Inflaaaaaaaation

[dismalist]

The price graph was for the US. I used it to make a wider point about complaining about individual prices that rise but not those that fall.

Median real income in Ontario can be found in the link to Canadian data I posted. Median real income, i.e. adjusted for inflation, has grown by 24% since 1997 [up to 2020, pre-covid].

It is certainly true that a singe individual or a single household experiences real income growth that differs from the median. That could be because of a different consumption structure or lower nominal wage growth. But it would be wrong to infer the well being of the median household from a single household. The median is a better stab at the welfare of a society.

[quasihumanist]

When it comes to housing, I think one of the problems we are facing is that the minimal standard provided by the market has risen.

One used to be able to get, 50 years ago, a private 250 sq. ft. living space for 250 sq. ft. of rent.  Now those spaces no longer exist on the market.  So, while the rent per square foot (which roughly speaking is what is and should be captured by inflation statistics) might not have outpaced earnings growth, the minimum rent for living on your own has.

We may have an increase in standard of living for the median person, but I'm also interested in how things work for the 5th percentile person.

To a significant extent, a society should not be measured by how wealthy the average person is, but rather how wealthy the poorest person is.

[dismalist]

When it comes to housing, I think one of the problems we are facing is that the minimal standard provided by the market has risen.

One used to be able to get, 50 years ago, a private 250 sq. ft. living space for 250 sq. ft. of rent.  Now those spaces no longer exist on the market.  So, while the rent per square foot (which roughly speaking is what is and should be captured by inflation statistics) might not have outpaced earnings growth, the minimum rent for living on your own has.

We may have an increase in standard of living for the median person, but I'm also interested in how things work for the 5th percentile person.

To a significant extent, a society should not be measured by how wealthy the average person is, but rather how wealthy the poorest person is.

The housing point is well taken. We are richer and we want more. Perfectly natural.

Shades of Rawls! This is not the thread to argue it, but one can make the case that behind the veil of ignorance we would choose the mean, not the minimum. I chose the median on purpose to take some account of distribution. Personally, I prefer my utilitarianism to come with an insurance policy! :-)

[marshwiggle]

The average rent in my city is currently about $2000/month for a 1-bedroom apartment ($24k/year).    Average income according to your numbers is about $50k/year (before taxes).  This is not really affordable based on any financial advice I have heard.  Perhaps you coudl find something even smaller than a 1 bedroom, but it will still not be affordable for many/most people.

Rental prices were much lower even 10 years ago, an easy 30%, while average salaries were almost the same (according to your data, about 10% lower).  You can show me all the graphs you like, but I can tell you for certain that in my city, and most of Ontario, anyone who didn't purchase a home a while ago is much poorer now than they were ten years ago. 
   

For some perspective:

In non-seasonally adjusted terms, CREA said the national average home price in Canada was $612,204 in January, down 18.3 per cent year over year. CREA’s benchmark Home Price Index is now down 15 per cent from the peak seen in February 2022.

Prices drops are steeper in some Ontario and B.C. markets

[quasihumanist]

Shades of Rawls! This is not the thread to argue it, but one can make the case that behind the veil of ignorance we would choose the mean, not the minimum.

From behind the veil of ignorance we would choose the mean in utils, not the mean in dollars.

Now utils are a theoretical construct, and no one really knows how to convert dollars to utils, but I think we can all agree that the conversion is sublinear - your first dollar is worth more utils than your thousandth dollar which is worth more utils than your millionth.

It's also different for different people.  My conversion scale is probably more sublinear than yours - the ratio between the worth of the thousandth dollar and the millionth dollar is bigger for me than for you.  I do say that, if I ever become a billionaire, you should shoot me and put me out of my misery because I've clearly lost my mind.

[Kron3007]

When it comes to housing, I think one of the problems we are facing is that the minimal standard provided by the market has risen.

One used to be able to get, 50 years ago, a private 250 sq. ft. living space for 250 sq. ft. of rent.  Now those spaces no longer exist on the market.  So, while the rent per square foot (which roughly speaking is what is and should be captured by inflation statistics) might not have outpaced earnings growth, the minimum rent for living on your own has.

We may have an increase in standard of living for the median person, but I'm also interested in how things work for the 5th percentile person.

To a significant extent, a society should not be measured by how wealthy the average person is, but rather how wealthy the poorest person is.

Well, again, the increase in rental rates in  my city are for the very same apartments.  I'm sure were added over time and could have skewed the data, but an apartment that I rented for $800/month in 2008, would now go for over $2k.  Incomes have not done this.  So yes, expectations may have changed over time (especially comparing a 50 year gap), but this dosn't change the fact that over the last 10-15 years, housing and rental prices in many regions have outpaced incomes on a per square foot basis.  When looking at household data, this is masked since many households own and pay a mortgage, insulating them from the housing market.

This is coupled with the very real inflation on food and other expenses of late.  Not everyone is doing relatively better now than 10 years ago. 

[Kron3007]

The average rent in my city is currently about $2000/month for a 1-bedroom apartment ($24k/year).    Average income according to your numbers is about $50k/year (before taxes).  This is not really affordable based on any financial advice I have heard.  Perhaps you coudl find something even smaller than a 1 bedroom, but it will still not be affordable for many/most people.

Rental prices were much lower even 10 years ago, an easy 30%, while average salaries were almost the same (according to your data, about 10% lower).  You can show me all the graphs you like, but I can tell you for certain that in my city, and most of Ontario, anyone who didn't purchase a home a while ago is much poorer now than they were ten years ago. 
   

For some perspective:

In non-seasonally adjusted terms, CREA said the national average home price in Canada was $612,204 in January, down 18.3 per cent year over year. CREA’s benchmark Home Price Index is now down 15 per cent from the peak seen in February 2022.

Prices drops are steeper in some Ontario and B.C. markets

Sure, they may have dropped 18% but this follows a run where they jumped about 100% in just a few years.  The end result, housing is still up 80% from where it was just 5-6 years ago (these numbers are estimates based on what I see locally) while income is not.  Again, this is also coupled with other increases in the COL, as well as increased mortgage rates that eliminate much of the increased affordability expected with lower housing prices.     

[dismalist]

Shades of Rawls! This is not the thread to argue it, but one can make the case that behind the veil of ignorance we would choose the mean, not the minimum.

From behind the veil of ignorance we would choose the mean in utils, not the mean in dollars.

Now utils are a theoretical construct, and no one really knows how to convert dollars to utils, but I think we can all agree that the conversion is sublinear - your first dollar is worth more utils than your thousandth dollar which is worth more utils than your millionth.

It's also different for different people.  My conversion scale is probably more sublinear than yours - the ratio between the worth of the thousandth dollar and the millionth dollar is bigger for me than for you.  I do say that, if I ever become a billionaire, you should shoot me and put me out of my misery because I've clearly lost my mind.

Interpersonal utility comparisons are not unusual. We think we know, e.g., if one person is needier than another, i.e can benefit more from more money, benefit measure by his utility function. We put ourselves in others' shoes. Be that as it may, it is hard to imagine doing so systematically. Since utility is monotonic in income, no great harm is done by using income instead of utility and by assuming identical utility functions as a first pass.

Then the argument is that behind the veil we would choose institutions that maximize total income because our chance of landing in any part of the income distribution is equal to landing anywhere else. The greater total income, the better off we are no matter where we land. This makes mean income the proper measure of social welfare. In other words, distribution doesn't matter. Pure utilitarianism.

Having done all this, we consider that we have established institutions to help the worst off. [It is perhaps surprising how generous these are even in the United States.] This redistribution makes society better off on account of the diminishing marginal utility of income. But of course this doesn't take us to equality of outcomes. Another way of putting this is that Rawls assumes too much risk aversion compared to real human beings.

So, I would be perfectly justified in using mean income to measure social welfare. I haven't. I used median income, as a tad more insurance against the risk of being too far in the bottom.

[Stockmann]

Luxuries have become cheaper, but necessities have gotten more expensive relative to income in much of the world - and that very much makes people poorer when it comes to actually affording necessities. In terms of ability to buy real estate, young Americans are poorer than the boomers were at their age. You can come up with whatever excuses for not including property prices in inflation calculations, but that's just cherry-picking data. It's not like renting has become cheaper, either.

[dismalist]

Luxuries have become cheaper, but necessities have gotten more expensive relative to income in much of the world - and that very much makes people poorer when it comes to actually affording necessities. In terms of ability to buy real estate, young Americans are poorer than the boomers were at their age. You can come up with whatever excuses for not including property prices in inflation calculations, but that's just cherry-picking data. It's not like renting has become cheaper, either.

No, Stockman, it's not cherry picking data. It'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.

[Kron3007]

Luxuries have become cheaper, but necessities have gotten more expensive relative to income in much of the world - and that very much makes people poorer when it comes to actually affording necessities. In terms of ability to buy real estate, young Americans are poorer than the boomers were at their age. You can come up with whatever excuses for not including property prices in inflation calculations, but that's just cherry-picking data. It's not like renting has become cheaper, either.

No, Stockman, it's not cherry picking data. It'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.

[dismalist]

Luxuries have become cheaper, but necessities have gotten more expensive relative to income in much of the world - and that very much makes people poorer when it comes to actually affording necessities. In terms of ability to buy real estate, young Americans are poorer than the boomers were at their age. You can come up with whatever excuses for not including property prices in inflation calculations, but that's just cherry-picking data. It's not like renting has become cheaper, either.

No, Stockman, it's not cherry picking data. It'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.

Thus, we must focus on the cause of relative house price increases, in other words the part not due to inflation. That's largely the result of speculation on the demand side and NIMBYism on the supply side. The speculation has stopped already on account of interest rate rises. [Subtract the expected inflation rate from the nominal interest rate to get the real interest rate.] As Marsh reports, house prices are already falling in Canada and Ontario. My own interest is more in the NIMBYism. I'm thinking of New York and San Francisco especially. Not Houston, interestingly. It can be done. This is a political problem. Let them build!

[kaysixteen]

Sure, NIMBYism and other forms of socialism for rich people are very bad, but telling underpaid and devalued young adults that, not to worry, just move back in with mom and dad, is, well...

[dismalist]

Sure, NIMBYism and other forms of socialism for rich people are very bad, but telling underpaid and devalued young adults that, not to worry, just move back in with mom and dad, is, well...

Substitution! :-)

Please let us try to keep separate conceptually  a relative price change from an increase in the price level, called inflation. We are poorer from inflation, at least for a while. We are richer when real median income rises, which takes account of a rise in inflation, including rents and imputed rents. A rise in rents and imputed rents [house prices], if compensated by a rising nominal income, leaves us no worse off, indeed, better off on average, according to the data.

Given the data, non-housing addicts are not at all worse off, though individuals might certainly be on account of their own nominal incomes not keeping up with overall inflation.

Free the builders!

[marshwiggle]

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.