If Americans Viewed Housing As A Consumable Good, Affordability Solutions Follow

[pdxtex]

orrrrrrr,....you could have read the fine print on your a.r.m. loan and not have been surprised when the rate went up. I can buy a house with zero money down and bad credit????? nice try nyt....

[Pedestrian]

Originally Posted by JManc

Overall, yes but that's changing pretty rapidly; people wanting shorter commutes and paying a premium for it. $300,000 for a crappy mid-century ranch with avocado appliances within proximity of check cashing and fried chicken joints 10 miles from downtown is not unheard of....but a "bargain" compared to houses 5 miles from town that average $500k.

If it had harvest gold appliances, sold to me (I almost fell over the other day when I read they were coming back).

[Pedestrian]

Originally Posted by Buckeye Native 001

I don't know about Houston but Phoenix is starting to head way beyond the point where housing is "relatively" affordable which leads me to believe that nothing was learned from the last time the bubble popped.

Arizona is not a high wage or well-educated state so I have no idea who or what is driving the latest surge in housing prices.

Retired Californians used to houses costing twice what they still cost in Phoenix most likely is what is driving the latest, and former price surges. I own in SF and the Tucson metro (a bt cheaper than Phoenix) and I laugh every time I realize my house in Tucson is worth about what a parking space would sell for at my other condo (if one were available).

[mhays]

Originally Posted by ChargerCarl

I'm having trouble comprehending what you mean by this. The economics is the same in either market, the only difference is the level of excess profit one can earn due to government enforced market power.

Tokyo sees no shortage of investment.

Construction costs don't vary much by market. But the payoff for a nicer kitchen varies tremendously. When the cost is too high relative to the benefits, people are much less likely to renovate.

My world is commercial/multifamily construction, but it's just as true in residential.

PS, Tokyo is an expensive market, where investment does pay off.

[ChargerCarl]

Originally Posted by mhays

Construction costs don't vary much by market. But the payoff for a nicer kitchen varies tremendously. When the cost is too high relative to the benefits, people are much less likely to renovate.

My world is commercial/multifamily construction, but it's just as true in residential.

This still doesn't make sense to me. Government restrictions on housing supply doesn't shift the demand curve (marginal benefit). The economics is still the same in either market.

When I think about it we should expect EVEN MORE investment in the unconstrained market since the equilibrium would be pushed further to the right ---> higher Qd.

Sketched out:
http://imgur.com/a/2v48p

[Commentariat]

The analysis referred to in the article appears to assume that we have an unlimited supply of perfectly substitutable land, and therefore the value of all land should be zero in an unregulated market. These assumptions are clearly at odds with the real world, and so the analysis is pointless. It's no different from saying NBA players should be paid zero because we can just pick a 5'8" guy off the street to play instead of LeBron James.

[mhays]

Originally Posted by ChargerCarl

This still doesn't make sense to me. Government restrictions on housing supply doesn't shift the demand curve (marginal benefit). The economics is still the same in either market.

When I think about it we should expect EVEN MORE investment in the unconstrained market since the equilibrium would be pushed further to the right ---> higher Qd.

Sketched out:
http://imgur.com/a/2v48p

Construction costs (assuming they'd be relatively constant) would rise relative to the value of any home, and relative to the resale value of any renovation.

This is shown by any city where real estate rents/prices aren't high enough to justify construction. No amount of demand will kick projects off until the developer and financiers are confident that rents will be above a certain level. Likewise, people might want to renovate their houses, but most won't spend $50,000 if they think the value will go from $180,000 to $210,000.

[ChargerCarl]

Originally Posted by mhays

Construction costs (assuming they'd be relatively constant) would rise relative to the value of any home, and relative to the resale value of any renovation.

This is shown by any city where real estate rents/prices aren't high enough to justify construction. No amount of demand will kick projects off until the developer and financiers are confident that rents will be above a certain level. Likewise, people might want to renovate their houses, but most won't spend $50,000 if they think the value will go from $180,000 to $210,000.

This is captured in the supply and demand functions though. The market equilibrium point where the supply and demand curve intersect is the price level at which the most amount of housing investment takes place (Qd or Qs if you will).

And the reason I raised Tokyo as an example is that despite its somewhat high prices, they're still low by world city standards (and certainly lower than say, SF) and yet it's level of housing investment far exceeds most other cities. You can't just look at price when thinking about this since price is both a function of supply and demand.

[ChargerCarl]

Now that I've thought about it some more we might be talking past each other here.

In the real world housing markets contain obvious frictions; even in the most lightly regulated markets housing supply is still short term inelastic. So any increase in demand will usually lead to price spikes in the short run while housing supply catches up and brings prices back down.

But in the long run the model I sketched out is, I think, a decent approximation of the market.

[mhays]

Originally Posted by ChargerCarl

This is captured in the supply and demand functions though. The market equilibrium point where the supply and demand curve intersect is the price level at which the most amount of housing investment takes place (Qd or Qs if you will).

And the reason I raised Tokyo as an example is that despite its somewhat high prices, they're still low by world city standards (and certainly lower than say, SF) and yet it's level of housing investment far exceeds most other cities. You can't just look at price when thinking about this since price is both a function of supply and demand.

You're forgetting to factor the variation in construction costs.

[ChargerCarl]

Originally Posted by mhays

You're forgetting to factor the variation in construction costs.

Thats captured in the supply curve.

Here's a more accurate supply curve that might help:
http://imgur.com/a/mc04D

At least this is how I think of the housing market.

[mhays]

Then your comments don't follow your model.

My initial post talked about cities where low housing values has resulted in less upkeep and renovation. The economics of doing that work is a large factor in this. Housing prices are more flexible than renovation prices, which isn't debatable.

I think the pattern is pretty clear when you look at cities. How many homes have been renovated in recent decades? If it's most of them, the city is probably higher priced. If not, it's probably a cheaper city.

So what are you debating?

[ChargerCarl]

Originally Posted by mhays

Then your comments don't follow your model.

My initial post talked about cities where low housing values has resulted in less upkeep and renovation. The economics of doing that work is a large factor in this. Housing prices are more flexible than renovation prices, which isn't debatable.

I think the pattern is pretty clear when you look at cities. How many homes have been renovated in recent decades? If it's most of them, the city is probably higher priced. If not, it's probably a cheaper city.

So what are you debating?

Im like 99% sure this is the wrong way to think about it but I need time to come up with the right response. I'll post tomorrow.

[Don't Be That Guy]

Originally Posted by Pedestrian

Love how this New York newspaper thinks housing is overpriced in those 2 towns but in Manhattan? Well, obviously it's worth whatever you have to pay to live there.

Anyway, SF is something like 65% renters. Home ownership is not the norm so tinkering with the cost of buying homes isn't the answer to much of anything.



Well, the regulatory reviews and so on undoubtedly add to costs, but for multifamily buildings (which is nearly all new housing in the city these days), about 30% of units must be sold or rented at below market rates to buyers with 150% of the area median income or less (sometimes much less). That effectively means developers make no profit on ⅓ of what they build and must make that much more on the other ⅔ to make development "pencil out". So right off, call that $281,000 more like $400,000 ($281,000/.7). THEN add the regulatory costs, fees and so much more. It all totals well north of $1000/sq ft.

So San Francisco's attempt at creating more low income housing resulted made housing more expensive for everyone else? Well that seems monumentally dumb, but par for the course there.

[RST500]

It's not just supply and demand. We must take into account he role that Banks and the FIRE sector play in driving up the cost of real estate. For instance about half of income for a house goes to mortgages to the banks, speculators drive up the cost of real estate, and than land loads pass down the cost to the renters.



Robert Stark interviews Bay Area Guy about the SF Bay Area and the FIRE Economy:

http://www.starktruthradio.com/?p=3025

[JManc]

Originally Posted by Buckeye Native 001

I don't know about Houston but Phoenix is starting to head way beyond the point where housing is "relatively" affordable which leads me to believe that nothing was learned from the last time the bubble popped.

Arizona is not a high wage or well-educated state so I have no idea who or what is driving the latest surge in housing prices.

Relative compared to other major cities; Houston and Phoenix are still bargains. My wife and I would not be able to own two houses in San Francisco or Seattle like we can here in Houston. She and I would be hard pressed to afford even one in one these cities.

[Pedestrian]

Originally Posted by Don't Be That Guy

So San Francisco's attempt at creating more low income housing resulted made housing more expensive for everyone else? Well that seems monumentally dumb, but par for the course there.

Well, I don't like agreeing with gratuitous insults of what, in spite of bad government, may still be one of America's most livable cities, perhaps its MOST livable, which is why people are willing to pay what they are to live there and why all the tech execs don't decamp for someplace like Austin where they could probably pay their staffs less and get bigger mansions themselves.

But I can't deny the place has been run for at least 20 years by "progressive" ideologues who seem to have no understanding of economics. Yes, of course their efforts to create housing for the lower income bands makes it more expensive for "everyone else". How could it be otherwise? Somebody has to pay for things.

But the "everybody else" is an increasingly small number and the "low income" is ever enlarging. Note I said that "affordable" housing is now being built for people earning up to 150% of the median household income which in 2017 is said to be $88,000. So making $132,000 for a "household" you qualify to be treated as "low income". That has been said to mean that only 11% of city households can afford the median priced house:


http://sf.curbed.com/2016/2/23/11101...rancisco-homes
Note: Marin and San Mateo Counties are "coastal" suburban counties to the north and south of SF. Santa Clara is the county of San Jose, heart of Silicon Valley. Alameda County is Oakland. Napa is, well, Napa=wine country. Solano is where "the rest of us" often go to find something affordable in the (distant) suburbs.

The result is complaints like this:

Scraping by on six figures? Tech workers feel poor in Silicon Valley's wealth bubble
Olivia Solon
Monday 27 February 2017 06.00 EST Last modified on Monday 27 February 2017 19.43 EST

“I didn’t become a software engineer to be trying to make ends meet,” said a Twitter employee in his early 40s who earns a base salary of $160,000. It is, he added, a “pretty bad” income for raising a family in the Bay Area . . . .

https://www.theguardian.com/technolo...d-feeling-poor

Two decades ago, under Mayor Willie Brown, I recall the city contemplating building housing for its doctors and nurses so some of them could afford to live in the city. If course paying for that would have probably meant more fees levied on "market rate" housing, possibly meaning Mark Zuckerberg, Mark Benioff and Larry Ellison would be the last people who could afford it.

[pdxtex]

SF shall reap what is sews.....in annals of planning history, it will go down as the example of how not to create an affordable and egalitarian state. in the end you don't implement social policy to try and alter market forces, you just build more housing period. its not that hard.

[Pedestrian]

Originally Posted by pdxtex

in the end you don't implement social policy to try and alter market forces, you just build more housing period. its not that hard.

We do it differently:

Proposition I: Mission District Housing Moratorium
By Noah Arroyo
San Francisco Public Press
— Oct 5 2015 - 3:00pm

For an initial period of 18 months, the proposition would halt:

- the demolition and construction of any project that contained at least five apartments or condos (however, projects consisting of 100-percent affordable housing could continue), or
- the demolition of certain characteristically blue-collar work spaces, unless that was just the first step in a construction project to create 100 percent affordable housing.

City officials and community groups would use the time to craft a strategy for increasing affordable housing construction, so that at least half of the Mission District’s new homes were within reach to low- and middle-income earners.

That strategy might include making developers pay higher fees and using that money to build more affordable housing. It could also include modifying zoning restrictions, which determine how tall a building can be, as well as its function — whether it houses residents, offices, retail or manufacturing space, for example.

At the end of 18 months, the Board of Supervisors could extend the construction pause by another year.

The city Controller's Office said in September that Prop I would temporarily halt the construction of an estimated 752 to 807 housing units in the Mission District.

http://sfpublicpress.org/election2015/propI

In other words, make housing more affordable by NOT building any for at least 18 months, maybe 36 months.

It's a looking glass world. Fortunately, the voting public is smarter than the politicians and far left activitists. It lost.

[pdxtex]

^^^that's good. while progressive politics is grasping on to its last 1960's, radical straws even conservative middle America has come round and become more level headed. I don't know enough about the long term effects of inclusionary zoning but on paper it seems like a good idea. don't halt market rate housing in the process though while you are still trying to figure out the merits of the other. in the end, the one thing I wish more americans would embrace was a smaller footprint all together. I think that's becoming more of a reality thankfully, more townhome and condo development...