be on the outskirts of town, away from the desirable areas. As the city grew, this location became the desirable area. If I look to what is now considered the outskirts, I still see new construction in the $300K range (pre-COVID anyway), which is similar to the inflation-adjusted price of the house I grew up in.
At some point we can’t escape supply and demand with more buyers fighting over the same limited housing supply.
Many of my friends have been moving to less popular cities and up and coming towns as they start raising families, and it pays off. Obviously not an option for everyone’s situation, but thankfully the increase in remote work is relieving some of the pressure in overcrowded cities.
Home prices keep reaching new heights in some areas due to:
1) Migration. Immigration from outside the country, but also internal immigration within the country from less economically vibrant parts to more economically vibrant regions.
2) Falling interest rates keeping the monthly mortgage payment the same or lower despite higher principals
3) Expectations that the price trend for homes will continue to look like the past. This expectation can lead to people buying more housing than they would normally consume.
4) Shrinking household sizes. You have gone from an average household size of 3.33 in the 1960s to an average household size of 2.53 today. That may not seem like much but you would need ~25% more housing today to accommodate the same population.
5) Larger house sizes. From a median of about 1000 sq ft in 1950 to 2300 sq ft today.
The above can combine to keep pushing up house prices in some areas (as we see in the US) even as the population growth of a country stagnates.
Most new housing development after the war was gotten by turning farmlands and nature into single family houses. A lot of places have reached the limits of how far one can expand and run into some combination of geographical barriers, legal barriers (e.g. protected park or farmlands), or the barrier posed by time (most people have an upper limit of how long they are willing to commute.)
The next logical step in density, subdivision of existing lots and/or intensifying into homes that accommodate two, three, four families in a place where a single family house stood, is pretty much illegal on most residential parcels in the US. Pre-zoning, neighborhoods were free to densify as they desired, so even in older single family neighborhoods there are sprinklings of slightly more intense development. But in 2021 zoning reform is hotly contested because people feel like they should have control over what their neighbors do with their land, and the overall result is that there isn’t too much developable land left.
Ban building new office space in overcrowded areas. Big corps will be forced to build their offices elsewhere, in remote areas with plenty of land, workers will follow and so do small businesses.
1. Who would pass and enforce such a ban? Local governments are self interested and want more jobs, because it makes politicians look good and jobs require minimal additional services while providing lots of tax money. (See: Bay Area) State has same issues. Feds don't have the rights to do so, and good luck passing that kind of legislation anyways.
2. With the decline of the inner city during the midcentury we already saw what this looked like. It mostly resulted in jobs moving to the suburbs of established big cities, not decentralization of jobs into totally different regions.
What is the definition of overcrowded? Banning office space caps the size of the economy! A very bad result for a nebulous gain. That's like hoping for a recession or praising Gary, Indiana and Youngstown, Ohio for low housing prices.
They choose to set up shop in big cities and in CBDs because there's more opportunity well worth the higher rent. High rent makes buildings more productive because no one is going to waste prime real estate on low productivity or land intensive enterprises.
Some cities are pushing to ease car dependency by mandating businesses support remote working, not further invest in parking, and encourage walking, biking, and mass transit use. Those are ways of improving the land efficiency of businesses.
The gov is able to limit density within the office buildings, so it should be able to limit density within the county limits. I agree, though, that such an initiative would be against the interests of just about everyone, except the future workers who don't exist today and don't have the right to vote.
Considering how many people insist on their neighborhood staying the same, why haven't they thought long and hard about what it means to let more and more corporations settle in their city without building enough housing to match the new jobs?
They don't care. Ideally their community can reap the jobs, retail services, and tax base that businesses represent while pushing off housing demand and public services demand to somewhere else. California has an extreme version of this through Proposition 13 which eliminates increasing property tax revenue base as an incentive to approve housing construction. Thus housing is made a "cost center." The end result is essential workers have to commute an hour or more one way to work in the communities they can't afford to reside in.
> Larger house sizes. From a median of about 1000 sq ft in 1950 to 2300 sq ft today.
Maybe it's a California thing, but not so sure about that.
House I grew up in was over 3000sqft and can't think of any friends that had houses smaller than (estimating here) about 2500sqft (in the 70s to 80s). Myself and friends were all lower middle class families. Land and housing was just so cheap then that it was normal.
And yet today, not a single house in this (much more recently built) neighborhood is over 2000sqft. Most of the models are 1300-1500sqft. And of course these houses cost ~40x what my parents paid for the house.
In my opinion the thing that is leading most to inflation in addition to your points above, is that there are way too many land lords anyone who makes a little money goes and buys a house, increasing demand.
You can find cheap housing, the problem is it's all in places where most people don't want to live. For example, Detroit, or any of thousands of small towns all over the US.
Not picking on Detroit, it's just an obvious example of a large city that used to have a much larger population.
There is a lot of cheap housing in places that people are willing to live, but people need a push to change. Allowing work from home, schools, and lockdowns have been helping provide the push. Most cities have reasonable housing prices, it is just distorted by a few areas which have become extremely unaffordable.
Detroit is an interesting example. People did want to live there, but as the jobs declined, so did the city. If jobs can come back, the city can come back.
Ah that reminds me, we should not discount racism as a factor. Many would rather become debt slaves for life or forgo children than live cheaply around black people.
I did live cheaply around black people when I was younger, I lived in a maybe 90% black neighborhood in a literal mansion, for a few hundred a month. It was a dilapidated mansion, and the gunshots from the open air drug market a couple streets over started around 7 most evenings, but it was a mansion and it was cheap. I have fond memories of those times.
It's about a student in Baltimore who failed every class but 3 in his four years of high school, skipped class half the time, and got a 0.13 grade point average.
That put him just short of being in the top half of his class, he was an average student in that school. Can you think of any reasons other than racism that a parent might choose a different neighborhood to live in?
The neighborhood with the mansion has been gentrified for years now, I don't have kids but I still wouldn't seek out a similar neighborhood to what I lived in back then now. My attitudes towards risk and crime are different than they were when I was younger. I guess I am a racist now too?
But yeah, that's certainly one way to save on rent. Worked for me.
Very sad to see this downvoted. I don't know how people can see things like "WTF Happened in 1971?" without realizing the date correlations to the 1968 Fair Housing Act and especially especially to the 1974 Equal Credit Opportunity Act:
That's a sort of two way street though. In areas affordable housing exists, there often aren't many opportunities financially speaking, especially in the labor market.
It's one thing to live in a city, work for awhile to bank up capital, and then move somewhere with a low COL area to live comfortably with some supplemental income from the region with knowledge of that nest egg if investments you currently have.
It's an entirely different story to live in such an and accumulate enough capital to purchase a home. Often, jobs are few and far between that are competitive, even after adjusting for COL. Employers in these areas often have less competition for positions and therefor have more leverage. Acquiring debt in these areas when you start your career could make it difficult to climb out of. Its not true with all positions. A lot of healthcare positions can pay better in these areas due to what are essentially government subsidies through medicare/medicaid. You'll occasionally have some industrial organization doing specialized work people with advanced degrees can prosper in but they need to strategically target these areas.
Or more precisely, once a house attains some value beyond providing a roof over heads, the price of a house is no longer representative of a house, but a government backed asset that can never depreciate lest the pension funds fold.
A single house's price can easily go down. Even an entire city like Detroit MI can devalue. But those mortgage backed securities represent the national average.
With climate change the music may suddenly stop for flood prone areas like Miami once investors stop underwriting 30 year mortgages.
> That's what I don't understand, if population growth is stagnant or declining, how is it these housing prices are reaching such heights?
Housing prices around me are directly correlated to school quality. The same house near a good school is literally 1.5x-2x the price.
The supply of good public schools is very limited. A good private school is ~20-30k a year. Figure that is worth 300k, not even counting that that over the years tuition prices will go up.
So people pay to live near one of the handful of good schools.
Seattle stopped busing kids awhile back, instead aiming to keep kids at "local" schools (IMHO to save money), so now unlike the opportunity I had as a kid (test well, get into a good school in the "right" part of town) the city is perpetuating generational poverty.
This has the effect of making pockets of the city have well rated and poorly rated schools. Previously schools were kinda mixed in quality, good programs and teachers at many different schools. Sure some had a reputation, but now the ratings are incredibly bi-modal, and housing prices follow that distribution.
Oh also in the last decade, the population has increased by 21 million. The growth rate is slowing, but it isn't zero. The way American cities are managed, it isn't possible to add sufficient housing. E.g. in 2019 around 40k people moved to the Seattle metro. 14k building permits were granted[1].
To put that in perspective, the most construction friendly city in America, Houston, approved 38k permits. (Not sure if these are for housing units, are permits overall inclusive of multi family dwellings).
FWIW Dallas got ~131k new people (US Census Bureau)
No surprise there is a problem. American cities are not capable of building fast enough.
>Housing prices around me are directly correlated to school quality.
Because "school quality" is basically indistinguishable from "socio-economic status". It has little to do with the quality of buildings or teachers or other resources. It's mostly about the ability and willingness of parents to be involved in their kid's life and the standards they hold.
Interest rates is much of it. Just calculate the total payments for a 30y, 100k mortgage in 1980 when the interest rate was 15%. It's 455k in total. The same amount as a 300k mortgage for today's 3% interest for 30 years, also 455k total. In other words, the monthly payments / total payments are the same and thus just as affordable at 3x higher prices, simply because interest rates dropped so much.
Second, there's indications of further concentration. If you have a 10x10 square of land and 100 people, you can each live on one square (spread-out) You can also all live on one square (concentrated). The price levels of the homes in the lived-squares of course grows the more we concentrate, even if total population is constant.
Concentration isn't a straight-line, e.g. NY depopulated in the 80s, but does tend to arc towards further urbanisation, further concentration, further population density. In large part because cities are knowledge/network centres, and our economy is based on knowledge/networks, whereas before our economy was based on e.g. agriculture, which is the opposite of concentrated. I'd be very interested to see if that will ever change due to a working-from-home / remote-work, and even virtual reality to have meaningful social and entertainment experiences remotely. It used to be if you lived in a small town, there'd be few jobs, few bars to meet people, few concerts to go to, no cinema. Many moved to the city despite higher prices, less room, noise and pollution and crime, in search for work and social life. But with remote work and VR, the calculus might change. (not 100%, but many a little bit, enough to bring a little bit of balance to the ever-growing concentration of people in a few big cities).
Because people want to live in the city. I bet you can find really cheap houses in the countryside.
Iirc A couple of days ago there was even a post up on HN that listed places where the government would give you land for free, and I think also some starting capital.
To some extent homes in affluent are expensive because they are expensive. Most rich people don't want to live near poor people and so they'll pay extra for that even if it seems economically irrational.
Rich elites buy-out all properties/flats in cities because its a better overall investment taking to account inflation.
People who slave in that situation consider themselves unhappy and thus consider moving to a houses outside of the city. Due to limited infrastructure outside of the cities -> only a part of outskirts are really habbitable for those families. The demand in this case is higher than supply.
Demand is so low only because city politicians are too inefficient in providing new places with infrastructure.
Yup. This is the same phenomenon in India as well - the salary is "high", so you can splurge on furniture, buy reasonably priced cars etc. much easier than earlier generations. But we cannot afford to buy the same house my parents lived in at our income level.
In the part of Maryland (USA) that I live in, quite a few areas are named after families who lived here in colonial times, and they were granted huge swaths of land. But a descendant from one of those families today can't reasonably expect an estate of hundreds of acres. There's just not enough land to go around with the size of today's population.
Obviously, that's taking it to the extreme, but the population of India has probably doubled since 1980 or so. I don't know your age or your parents' ages, but there are certainly far more people in India now than when your parents were your age, so it wouldn't make sense for an equivalent amount of wealth to buy an equivalent piece of real estate compared to previous generations.
This mostly makes sense if real estate is already fully utilised, but it isn't.
I can't speak to India, but there's a feeling broadly in North America of having "new development" and "expansion" over time. Cities are much, much larger now than they were 40 years ago, and people imagine that the new farm land subsumed and developed should be available for a similar price relative to income to what it was 'back then'.
The XXX-acre rural farmland wasn't as valuable as the same space in town when purchased as a lot, but now it holds as many homes as that downtown space used to. Is it worth the same today, relatively, as that space was then? No, they're both worth comparatively way, way more than they were.
I don't mean to suggest that scarcity isn't a part of the equation here, more that there are a lot complex factors involved, e.g. wage levels relative to inflation over time.
You're right of course, that it's more complex than just land scarcity. But I feel like people sometimes have this strange default sense that something is wrong if things don't stay the same. "My dad fixed diesel engines and provided for a family of 5, so I ought to be able to do the same thing". Well, your dad lived in a different time. You can't be a Holy Roman warrior anymore, and there's also a chance you might not be able to make a good career at being a diesel mechanic at this point.
Sort of like when you have kids and see them everyday, you only vaguely notice them growing up because the change from day-to-day is so subtle? But when the extended family visits once a year, they notice a huge change? The world is constantly changing like that...you might not notice that today is different from yesterday, but today is drastically different from when your parents were your age.
> The XXX-acre rural farmland wasn't as valuable as the same space in town when purchased as a lot, but now it holds as many homes as that downtown space used to. Is it worth the same today, relatively, as that space was then?
Yes, they are. It's hard to make a direct comparison, because falling interest rates have caused housing prices to go up, and as people have gained income they have chosen to buy much bigger houses. But the per square foot price of a median-sized new home has been stagnant at the $100-120 range (based on CPI) since 1973: https://donsnotes.com/financial/real-estate.html. And falling interest rates have meant that the monthly mortgage payment per square foot has actually gone down over that time.
Have you accounted for development induced appreciation? Perhaps a similar home further from the city center would be a more suiting comparison?
Anecdotally, in central New York housing prices have gained only modestly. The 2008 financial crisis didn't have a large effect on prices here either. But... development in central New York is near zero.
I think that the internet has eliminated the commute for a lot of service sector jobs. I think that a lot of jobs remain in the city center only because that's the way the older generation has always done it.
The exact house or equivalent in a similarly populated area as the one your parents bought in? If the former, I imagine it's because the area has developed significantly since.
But why would you expect to be able to afford the same house even with higher net worth?
I mean, my folks bought a house I can afford either but when they bought it, it was on the edge of the city, not a desirable area in a 2nd tier city. That’s why it was cheap. Now it’s in a historic neighborhood, highly desirable in a city where everyone wants live.
I could afford a house similar to the one they bought in terms of those qualities. In fact it would likely be cheaper compared to salary.
Show me an affordable house in on the edge of NYC in the "undesirable" neighborhoods. Even if you pick neighborhoods past where subway lines end (a very undesirable quality for city property to have) that also happen to be high crime areas it is still too expensive for anyone to purchase. Like two examples look at New Lots/East New York and South Ozone Park/Jamaica. Both fit my description above, they are at the very edge of subway access, and are high crime areas, and both are too expensive for normal middle class people to buy property in.
Contrast this with great people I've met who are ~60 now, who just stumbled into the east village/alphabet city in the 1980s in their mid-20s and bought up cheap houses while bumming around paycheck to paycheck. What area of NYC or the valley can I do that in now? If the answer is none, and you can't point me to a city in the midwest or south where buying up cheap affordable property IS going to turn me into a multimillionaire when I'm ~50 what does that mean for our growth/stagnation culturally and as a country? This is the difference, there is no place that even has the faintest whiff of a city that is about to take off where such gains would even be possible.
In other countries that have similar issues in Europe, where a lot of cities are unbelievably expensive there are two solutions that you see a lot. One is that it is culturally common to live with your entire extended family and not be able to afford a house, and the second is welfare or new home ownership incentives that make it more viable. "Rugged Individualism" in American mindsets and cultures makes both options seem untenable but clearly we have to adapt.
1980s NYC did not have “the faintest whiff of a city about to take off”. That couple bought property in a crime ridden part of a crime ridden city. Tompkins Square Park was an open air drug market.
The equivalent today is a bad area of Detroit. I’m certain you can find something affordable there today. I doubt it will turn you into a multimillionaire, but if we were having this conversation in 1984 everyone would doubt buying in the East Village would get you anything other than mugged or shot.
Having grown up in the 1990s in the D.C. suburbs, and visiting family in Queens (recent immigrants) I still reflexively do a double take when new associates at my law firm say they're living in Brooklyn, or in D.C., in Capitol Hill. Like--I know you can afford to live somewhere decent!
There’s a neighborhood in Brooklyn called Bed-Stuy. In Billy Joel’s song about being manic there’s a verse:
“I walked through Bedford Stuy alone / even rode my motorcycle in the rain”
because it was something only a crazy person would do. I can never quite get over the fact that a young coworker of mine was living there with his girlfriend. It is mind blowing.
Indeed. We make some 25x what my parents did, but with them I grew up in a property with a wonderfully large house and many acres of land. Yet here I am stuck in tiny house with no yard to speak of and couldn't possibly afford anything more given current cost of housing and land.
The point is precisely that neither of them is an outlier within their respective time -- they are normal people who want "normal" housing: i.e. just enough to raise a family in.
The parents born in the 30s-50s could largely afford to purchase homes large enough to raise a family in, but far fewer people born in the 70s-90s will be able to do the same.
This isn't really true. First, what's considered "big enough to raise a family in" has doubled since the 1950s-1970s. I grew up in an 1,100 square foot house built in the 1950s. The starter homes around us are double that size.
Also, as the U.S. grows, the "frontiers" obviously shift. Since 1970, the U.S. has grown from 205 million to 330 million, and the number of people per house has gone down significantly. Back when it was built in the 1950s, the house I grew up in was in a new development in a boring suburb of D.C--itself a boring city with mainly GS-scale government jobs. Now, with all the tech jobs in the D.C. area, it's become a more desirable, upscale place.
What used to be the boring, middle-class suburb is now somewhere around Kansas City, MO or Greensboro, NC. Houses in those places are just as affordable as the houses you grew up in. In fact, when you account for growing house size and falling interest rates, they are more affordable: https://donsnotes.com/financial/real-estate.html
> The parents born in the 30s-50s could largely afford to purchase homes large enough to raise a family in, but far fewer people born in the 70s-90s will be able to do the same.
Does not explain why home sizes grew 2.5x since the 1950s, while the average household size dropped from 3.4 to 2.5. (which is in large part due to the many single-person households).
There's many indications that we're enjoying much more real estate per person than ever before, real estate which is also much more luxurious and located in much more interesting locations, with better schools, more safety, more amenities etc.
Second, we tend to easily forget that the past wasn't divided equally. Being a woman and running your own household independent from a husband was a pipe dream for many women back then. Buying a home was a pipe dream for many black families, too. There's lots of such examples. This past we speak of where 'we all' had it better is often actually a bit of a narrow view of certain groups of people having it better, ignoring others who definitely didn't. Whereas now the average person is better off, in small part at the expense of a smaller group who used to dominate before.
This is highly dependent on society/nation standards. I grew up in a 750 sqft apartment (family of 5). My wife grew up in a 440 sqft (family of 4). Now I consider 250 sqft/person to be a palace, but in the US it's probably considered unlivable.
Exactly. It’s not some fundamental biological fact that you can’t raise a family in fewer than 1500 sq. ft. of house and 1/4 an acre of property. That was just a cultural norm set in a particular time and place.
I don't understand what the value to you is here in arguing that we all ought to just settle for less. More space is preferable, better conditions are preferable, and we do have the capabilities to work toward these things for all humans.
The specific factors of post-WWII America may be unlikely ever to be repeated, but I can't agree that we should all settle for life as it was in the 1910s or earlier on the basis that that's simply 'how life is' -- the status quo is not an argument for itself.
The average (human, at least) life has improved substantially in the last few hundred years in some key ways (admitting that there are some ways it is likely worse). Even if the potential improvements to life track a sigmoid curve, there's no reason at all yet to think we've maxed it out, let alone gone beyond what's possible.
We can absolutely continue to improve, so it seems totally fair to identify and analyze causes, means, and paths to do so, i.e., recognizing "I cannot afford the same standard of life as my parents did" as something that ideally would be different, and discussing patterns of wage growth, economic trends, and policy decisions that might counteract that perceivable regression of quality.
People shouldn’t be made to feel like they would be or are bad parents if they put two kids in a room. Because I think the upshot to that is not going to be some workers’ movement that produces less inequality but instead fewer people that want kids having them due to fear of social stigma.
That's a really good point! I agree that we should be supportive of parents in the face of circumstances they can't directly control, rather than stigmatize them or hold them to an unfair standard. Thanks for explaining it that way.
I also think we can both do that and work to continue to improve circumstances, which to me includes recognizing that the circumstances can be improved.
A sentence with "ought" in it is a signal that what follows is a pointless thought. You can't will things into existence by saying it "ought" to be that way.
As to your other point, some aspects of living conditions are scalable, and others are not--something that's obvious if you're thinking about what "is" rather than what "ought to be." Technology doesn't magic more land into existence. As the population of the country grows (it has grown from 200 million in 1970 to 330 million today) space becomes more expensive. There is no reason to assume that the trend should be toward more space per person. In fact, physics and math tells you the trend should be in the opposite direction.
> A sentence with "ought" in it is a signal that what follows is a pointless thought. You can't will things into existence by saying it "ought" to be that way.
Thanks for making it clear right up front that any time spent trying to communicate with you is wasted. :)
Some contend that this isn't a sign of poverty but rather a sign of wealth.
i.e., suppose every consumption good becomes 10x as cheap overnight. Cars, food, phones, clothes, travel by air, electricity, movies, music.
What would happen to home prices? Well, it's likely they'd skyrocket. All the additional disposable income has to flow somewhere, to some asset, and that's often real estate.
There's some indication that that's been happening. Of course there's many other stories in real estate which clearly indicates we're less well off than before, particularly certain groups.
But there's also many indications we're better off, but simply spending more of our money on RE, because in part, we can, because in part, we want to.
For example, compare the average home size (square footage) in 1950 to 2020 and anywhere inbetween, it's a pretty straight line that ends up a 2.5x increase.
Then compare the average persons per home, it decreased from about 3.4 to 2.5, in large part to the large number of single-person household, a luxury not affordable in the 1950s, especially not to women in a much more patriarchal society than today.
This means we've seen a tremendous increase in the square foot per person. That's a measure of wealth. The fact home prices skyrocketed due to the demand for these luxuries, and the (by definition) ability for Americans to afford to push prices to these levels, should not necessarily be seen as an affordability crisis, but rather as an indication of wealth.
Yes, if prices of bread skyrocketed and we were all consuming less because of it, that's poverty. But if the average bread consumption per household grew by 2.5x, and the average number of people eating that bread in the household dropped by 25%, then you can't quite say that on average we're less well-off, bread-wise.
And homes aren't the same as in the 1950s either. Today's homes are well-equipped with many luxuries and comforts. Finally, high prices are a bit misleading without taking interest rates into account. In the 1980s for example interest rates were 15%, you'd pay your home in full every 6 years in interest alone. Just look at the historical trend of interest rates, they're at record lows. For example, a 30 year mortgage of 100k at the 1980's 15% interest rate, costs as much in total payments, as a 30 year mortgage of 300k at today's 3% interest rate. A 3x price increase alone has absolutely no effect on affordability in the past 40 years due to the massive drop in interest rates. If you take into account the fact that nominal income grew by 5x since the 1980s as well, plus the larger square footage and the fewer people per home, it's easy to see why the cost of a square foot has actually become way more affordable. And given many things got so much cheaper, it's easy to see why so much wealth has flowed to RE.
Definitely don't want to pretend like there's no housing affordability issues anywhere, but I do want to nuance the view a bit that we're generally worse off than previous generations, in which housing is an oft mentioned example. But on balance, it's not really the clearest example for this generational loss of quality of life that people tend to think it is.
How about no bull case is not a bear case because it doesn't fit any prior bear bull dichotomy. Choose your own adventure. Some people choose bitcoin. Simple.
not surprising. please read 'the age of surveillance capitalism' nearly every move by google (and friends) post-publication (of course, any move pre too) can be captured by the thesis of the book.
Apparently I have to resurrect an old t-mobile to gain access to my credit karma account. I'm not sure this is even possible. Customer service seems to have a language problem Do I just lose my account in this case? What do people do about this sort of thing?
