On a different topic, it is interesting to note that cities with greater affordability (those at the top of the chart) show a much lower share of income going to transportation. Not coincidentally, those cities also have the most effective public transit systems. The lower transportation costs seem to offset higher housing costs in some cases (NYC), but most cases seem to indicate that lower transportation costs are associated with higher incomes relative to housing. There is likely something in there we can work with.
One topic I have yet to see discussed is that “the high cost of housing” and “protecting property values” are two sides of the same coin. ANY measure to reduce the actual cost of housing will cause current homeowners to eat a loss, perhaps unrealized, perhaps not. Any solution that actually works, but doesn’t solve both sides of that coin is doomed to fail. There are lots of ideas, and many will have an effect, and most are required simultaneously, but none of them address the loss in wealth implied by good results. Any ideas?
That's a very valid point. For example, if construction costs were to drastically fall (due to new technology, even though unlikely), all current housing stock could significantly lose value. The only thing protect the value would still be "access to the labor market" which can keep the value of housing still high.
However, theoretically, your point stands - the economic shock to individuals of large decline in house prices would be politically painful (and economically too).
The base amount of wealth needed to house oneself no matter the idiosyncratic location (i.e. cost of building which can be hand wavily assigned to some average price / average amenities) can go down thereby reducing cost of housing without losing wealth (which is the point of protecting property values).
If "high price of housing" goes down due to cost of building going down, the homeowner does not lose any real wealth (even if their asset goes down) because they must consume housing no matter what (short housing).
AI generated thought experiment:
Scenario A: You own a home worth $500,000. You decide to move across town to an identical home. You sell yours for $500k, buy the new one for $500k. Net result: You have 1 house and $0 extra cash.
Scenario B: The cost of building plummets. Your home's value crashes to $250,000. You feel like you lost $250k in "wealth." But you decide to move across town to an identical home. You sell yours for $250k, and because all housing is cheaper, you buy the new one for $250k. Net result: You have 1 house and $0 extra cash.
In both scenarios, your "real wealth" (your ability to house yourself) is identical. The drop in your home's price didn't hurt you because the cost of your required consumption (shelter) dropped by the exact same amount.
You forgot an important input. What did you originally pay for the house? It especially matters in scenario B. Scenario A just isn’t possible given the cost of real estate transactions.
You also forgot the effect that even a paper loss of wealth has on emotions and behavior. Based on swings in the stock market and subsequent consumer behavior, paper losses have more effect than real ones.
That said, there are solutions that address both problems. They’re complicated so politicians won’t/can’t talk about them.
In reality, 60% of owner occupiers is leveraged to the tits on housing because the government subsidizes the risk. Also reduction in building costs is not uniformly distributed across the globe.
So if you bought that $500,000 house with a $450,000 mortgage, and the house's value drops to $250,000, you're cooked.
We destroyed unions, and pensions, and housing became a lottery ticket for a pension. Separately, we exempted real estate from money-laundering rules, and allowed real estate to be a flight-to-safety asset for foreigners.
If we don't face these realities, housing will continue to inflate.
Cap. it is clear and obvious building more reduces and stabilizes prices to an extreme level (and to knowingly state otherwise is to perform a lie of omission):
1) Income is a standardized metric while local building restrictions are the quintessence of regulatory patchwork (sometimes they are municipal, state, environmental, or even private via deed restrictions). Housing built relative to population growth is a useful proxy for supply responsiveness but this is for researchers to debate before making conclusions on policy choices.
2) The reverse causality of income → housing shortage overlook selection bias: the observed population consists of individuals who have chosen to remain despite high housing costs, while those priced out are no longer in the sample
3) The consistent pattern across places like Auckland and Austin is that when supply is allowed to expand significantly, price growth slows or reverses by orders of magnitude beyond predictions even in high-demand environments. This extends beyond idiosyncratic issues
On a different topic, it is interesting to note that cities with greater affordability (those at the top of the chart) show a much lower share of income going to transportation. Not coincidentally, those cities also have the most effective public transit systems. The lower transportation costs seem to offset higher housing costs in some cases (NYC), but most cases seem to indicate that lower transportation costs are associated with higher incomes relative to housing. There is likely something in there we can work with.
One topic I have yet to see discussed is that “the high cost of housing” and “protecting property values” are two sides of the same coin. ANY measure to reduce the actual cost of housing will cause current homeowners to eat a loss, perhaps unrealized, perhaps not. Any solution that actually works, but doesn’t solve both sides of that coin is doomed to fail. There are lots of ideas, and many will have an effect, and most are required simultaneously, but none of them address the loss in wealth implied by good results. Any ideas?
That's a very valid point. For example, if construction costs were to drastically fall (due to new technology, even though unlikely), all current housing stock could significantly lose value. The only thing protect the value would still be "access to the labor market" which can keep the value of housing still high.
However, theoretically, your point stands - the economic shock to individuals of large decline in house prices would be politically painful (and economically too).
The base amount of wealth needed to house oneself no matter the idiosyncratic location (i.e. cost of building which can be hand wavily assigned to some average price / average amenities) can go down thereby reducing cost of housing without losing wealth (which is the point of protecting property values).
If "high price of housing" goes down due to cost of building going down, the homeowner does not lose any real wealth (even if their asset goes down) because they must consume housing no matter what (short housing).
AI generated thought experiment:
Scenario A: You own a home worth $500,000. You decide to move across town to an identical home. You sell yours for $500k, buy the new one for $500k. Net result: You have 1 house and $0 extra cash.
Scenario B: The cost of building plummets. Your home's value crashes to $250,000. You feel like you lost $250k in "wealth." But you decide to move across town to an identical home. You sell yours for $250k, and because all housing is cheaper, you buy the new one for $250k. Net result: You have 1 house and $0 extra cash.
In both scenarios, your "real wealth" (your ability to house yourself) is identical. The drop in your home's price didn't hurt you because the cost of your required consumption (shelter) dropped by the exact same amount.
You forgot an important input. What did you originally pay for the house? It especially matters in scenario B. Scenario A just isn’t possible given the cost of real estate transactions.
You also forgot the effect that even a paper loss of wealth has on emotions and behavior. Based on swings in the stock market and subsequent consumer behavior, paper losses have more effect than real ones.
That said, there are solutions that address both problems. They’re complicated so politicians won’t/can’t talk about them.
In reality, 60% of owner occupiers is leveraged to the tits on housing because the government subsidizes the risk. Also reduction in building costs is not uniformly distributed across the globe.
So if you bought that $500,000 house with a $450,000 mortgage, and the house's value drops to $250,000, you're cooked.
We destroyed unions, and pensions, and housing became a lottery ticket for a pension. Separately, we exempted real estate from money-laundering rules, and allowed real estate to be a flight-to-safety asset for foreigners.
If we don't face these realities, housing will continue to inflate.
Cap. it is clear and obvious building more reduces and stabilizes prices to an extreme level (and to knowingly state otherwise is to perform a lie of omission):
1) Income is a standardized metric while local building restrictions are the quintessence of regulatory patchwork (sometimes they are municipal, state, environmental, or even private via deed restrictions). Housing built relative to population growth is a useful proxy for supply responsiveness but this is for researchers to debate before making conclusions on policy choices.
2) The reverse causality of income → housing shortage overlook selection bias: the observed population consists of individuals who have chosen to remain despite high housing costs, while those priced out are no longer in the sample
3) The consistent pattern across places like Auckland and Austin is that when supply is allowed to expand significantly, price growth slows or reverses by orders of magnitude beyond predictions even in high-demand environments. This extends beyond idiosyncratic issues
Bernie had a solution. Look it up!