Inflaaaaaaaation

[Kron3007]

t's standard practice that prices of flows go into the cost of living. A house is a stock. The price of the corresponding flow of housing services is called rent. That value is imputed to owner occupied dwellings and goes into the cost-of-living calculation. [The same should be done with any long lasting commodity, but it's not worth the bother, with say, flat screens.] As I said upthread, buying a house is a combination of providing housing services for a long time + a speculative investment. But what is relevant to housing prices is restricted supply -- NIMBY --  a political problem.

Why the focus on real estate? It might have been efficient 40,000 years ago when a nesting instinct made us make -- nice nests. As for the rest, it's also just complaining about price changes. But all those are in the cost-of-living. Real median household income is higher now than in 1985 [even without benefits] and household size is lower.

Sure, not all individuals will do as well as the median. That's a personal problem rather than a societal problem, for we have a safety net.

It's a societal problem if young people just entering the workforce can't afford shelter/life   This doesn't show up in you assessment because it is just "individual" problems.  If the trend continues, it will appear in the averages/medians, but by then it is too late to address. 

You are just sticking your head in the sand and falsely using stats to hide the very real problem.

Most of our misunderstandings are caused by the confusion of overall inflation with changes in relative prices. House prices have indeed risen relative to all other prices and we spend a significant enough share of our income on housing, in Ontario as in the US as a whole. Still, that by itself has not made us poorer. The median household is certainly not poorer. But whether we are or not, what it does mean is that we substitute away from housing and towards other things. And here's an example of how: Pew reports that the share of young adults living with parents has risen to levels not seen since the Great Depression. That's a solution to a problem, not a problem in and of itself.

One factor that rarely gets discussed regarding young adults and housing, but which ought to be for historical comparison, is roommates. Decades ago, young people who left home routinely lived with at least one, often two or three, roommates. Many young people now expect leaving home means getting their [exclusively] "own place". Just like house sizes have increased even as the number of people in a household has decreased, apartment living has followed the same trend.

And when living with Mom and Dad includes all of the things like Netflix in your room, (along with free laundry and meals), being "on your own" isn't really great if it means you have to pay for (or provide) those services for yourself.

Damned whippersnappers these days! 

Last time I checked, all rental princes have gone up, so the cost has increased regardless of room mates.  Many of my grad students have room mates, otherwise they likely wouldn't have a room at all...

[jimbogumbo]

Free the builders!

I think this is odd. It isn't that they are constrained by regulations as much as they are constrained by their desire for profits. There is plenty of market desire for small houses, but the profit per house isn't as much for the builder, so no can/will do. The same thing is true for autos. People who would be happier to purchase a smaller vehicle with fewer options can't find them, as they are not being manufactured any more.

[Kron3007]

Free the builders!

I think this is odd. It isn't that they are constrained by regulations as much as they are constrained by their desire for profits. There is plenty of market desire for small houses, but the profit per house isn't as much for the builder, so no can/will do. The same thing is true for autos. People who would be happier to purchase a smaller vehicle with fewer options can't find them, as they are not being manufactured any more.

This also presumes the housing prices (bubble?) is driven by population growth.  I have not checked the figures, but it seems that is not actually the driver (see below).  If housing is keeping pace with population growth, simply building more dosn't seem like the only/best answer.     

https://betterdwelling.com/canadian-housing-grew-faster-than-population-speculative-mindset-building-bmo/

[dismalist]

Free the builders!

I think this is odd. It isn't that they are constrained by regulations as much as they are constrained by their desire for profits. There is plenty of market desire for small houses, but the profit per house isn't as much for the builder, so no can/will do. The same thing is true for autos. People who would be happier to purchase a smaller vehicle with fewer options can't find them, as they are not being manufactured any more.

Alas, this is a confusion between cause and effect.

Business people do not maximize profit per anything, they maximize total profits. The truth about autos is the exact opposite of the claim. The VW Golf, my car, is made in many countries and sold in many countries. VW stopped selling it in the US of A 'cause nobody bought it on account it's too small!

There is an ongoing discussion about building costs in the US of A.  Apparently, labor productivity in housing construction has not risen since forever, so construction costs rise. The culprit is regulation in the form of zoning and an increasing number choke points, essentially both NIMBY and points for bureaucratic decisions.

[dismalist]

Free the builders!

This also presumes the housing prices (bubble?) is driven by population growth.  I have not checked the figures, but it seems that is not actually the driver (see below).  If housing is keeping pace with population growth, simply building more doesn't seem like the only/best answer.     

https://betterdwelling.com/canadian-housing-grew-faster-than-population-speculative-mindset-building-bmo/

No, the bubble is not driven by population growth, but by too low nominal interest rates. With inflation, real interest rates are negative. That's an invitation to speculation. But that's already coming down.

Completely apart from the bubble, longer term house prices are rising faster than inflation. This is because the demand for housing is increasing faster than the supply of housing. Simply building more is the only answer!

[ciao_yall]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

[dismalist]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

1). Profit per unit is irrelevant. It's total profits that matter. If there's demand for "starter" houses, they will be built, even at a lower per unit profit.

2). Buying up means more are being developed. There's more demand for "blocks". Renting out drives down rents, because it increases rental supplies. That's a substitute for owning, so it drives down house prices, too.

Again, there is a serious confusion between cause and effect.

I think the cause is that one sees only a tiny slice of the real world in day-to-day living. One sees someone else outbid oneself on a house. One infers there are too many bidders, rather than too few houses. We see the bidder, but not the non-existent houses! A particularly egregious example occurred on this board some months ago, when someone attributed to foreigners the bidding up of Canadian house prices. Ethnocentrism is only a step away when we compete for goods. Sure, but why is supply low at old prices now, when it wasn't a quarter century ago? Yes, we want more and we have more to spend, but also building could be greater, perhaps a lot greater.

[kaysixteen]

I get the potential for some savings with roommates, at least in some cases, but just as many young adults probably simply cannot move back home with mom and dad, for various reasons (including mom and dad simply saying no), so also most young adults have little experience with roommates, and know no one who should reasonably be considered potential roommate material.   There are various reasons for this as well, but that it is, is clear, and it is really unreasonable to expect a kid with no such experience to decide to live with a total stranger.

[Kron3007]

Free the builders!

This also presumes the housing prices (bubble?) is driven by population growth.  I have not checked the figures, but it seems that is not actually the driver (see below).  If housing is keeping pace with population growth, simply building more doesn't seem like the only/best answer.     

https://betterdwelling.com/canadian-housing-grew-faster-than-population-speculative-mindset-building-bmo/

No, the bubble is not driven by population growth, but by too low nominal interest rates. With inflation, real interest rates are negative. That's an invitation to speculation. But that's already coming down.

Completely apart from the bubble, longer term house prices are rising faster than inflation. This is because the demand for housing is increasing faster than the supply of housing. Simply building more is the only answer!

I guess the question is why is demand increasing quicker than supply when.supply is apparently keeping pace with new housing? 

Now that housing has dropped a bit, developers are talking about cancelling building projects (even though housing is still High).  This is not a zoning problem, it is a greed problem.

[marshwiggle]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

[Kron3007]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

My understanding is that it is largely based on a speculation, so people are eating these costs assuming real estate will continue to increase and they will come out ahead.  This is a different calculation than someone who will actually be living in the home.  If you have a lot of cash, you can buy a house, rent it out and make profit (because you are not necessarily holding a large mortgage), and then cash out when the time is right.  In the last decade, these costs you speak of are peanuts compared to the profit.

A major issue, is that speculation drives prices,which drives speculation, all pricing out people who just need a home.  Ultimately, this sounds a lot like a bubble, but I have thought that for many years and it has yet to pop.  I feel the government will do anything it can to prevent it from popping since it would cause a lot of pain (especially for wealthy people with influence) even though it is needed if we want the next generation to be able to afford life in Canada/USA. 

[Kron3007]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

I would also mention that many people simply don't have access to enough money to consider buying, so the cost of borrowing is a moot point and they  have to rent.  When I spoke to a bank, the pre-approved me for 400k.  You cannot buy a house here for that, and we make more than the median family income with relatively low debt.  A lot of people are simply priced out.

[marshwiggle]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

My understanding is that it is largely based on a speculation, so people are eating these costs assuming real estate will continue to increase and they will come out ahead.  This is a different calculation than someone who will actually be living in the home.  If you have a lot of cash, you can buy a house, rent it out and make profit (because you are not necessarily holding a large mortgage), and then cash out when the time is right.  In the last decade, these costs you speak of are peanuts compared to the profit.

Sure, that makes sense. However, it isn't sustainable in the long term. A place can only be rented to someone who can afford the rent. If an owner can't find a renter, and has to carry the house personally, then the (theoretical) rising value of the property is a moot point.

Like any other bubble, it will burst eventually.

A major issue, is that speculation drives prices,which drives speculation, all pricing out people who just need a home.  Ultimately, this sounds a lot like a bubble, but I have thought that for many years and it has yet to pop.  I feel the government will do anything it can to prevent it from popping since it would cause a lot of pain (especially for wealthy people with influence) even though it is needed if we want the next generation to be able to afford life in Canada/USA.

The main driver is rising population, mainly from immigration since the natural birth rate is below replacement. In any community where the population levels off, prices won't be able to keep rising faster than inflation.

[Kron3007]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

My understanding is that it is largely based on a speculation, so people are eating these costs assuming real estate will continue to increase and they will come out ahead.  This is a different calculation than someone who will actually be living in the home.  If you have a lot of cash, you can buy a house, rent it out and make profit (because you are not necessarily holding a large mortgage), and then cash out when the time is right.  In the last decade, these costs you speak of are peanuts compared to the profit.

Sure, that makes sense. However, it isn't sustainable in the long term. A place can only be rented to someone who can afford the rent. If an owner can't find a renter, and has to carry the house personally, then the (theoretical) rising value of the property is a moot point.

Like any other bubble, it will burst eventually.

A major issue, is that speculation drives prices,which drives speculation, all pricing out people who just need a home.  Ultimately, this sounds a lot like a bubble, but I have thought that for many years and it has yet to pop.  I feel the government will do anything it can to prevent it from popping since it would cause a lot of pain (especially for wealthy people with influence) even though it is needed if we want the next generation to be able to afford life in Canada/USA.

The main driver is rising population, mainly from immigration since the natural birth rate is below replacement. In any community where the population levels off, prices won't be able to keep rising faster than inflation.

Except that the data seems to show house construction is keeping pace with population growth, so it is not a simple relationship.  If population was increasing quicker than supply, that would make sense, but that is not the case, so there is much more at play.

[ciao_yall]

Along with the above, also affecting housing prices -

1) Developers build larger homes rather than smaller ones because the profits are higher. So there is not much available at the "starter" end of the market.

2) Investors are buying up large blocks in new developments and renting out the houses, which drives up the prices and reduces the supply. Up until a few years ago investors stuck with the rental market because houses were too costly and annoying to maintain on a large scale.

But how are investors finding tenants for these properties? Whoever owns the property has to pay for

• property taxes
• maintenance
• financing costs on money (OR they have to be getting a higher rate of return on their money than they'd get by simply putting it in the bank or buying bonds).

Rent has to be, by definition, high enough to cover all of these costs. So if the potential tenant instead owned the property, their costs would be similar. The *only way an "investor" has an advantage over a potential renter is if the investor has access to funds at a significantly lower interest rate than the tenant.



*Because of acquisition costs of a property; i.e. legal fees, land transfer taxes, etc., then if one is only going to live in a place for a few years (less than 5 or so), renting is cheaper. For anyone planning to stay longer, those costs get offset by the value of the equity built up over time.

We are seeing the affects in larger numbers of homeless, people couch-surfing, having roommates, or living with their parents longer.

Articles I have read say that these investors are not maintaining the homes at the same level a homeowner would, but renters don't have many other options if they want 3 bedrooms and a yard.