Which cities have the best real estate bargains? Which are overvalued?

[Commentariat]

Originally Posted by ChargerCarl

The only way median Australians have a higher net worth than their American peers is that all of their wealth is tied up into their homes, an illiquid asset. My guess is their consumption basket is inferior, which is what really matters.

It's what really matters to (many) Americans. Which goes back to my point about cultural differences.

[ChargerCarl]

Originally Posted by Commentariat

There is no meaningful restriction on supply at a macro level, Australian house building is at an all-time high this year:

http://www.businessinsider.com.au/ch...-before-2016-1

http://www.businessinsider.com.au/ch...ortgage-2016-3

250,000 housing starts is not a lot for an entire country, and not enough to make up for previous years' deficits. In Japan central Tokyo would account for half of that.

[ChargerCarl]

Originally Posted by Commentariat

It's what really matters to (many) Americans. Which goes back to my point about cultural differences.

But thats the whole point of investment: to increase the stock of consumption goods in the future.

[lio45]

Originally Posted by Shawn

mousquet, I love your France-related posts like the one above, because they give me a window into local socioeconomics I would not have easy access to otherwise (my French is, shall we say, nonexistent).

What would the French equivalent of the US Sun Belt be? Has there ever been a time in modern French history (post-WWII) when deindustrialization hit a region particularly hard due to labor costs or other factors (maybe war-related), only to sprout up in another cheaper region?

Basically, are Nantes and Bordeaux - the east / southeast Atlantic coast of France - the French Sunbelt?

The "Sunbelt" (vacation playground) is the Southeast coast, which by the way is not where Bordeaux is (let alone Nantes). Bordeaux is in the Southwest. Nantes is in the north, the capital of Brittany (the cold and rainy peninsula that extends westward into the Atlantic mirroring Cornwall across the Channel). Not sure why anyone would ever consider that a sunbelt.

The coal belt was hit pretty hard (the northeast border, from the North Sea to the Ardennes near Germany) by deindustrialization. The "Nord" department (59) where Lille is next to the Belgian border was one of the cradles of early industrialization on the Continent. Generally, it has been heavily unionized and reliably socialist since then. Its economic importance nowadays is quite lower than during its boom era, just like the US's Rust Belt.

[lio45]

Originally Posted by Acajack

Stuff like that doesn't vary that much from one region of France to the other, as it is a unitary state. The main thing that varies would be the cost of real estate, and in this respect the southern part of the country is not generally that much of a bargain.

Yeah, in a way Shawn's question (I shouldn't have replied before reading the whole thread, as I now see that a lot of stuff was covered already, my apologies!) is a bit like asking "hey, where exactly is the "sunbelt" of Michigan? You know, that part of the state that's right-to-work, cheaper labor, lax regulations?"

[ChargerCarl]

Here's an RBA summary on the issue from 2012:

http://www.rba.gov.au/publications/b...012/sep/2.html

Basically high development costs + supply restrictions.

[Commentariat]

Originally Posted by ChargerCarl

But thats the whole point of investment: to increase the stock of consumption goods in the future.

But now you are in the realm of theoretical economics rather than the flawed world of real human beings, where people will pay silly amounts of money for a house because it has a nice view and will make their friends jealous. So unless you plan on replacing rational economic actors with irrational ones, and creating a model incorporating preferences for non-fungible real estate across every available market, the whole debate is pointless. And if you do succeed, I'll be the first to congratulate you on your Nobel prize.

[lio45]

Originally Posted by CaliNative

I have a Ph.D--would that help? Tell me what you think of Tasmania, incl. Hobart. Is it cheap, compared to CA?

I recall that when my ex moved there (a few years ago) she tried to get me interested in Hobart real estate, and from what I recall, it's definitely not cheap, but it's probably cheaper than the priciest areas of coastal CA. (The cap rates were pretty decent for such an expensive market.)

She loves Hobart (and from all the pics I've seen and the info I got from her, it does seem to be a nice place).

And as I was saying, unless she finds something there (a postdoctoral position) she said she'd have to leave Aus in spite of having, like you, a PhD. But I'm pretty sure Commentariat is in a better position to answer immigration questions about Australia than me.

[lio45]

Originally Posted by niwell

Australian housing prices are insane in general. My uncle and his wife have to rent as he will not (as an oceanographer) live far from the coast.

This is getting slightly off-topic, but there's a chance your uncle and my ex-in-Tasmania know each other. She's an oceanographer too, with a fresh PhD from CSIRO in Hobart. Small world!

[ChargerCarl]

Originally Posted by Commentariat

But now you are in the realm of theoretical economics rather than the flawed world of real human beings, where people will pay silly amounts of money for a house because it has a nice view and will make their friends jealous. So unless you plan on replacing rational economic actors with irrational ones, and creating a model incorporating preferences for non-fungible real estate across every available market, the whole debate is pointless. And if you do succeed, I'll be the first to congratulate you on your Nobel prize.

...?

Theres nothing irrational about demand existing for non-fungible goods and countless models exist to incorporate them. Your most basic supply and demand econ 101 model incorporates it

I honestly have no idea what you're trying to say here.

[niwell]

Originally Posted by lio45

This is getting slightly off-topic, but there's a chance your uncle and my ex-in-Tasmania know each other. She's an oceanographer too, with a fresh PhD from CSIRO in Hobart. Small world!

Small world indeed! If she doesn't know him personally I almost guarantee she knows of him. He's very well known in his field and as close as you can get to being a household name in that field. Been in papers and interviewed on the news quite a few times now.

[Commentariat]

Originally Posted by ChargerCarl

...?

Theres nothing irrational about demand existing for non-fungible goods and countless models exist to incorporate them. Your most basic supply and demand econ 101 model incorporates it

I honestly have no idea what you're trying to say here.

That cultural preferences play a large role in, say, Sydney property being more expensive than Houston property, and differences are not exclusively (or even primarily) down to economic factors. You might have lost track of your own argument, but this debate started with your statement:

"I'm not sure why you resort to bizarre, poorly explained cultural theories to explain a problem that has a very obvious explanation: Australian cities are expensive because of supply restrictions"

[ChargerCarl]

Originally Posted by Commentariat

That cultural preferences play a large role in, say, Sydney property being more expensive than Houston property, and differences are not exclusively (or even primarily) down to economic factors. You might have lost track of your own argument, but this debate started with your statement:

"I'm not sure why you resort to bizarre, poorly explained cultural theories to explain a problem that has a very obvious explanation: Australian cities are expensive because of supply restrictions"

This is wrong though. Suppose Australians had a higher preference for housing consumption than Americans. In a competitive market a shift outward of the demand curve would be matched by a corresponding outward shift in the supply curve as producers compete with each other to meet this rise in demand. Price would only rise and fall with changes in marginal cost.

But this isn't what we observe in Australia or the coastal US where housing costs have risen far and above the marginal cost of additional new housing. The only explanation for this is that the housing market isn't competitive. That it's hamstrung by onerous regulations that restrict enough new supply from coming to market to meet demand.

[pdxtex]

cheap is relative. there are plenty of cheap markets but few are also, cheap, growing and have low crime. pick two because very few cities have all three. the plains cities are about the only cities in the country that you might claim this. des moines, iowa might just be America's shortstop too. low crime, low real estate prices, low unemployment and positive population growth. sure its got crippling winter for a few months but who cares. buy a coat.

[Commentariat]

Originally Posted by ChargerCarl

This is wrong though. Suppose Australians had a higher preference for housing consumption than Americans. In a competitive market a shift outward of the demand curve would be matched by a corresponding outward shift in the supply curve as producers compete with each other to meet this rise in demand. Price would only rise and fall with changes in marginal cost.

But this isn't what we observe in Australia or the coastal US where housing costs have risen far and above the marginal cost of additional new housing. The only explanation for this is that the housing market isn't competitive. That it's hamstrung by onerous regulations that restrict enough new supply from coming to market to meet demand.

But they aren't making any more land within a 15km radius of the Sydney CBD, or by the beach, which is what Sydneysiders want. Whereas they are (effectively) making more land 50kms from the Houston CBD next to a freeway off-ramp, which Houstonians are apparently happy with. You could potentially solve the problem by demolishing what is already there (which is happening on a large scale), but it is far more difficult than subdividing undeveloped land. This is just one example of how cultural preferences might make a difference to property prices in the real world, rather than just Wendell Cox or Joel Kotkin-style supply arguments. I wouldn't have thought this was a particularly controversial proposition on a forum like this.

[hammersklavier]

Originally Posted by Commentariat

But they aren't making any more land within a 15km radius of the Sydney CBD, or by the beach, which is what Sydneysiders want. Whereas they are (effectively) making more land 50kms from the Houston CBD next to a freeway off-ramp, which Houstonians are apparently happy with. You could potentially solve the problem by demolishing what is already there (which is happening on a large scale), but it is far more difficult than subdividing undeveloped land. This is just one example of how cultural preferences might make a difference to property prices in the real world, rather than just Wendell Cox or Joel Kotkin-style supply arguments. I wouldn't have thought this was a particularly controversial proposition on a forum like this.

I'm pretty sure he doesn't have much real-world experience. Sometimes graduating from college comes as a real shock.

Anyway ... I think the OP meant "overpriced" and "underpriced"? Value is a different proposition altogether ... Saying a thing is overvalued is akin to saying it's in a bubble, while an undervalued one demands investment arbitrage.

Much like California, much of the Northeast is overpriced. New York is the worst, while Boston and DC aren't much better. Unlike California, however, Philadelphia and Baltimore are excellent options for the price-conscious -- and there is a vast belt of lesser cities that will slowly see investment percolate into them as people continue to get priced out of the more expensive cities.

The Midwest as a region is the country's most underpriced -- and yes, undervalued. If you're looking for a long investment, Detroit's looking on the uptick; St. Louis, Cleveland, and Cincinnati are more comfortable places to move to, though possibly better to flip in than to develop long-term investments. The Midwest's most expensive city, Chicago, has about the same CoL as Philadelphia. (I'll also add that -- unlike Chicago -- Philly's an hour to the mountains and an hour to the Shore.)

Of course, part of it depends on what you want.

Generally the region east of I-35 benefits from having a much older and better established urban fabric embedded into its conurbations. Lack of supply pushes up prices for urban environment throughout the West.

[ChargerCarl]

Originally Posted by Commentariat

But they aren't making any more land within a 15km radius of the Sydney CBD, or by the beach, which is what Sydneysiders want. Whereas they are (effectively) making more land 50kms from the Houston CBD next to a freeway off-ramp, which Houstonians are apparently happy with. You could potentially solve the problem by demolishing what is already there (which is happening on a large scale), but it is far more difficult than subdividing undeveloped land. This is just one example of how cultural preferences might make a difference to property prices in the real world, rather than just Wendell Cox or Joel Kotkin-style supply arguments. I wouldn't have thought this was a particularly controversial proposition on a forum like this.

Land prices can be absorbed into higher densities. Tokyo isn't manufacturing new land and yet it's managed to keep prices stable despite growing demand:

https://www.ft.com/content/023562e2-...d-2fc0c26b3c60

If your point is that cultural differences are the primary reason for tighter land use regulation then I agree with you with you to an extent. But that doesn't seem to be what you're arguing, correct me if I'm wrong.

[Jonesy55]

Exactly, there is certainly no shortage of land in Australia, but there is a shotage of land in those places where people actually want to live. Australia basically has no equivalent of interior US cities, the biggest interior city is Canberra at what 0.5m metro? And that's a special case because the federal government is there, otherwise it would be much smaller rhan that. Every other main city is coastal and probably more comparable to coastal US cities.

As for France I wouldn't say the riviera is the sunbelt equivalent, it's more like the coastal California equivalent with prices to match, the SW and centre-west seems to be a bit more analagous, but even there hotspots like Ile de Ré are pretty expensive. I guess Toulouse and Bordeaux are the closest to a US sunbelt city, but in France taxes etc are mostly set at national level so there isn't the same difference as in the US in that respect.

[ChargerCarl]

Originally Posted by hammersklavier

I'm pretty sure he doesn't have much real-world experience. Sometimes graduating from college comes as a real shock.

Please explain how "real world experience" factors into this at all. An entire discipline of science exists to answer this type of question. Hand-waving and bullshitting about "culture" gets us no closer to actually answering why meaningful price differentials exist.

[Jonesy55]

Originally Posted by ChargerCarl

Land prices can be absorbed into higher densities.

Only if you can persuade people to demolish their existing homes to make way for higher density development. In most of the democratic world that is a long, drawn-out, difficult procedure.