Inflaaaaaaaation

[Anselm]

Many cities forbid small homes.  One example is New Lenox, Illinois where a home must be at least 1800 square feet.   The desire to get into an ideal school district also pushes up prices.  Population growth for the whole nation is meaningless.  Look at how it affects an individual metro region.   Boomtowns have higher prices.  Rust belt towns have affordable Victorian mansions. 

[marshwiggle]

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.

But here, (as many other places), a few houses get demolished to make room for a high rise. The houses would accommodate maybe dozens of people, whereas the high rise accommodates hundreds. In theory, that should mean all kinds of vacant units. Where are they coming from????

[apl68]

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.

California has begun seeing substantial out-migration, due primarily, it would appear, to unaffordable housing.  Wonder how long it will take for this to have a significant effect on the price of housing?

[Kron3007]

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.

But here, (as many other places), a few houses get demolished to make room for a high rise. The houses would accommodate maybe dozens of people, whereas the high rise accommodates hundreds. In theory, that should mean all kinds of vacant units. Where are they coming from????

There was a report a while ago stating that there were about 1.3 million vacant dwellings across Canada (~8% of the total).  I'm sure we could quibble about the numbers, but apparently there are indeed many dwellings that are not being used for full time housing.  In the small town I live in (near my university city), many former rental units have converted into air B&B rentals as it is much more profitable.  This has put the squeeze on the rental market locally.  I dont know how much this impacts larger centres, but there are many condos in that high rise you speak of that are not being used for traditional housing.   

[marshwiggle]

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.

But here, (as many other places), a few houses get demolished to make room for a high rise. The houses would accommodate maybe dozens of people, whereas the high rise accommodates hundreds. In theory, that should mean all kinds of vacant units. Where are they coming from????

There was a report a while ago stating that there were about 1.3 million vacant dwellings across Canada (~8% of the total).  I'm sure we could quibble about the numbers, but apparently there are indeed many dwellings that are not being used for full time housing.  In the small town I live in (near my university city), many former rental units have converted into air B&B rentals as it is much more profitable.  This has put the squeeze on the rental market locally.  I dont know how much this impacts larger centres, but there are many condos in that high rise you speak of that are not being used for traditional housing.

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

[Kron3007]

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.

But here, (as many other places), a few houses get demolished to make room for a high rise. The houses would accommodate maybe dozens of people, whereas the high rise accommodates hundreds. In theory, that should mean all kinds of vacant units. Where are they coming from????

There was a report a while ago stating that there were about 1.3 million vacant dwellings across Canada (~8% of the total).  I'm sure we could quibble about the numbers, but apparently there are indeed many dwellings that are not being used for full time housing.  In the small town I live in (near my university city), many former rental units have converted into air B&B rentals as it is much more profitable.  This has put the squeeze on the rental market locally.  I dont know how much this impacts larger centres, but there are many condos in that high rise you speak of that are not being used for traditional housing.

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Sure, but that point was secondary (but still one of many considerations).  Apparently, there are a lot of units sitting vacant for whatever reason.  If the report is accurate and 8% of dwellings across the country are vacant, that seems significant. 

Again, the point remains that housing has been build at about the same rate as population growth, yet prices have sky rocketed.  This suggests that the housing crises is not really driven by immigration/population growth, or at least not on its own, and other factors are driving it (ie speculation, etc.).

[marshwiggle]

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Sure, but that point was secondary (but still one of many considerations).  Apparently, there are a lot of units sitting vacant for whatever reason.  If the report is accurate and 8% of dwellings across the country are vacant, that seems significant. 

But which 8%? If 8% of recent high rise (and thus more expensive) units are vacant, that won't really affect the low end of the market. Unless 8% of low cost housing is vacant, it's not going to have a big effect on the "affordable housing" stock.

Again, the point remains that housing has been build at about the same rate as population growth, yet prices have sky rocketed.  This suggests that the housing crises is not really driven by immigration/population growth, or at least not on its own, and other factors are driving it (ie speculation, etc.).

In the '90's, with the looming shift of Hong Kong to China, there were a lot of properties in places like Vancouver bought by Honk Kong residences and unoccupied until the changeover, so that made sense. But there's not any obvious market for large numbers of foreign investors to buy properties and keep them vacant now. And there don't seem to be lots of boarded up properties waiting for rezoning to be torn down for development. Again, my question is where all of the people are coming from who can afford the high prices if the stock is keeping pace, so it's not scarcity making them desperate?

[Kron3007]

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Sure, but that point was secondary (but still one of many considerations).  Apparently, there are a lot of units sitting vacant for whatever reason.  If the report is accurate and 8% of dwellings across the country are vacant, that seems significant. 

But which 8%? If 8% of recent high rise (and thus more expensive) units are vacant, that won't really affect the low end of the market. Unless 8% of low cost housing is vacant, it's not going to have a big effect on the "affordable housing" stock.

Again, the point remains that housing has been build at about the same rate as population growth, yet prices have sky rocketed.  This suggests that the housing crises is not really driven by immigration/population growth, or at least not on its own, and other factors are driving it (ie speculation, etc.).

In the '90's, with the looming shift of Hong Kong to China, there were a lot of properties in places like Vancouver bought by Honk Kong residences and unoccupied until the changeover, so that made sense. But there's not any obvious market for large numbers of foreign investors to buy properties and keep them vacant now. And there don't seem to be lots of boarded up properties waiting for rezoning to be torn down for development. Again, my question is where all of the people are coming from who can afford the high prices if the stock is keeping pace, so it's not scarcity making them desperate?

I dont know.  It was 8% of all housing though, so if it were only high rises it would be much greater than 8% of them.  To be clear though, it dosnt mean they are available, they were just not being lived in.  Could be foreigners second homes, investment properties they are just holding, etc?  I dont really know...

I dont know where all the people who can afford housing are coming from, but if it is investors it would be a combination of rich people who can buy up many and corpoprations.  Maybe a combo? 

All I know is it all seems off based on population dynamics, median family incomes, etc.

[ciao_yall]

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Which is why rents are rising dramatically in areas with high tourist demand (San Francisco, Barcelona, Lisbon) because housing stock is being converted to de-facto hotels, pricing out residents.

Residents move to outer regions where they, in turn, push up prices and the ripple effect continues.

If you, as an owner, can make twice as much money leaving your property empty 50% of the time, wouldn't you do so?

[marshwiggle]

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Which is why rents are rising dramatically in areas with high tourist demand (San Francisco, Barcelona, Lisbon) because housing stock is being converted to de-facto hotels, pricing out residents.

I'm surprised I haven't heard of collapse of the hotel industry over the past decade. (Not counting everything specifically related to COVID.) The number of short-term rentals should be having some effect there.

Residents move to outer regions where they, in turn, push up prices and the ripple effect continues.

If you, as an owner, can make twice as much money leaving your property empty 50% of the time, wouldn't you do so?

Sure; I'd like to see estimates of the proportion of short-term rental properties in places outside the tourist areas.

[ciao_yall]

But short term rentals, like AirBnB, raise a similar question. If it's an area that all kinds of tourists go, like Niagara Falls, then it's easy to see how short term rentals can use up local housing. But if an area isn't particularly a tourist destination, then the market for short term rentals is going to be limited; there aren't that many people who want to stay in Podunkville on any given night.
What percentage of the year is the average AirBnB guest going to spend away from home? 10%? If so, then that means 1 AirBnB unit will accommodate the needs of roughly 12 customers, so again, outside of a tourist destination, there's just not going to be that big a market for them to the extent that it will distort local rents significantly. (In a tourist area it's a different story, since lots of people from lots of other places will be coming to stay.)

Which is why rents are rising dramatically in areas with high tourist demand (San Francisco, Barcelona, Lisbon) because housing stock is being converted to de-facto hotels, pricing out residents.

I'm surprised I haven't heard of collapse of the hotel industry over the past decade. (Not counting everything specifically related to COVID.) The number of short-term rentals should be having some effect there.

Residents move to outer regions where they, in turn, push up prices and the ripple effect continues.

If you, as an owner, can make twice as much money leaving your property empty 50% of the time, wouldn't you do so?

Sure; I'd like to see estimates of the proportion of short-term rental properties in places outside the tourist areas.

1) There is definite pressure on hotel prices but because demand is so high for tourist beds, everyone seems to be doing okay.

2) Yes, rents and home prices are also increasing in the outer rings. Not sure how much AirBnB is there but I'm sure some budget-oriented travelers don't mind commuting into the City for 30 minutes for their activities to save a few hundred dollars over their trip.

[ciao_yall]

Article in the New York Times Whatever Happened To The Starter Home?

It should not be behind the paywall, but points out that many localities will not allow homes with the size and density that fits the price point.

[kaysixteen]

Just more socialism for rich people, but since 'socialism' is bad, when it is for me, we have to call it something else.

[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.

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.

Real income is defined as adjusted for inflation, which in turn depends on how you calculate inflation. Now, for the elderly, particularly the affluent elderly, house prices and rents admittedly don't factor much in the inflation they experience, as they largely already own their homes. But the young, save the most wealthy, own no real estate and thus must pay rent or get a mortgage, and even if they live with their parents many are trying to save for a deposit or downpayment - which means, for them, rent and real estate prices are pretty central to their cost of living. A house being an investment or not is basically a distinction without a difference, since real estate prices, either directly or through rent, have a massive impact on the the cost of living for the young. The divide is not so much between those above or below median income, but between the generations - between those who, to quote a comedian, bought a house for eleven raspberries and it's now worth millions, and those who saw housing prices shoot beyond their reach before they even entered the workforce. I'm not sure what drives it, but it's clearly a global phenomenon. In my developing country hometown, my working class grandfather was able to buy a house and support a household of four people on his salary alone, which would be pretty much inconceivable today.
You can argue that the cost of housing is "an individual problem" for the young who don't have generational wealth, but it has ramifications that affect everyone. Anecdotally, I've hear my students say that they've either decided against having children or view it as a very distant prospect based on the cost of living. Housing isn't the only thing affecting the cost of living for the young, but it's a big part of it. Ironically enough, perhaps those who are children today will actually benefit from today's declining birth rates.

[dismalist]

We been through all this stuff upthread.

Just re-emphasize that housing is a speculative investment. Its price behaves like an asset price, and it is coming down as interest rates rise.

Not being able to buy a house one wants is also a problem of income, which is personal. Maybe that's why one would rather talk about price, which is impersonal.

You want to claim negative externalitites of fewer children on account of expensive housing? What happened to the population explosion? Fewer humans, less global warming. Positive externalitites.