How to fix the housing problem?

I'm of the opinion that one of, if not the, biggest reason the poor stay poor and get poorer is due to cost of housing.

The factors to consider are:
A- the average cost of buying a home is 1000% higher, relative to average income, today than in 1950, and currently eats up between 1/3 and 1/2 of most peoples income.
B- the cost of both renting and buying tend to scale proportionately with what people can afford.
Of course, these two dynamics would appear to be contradictory... there is a third factor at work, and I think identifying that may help solve the problem.

It seems to me the problem stems from the dynamic of using residential property as a means of storing wealth. After all, real estate is and always has been one of the most reliable long term investment methods. So much so that irresponsible regulation of it nearly collapsed the economy back in 2008. But surely we can invest in housing without hoarding it? Or, more accurately, surely we can allow it to remain a profitable investment sector without allowing scarcity to be artificially induced?

I think I know of a pretty good way to do this (and I think most of you dirty collectivists out there would generally approve) and I've detailed it several times in other threads. But I'm more interested in everyone else's ideas first. How can housing remain a profitable investment, yet also be more affordable?

 

Housing can be affordable or it can be a profitable long-term investment. It can't really be both. Low inventories and low interest rates make it very hard for younger people with middle class incomes to enter the housing market without settling for less, especially in high-COL areas.

Relaxing regulations on design standards and building more will alleviate pressure on prices over time, I would think. Although as housing has become a better investment over time (just look at 2020) you will have people opposed to this for sure. Because relieving pressure on prices is going to hurt them when it comes time to sell.

 

Do you think we can make it less profitable but still profitable enough for investors to engage in the market, while meaningfully reducing the cost to those who seek housing only as a necessary resource instead of an investment?

For example- suppose a minor but gradually increasing (like 1% per year or so) property tax on non-primary, non-rental residential properties, combined with a gradually reducing (like 1% per year or so) property tax on primary residences, and no change to the property tax on rental properties (provided they are being resided in). The goal being the eventual (over decades) elimination of property tax on primary residences, a lowish property tax on rentals (that are being resided in), and a property tax on non-primary, non-rental (or vacant rental) properties that makes holding on to them in perpetuity a net loss. Perhaps this tax on non-primary, non-rental properties would need have a grace period to allow for investors to buy, repair and resell properties in a reasonable timeframe. Do you think that would gradually reduce property values in a non-destabilizing manner while still allowing participation in the housing market to be a profitable-enough activity to prevent the market from becoming stagnant?

**The resultant reduction in property tax revenues would of course require that the programs currently funded by them would need to be in part funded by other taxes instead, but I don't see any reason why we couldn't partially fund those from sales and/or income taxes instead of entirely from property taxes.

 

High population growth (from immigration), mainly into the higher cost of living bigger city areas, has exacerbated the problem, creating a housing shortage, putting pressure on both living space, and the already existing more affordable segment of the housing market.

The way I see it, there are really only two options: Either drastically cut immigration, or create massive government infrastructure projects to build new city areas, away from places where lots of people already live. These new cities are going to have to be attractive enough that rich people want to live there, so that money will be infused into the local economy. The second option is probably unrealistically expensive.

Right now we see Biden's "infrastructure bill" which is spending massive amounts of money on anything except infrastructure, it almost seems like.
(a separate topic, but I had to preemptively address it in case anyone was going to try to bring it up)

There has also been the phenomena of chain migration, where immigration into one region displaces the people who were there before, and then those people go on to move somewhere else, creating a problem elsewhere.
(It explains things like the massive exodus out of California and the New York City region, and the black population in Minneapolis growing so fast. The California exodus has been making people as far away as Texas, Portland, and Boise complain)

 

That is a question worth thinking about, but I believe in large part that question diverts attention away from the primary issue.

The way I see it, one of the biggest issues (the elephant in the room) is too many people trying to cram into certain specific areas/regions.
Maybe we should be asking if there's a way to help spread out economic opportunities more, away from the very high cost of living areas.

In the US, a typical middle class house costs about $270,000 to build (that's probably going to quickly go up with inflation), but then what you're paying for is that space. Space can be pretty valuable and in short supply around desirable city locations. (You could probably build a very modest but livable home for $180,000, suitable for a "poor" family, for $65,000 you could build a very basic stand-alone unit suitable enough to shelter a homeless person, assuming space wasn't an issue)
Of course there are additional city infrastructure costs which most people take for granted, roads, utility supplies, city services like police/fire.

It is of course possible to build up, but the cost of a building goes up dramatically once you go from two to three or four levels. (There are all sorts of special regulations, requirements for increased structural reinforcements) You can look at the cost of four-floor office building complexes. Some of them could theoretically make some very nice living arrangements, but it would just not be very affordable.

 

It's not housing. It's land.

It's the land value that has gone up 2000%. Construction is actually cheaper.

The cost of buying a house is determined by the cost of buying the land, which is determined by the expected net future subsidy to the landowner. See Detroit, where land is virtually worthless, and you can buy a perfectly serviceable house for $10K.

That's partly because of the mortgage interest deduction subsidy for principal residences.

Land is.

The supply of land is fixed. As long as owning it is subsidized -- which it is, extravagantly -- people will hoard it.

The bigger the subsidy, the more it will cost to buy it. Not rocket science.

It can't. Profitable --> higher price --> less affordable

The only solution is to somehow find a willingness to know the fact that housing is a consumer durable, and there is no reason why idly owning it should be profitable.

 

That's only because land is so expensive. People who pay $500K for a vacant building lot are not going to want to live in a modest house that can be built on it for $150K.

A perfectly good 3BR home can be built for $150K:

http://wsip-184-185-152-244.sd.sd.cox.net/CompMatrix.asp

Taxes generally pay for those, although some jurisdictions make builders pay for them.

No it doesn't. We already had this discussion, and I proved you wrong.

Ferro-concrete construction is more expensive, but it also lasts much, much longer than stick-built housing.

 

I just don't think that's true at all. Poverty still seems to be caused by all the traditional reasons. People who buy homes are generally not mired in poverty, and you can be middle class or better and live in an apartment or condo.

 

Where I live if you are picky then it's not easy. If you are just wanting decent shelter there is a lot of affordable places to rent and buy.

I really don't understand how some cities have high housing costs in every area of a city, no matter how poor and low income that area might be....

 

It appears you are disagreeing with everything I say while somehow agreeing with what I said we should do about it- reduce the ability to profit from hoarding land. Are we not understanding eachother, or do you have a better idea of how to accomplish this?

 

How can increasing poverty not be tied to housing while housing is 1000% less affordable than it was when there was less poverty? I'm not saying you're necessarily wrong, I'm just saying further explanation is required.

 

That settling for less thing is the rub of it. There is a fair bit of available housing that gets passed over because it is too lowly for first time home buyers, many of whom are looking to move up from the house their parents live in or lateral to it. That property ends up in the rental market but because it is less than desirable, owners have no economic incentive to keep the property well-maintained or updated, which makes it it even less desirable. Rinse and repeat. It is a vicious cycle on older properties that too often takes them from middle class to slums in a generation.

As for what we can do to clamp down on the problem is stop building new roads. They have an undeniable ability to induce demand, and that includes demand for housing further out of cities where land is cheaper. Until we incentivize people investing in renovating existing older housing stock, the problem will keep on keeping on.

 

OK I guess I don't understand your premise. Housing is 1000% less affordable than...when? When was there less poverty? I'm not following this at all.

 

Often it is a quality of life decision. My family made it when we fled the DC Metro area. If you measure the quality of your life in raw dollars and cents, then big cities are the place for you because the pay is so much higher. If you measure it in how much time you have to not be working or commuting, then big cities probably are not the place for you.

 

I think it may very much depend what region of the country the person is in.

 

Why would that matter, unless the argument is that, for example, San Francisco has a 10% poverty rate because it's real estate prices are sky high. There are areas in which housing and real estate is sky high, and areas where it is dirt cheap (relatively). But I don't see the correlation between poverty and real estate.

Fogging the mirror on this is the fact that we're in a rather unprecedented housing boom. It's a crazy sellers market and when it finally goes bust, you'll have cheaper housing and more poverty, not less.

 

I think of it as explaining and clarifying.

You are right: we should definitely reduce -- indeed eliminate -- the ability to profit from idle landowning, as it is pure parasitism. And I definitely have a better idea of how to accomplish it: location subsidy repayment (LSR), which would require landholders to repay the publicly created unimproved rental value of land to the government and community that create it. LSR would make public provision of desirable services and infrastructure into a voluntary, market-based, beneficiary-pay, value-for-value transaction. Producers and consumers would then only have to pay for government once instead of twice, as the something-for-nothing payment to the landowner would be eliminated.

 

Then I will explain it to you: high real estate prices are high land prices, and land prices are nothing but the market's estimate of the future net after-tax subsidy to the landowner. The unimproved rental value of land is the price of the landowner's permission to access the advantageous economic opportunity available at that location. That opportunity is based on the services and infrastructure government provides, the opportunities and amenities the community provides, and the physical qualities nature provides at that location. It is not due to anything the landowner provides; but everyone, including the poor, has to pay landowners full market value just for permission to access it. So the more land is worth, the more wealth landowners can expect to take from the community, including the poor, with government's kind assistance.

Because the boom is fueled by debt, and when the boom goes away, the debt will still be there.

 

High housing costs are high land costs, and high land costs are nothing but a measure of the expected net after-tax subsidy to the landowner. Landowners figured out long ago that if they own the land, they will be legally entitled to take everything from everyone else, even the very poor. That is why the poor cannot be lifted from poverty by giving them money: their landlords just take it all.

 

I guess my point is, that land and housing is not always too expensive for a poor person where I live. Land ownership can be an asset for rich or poor. What is expensive is keeping the house repaired. With that in mind renting is the best option for some who can't keep enough money in the bank for repairs and upkeep. Some people are at a stage of living paycheck to paycheck...been there!. And where I live we have areas of high rent and areas with lower more affordable rent.

My confusion is why some cities don't have options and some do.

 

OK...that didn't address what I was asking about at all, but I realize that you were simply replying to my comment in order to further promote your...ideology or whatever it is.

 

It is always supply and demand. In some areas it is because the population is booming faster than supply. In others, it may be that the market is being intentionally shorted. If there is one sure fired way to drive housing prices through the roof, it is to impose rent controls.

Anyway, the average sales price in my area on a house is less than $100K--$89K to be exact based on a website I looked at the other day. A new/newerMcMansion will run you in the $350K-$600K range. Thing is, if you want a forever home, you need to buy something in the lower middle brackets because those houses were built to last in the late 70's and early 80's and need less maintenance. These McMansions have expensive counter tops and appliances installed in a structure that will have major issues inside of 20 years. The really old victorians will run you in the $200K-$300K but they are PITA money pits in no small part because the local historical commission is composed mainly of zealots not living and maintaining and paying to heat and cool those bastards.

 

see related thread: Soaring Lumber Prices Add $36,000 to Cost of New Home

It's interesting, why do they have to keep building all these new homes?
Because the total population of the US has kept growing (mainly due to immigration).
There are many other countries in the world where most all of the people live in old homes that are already built. They have relatively stable population numbers.

Certainly when new homes are constantly having to be built, that adds to the price of all homes (including the older ones). New homes are more expensive than already built older homes, and when there is a shortage of something it drives prices up. (Lots of new homes will not start getting built until the shortage has already driven up the price of older homes beyond a certain surplus level)

If long-term population growth of the country were much lower, overall housing prices would likely be substantially lower as well.

I'm happy to further discuss this if anyone is having difficulty following the logic or understanding this.

 

Yes, of course it did. It explained how high real estate prices make the poor poorer.

It's called the truth.

 

Every ideologue believes they are speaking truth.