And the government has made the problem worse, by skewing the mortgage market with ultra-low interest rates and thereby making "as much as they can afford" significantly larger.

> The best solution is to redesign the economy

No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now. So they would either choose to live in less populated areas, or they would choose smaller homes, or they would rent instead of buy. All of those things would reduce the average cost of housing compared to other things.

For these same people, moving to less populated areas is probably not an option because they can't afford to commute long distance to their job(s), and don't have the kind of job mobility enjoyed by wealthier people.

They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. (I speak from experience; I recently moved out of a 'starter' size home in the 'bad' end of town, where the houses cost $300K - $500K even over the past few years.)

Renting instead of buying might be an option, but even there prices get bid up in desirable locations.

Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. And for most of them, and their children who have to be raised in that environment, it becomes a trap that's very difficult to escape.

"Wealthier" in the sense of "can qualify for a larger mortgage". But the ability to qualify is skewed by the fact that the money that is borrowed is printed on the spot when the mortgage is created; it doesn't come from actual savings. If that didn't happen--if the money loaned out for mortgages had to come from actual savings--the market for mortgages would look very different, which means the population of people who were looking to buy homes would look very different.

And not just that everybody would have less buying power across the board--the people who would qualify for mortgages in a free market would have different financial habits. For one thing, they would have no incentive whatever to use "creative" loan vehicles to buy more home than they could actually afford--which is what many of the "wealthier" people who are bidding prices up in the current market are doing.

> They probably can't choose a smaller home, because the small home prices get bid up along with the other homes.

But a smaller home in a given area still costs less than a larger home in the same area. Furthermore, in a free market for loans, where the government wasn't printing money to finance them, smaller homes would probably be more common, compared to larger homes, than they are now, which would reduce the price of smaller homes relative to larger homes, over and above the general price reduction that would take place if the government stopped printing money for mortgages.

> Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc.

This is another example of government failure. If the government spent its resources on what it was supposed to be doing--ensuring that everyone's rights were respected--instead of trying to run expensive and damaging experiments with the economy, there would be far fewer locations that were undesirable in these respects.

In effect a transfer of taxpayer money to developers and mortgage originators.

> No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now.

That would only work if you also abolish laws regulating the supply and liquidity of the land and housing market, like zoning laws and restrictions on property taxes (such as California's infamous Proposition 13: https://en.wikipedia.org/wiki/California_Proposition_13_%281...).

Without also freeing the supply side of the market, a lower home ownership rate will just be a forced transfer of wealth to rental property landlords.

Zoning laws and sales disincentives are pushing land values so high in major metropolitan areas that it is commercially unfeasible for developers to significantly increase density or supply. They are effectively restricted to building medium-density luxury housing to make a projected profit. Unfortunately between the shrinking middle class, decreasing social mobility, and coming self-driving car commuting patterns this is just inflating another real estate bubble.

Of course, booming cities will nearly always have somewhat high rent prices, but they're way out of whack in some areas.

The best answer for NYC is probably to aggressively gentrify as many neighborhoods as possible, which means (bluntly) displacing most lower income residents and moving in bicycle riding organic jam loving armies of hipsters. This comes with a lot of challenges. The biggest pressure release valve for Manhattan real estate prices has been the very successful gentrification of Brooklyn (and a few years behind is Oakland filling the same role for SF).

The south end and midtown are tall, the rest is not. You can stuff way more density into Manhattan than currently exists.

And Brooklyn is shorter yet, of course. Could put way more tall buildings into Brooklyn if you wanted to.

Better transportation in outer burroughs will expand the supply of housing within a reasonable commute distance.

Ideas:

* Invest more in expanding public transportation. More express buses, local buses that run more frequently and on time.

* Deregulate private transportation (taxis, private buses).

* Incentivize commutes during off-peak hours.

* Encourage working remotely or flexible work schedules.

* Find ways to get tractor-trailers out of dense areas.

* Actually start enforcing double-parking and jaywalking laws (this one even pays for itself).

* Encourage business development away from already-congested areas

Where exactly will you find these armies of upper-middle class people? Wages and social mobility continue to decline.

http://www.epi.org/publication/even-the-most-educated-worker...

http://www.theatlantic.com/business/archive/2015/07/america-...

How many buildings are at the economical height or taller? How many are lower?

I've lived in and around NYC my entire life, and I always thought that the shape of the skyline was governed mostly by the underlying granite: lots of support for huge buildings downtown and midtown, not so much everywhere else. But in the past five years or so very tall buildings have been popping up all over. I think it won't be long until you'll have trouble finding the Empire State Building lost amongst it's bigger neighbors.

https://medium.com/@opirmusic/fixing-the-nyc-rent-crisis-or-...

Read Matt Yglesias' "Rent is Too Damn High" book if you want a more thorough treatment the topic.

New York and SF could do that tomorrow.

Raising property taxes would also help drag down the prices to saner levels and ensure that this rich source of rent ends up distributed fairly rather than coagulating in the pockets of the 0.01%.

You don't necessarily hurt anyone, you just lower the attractiveness of real estate as an asset class. The yield chasers will move their money into a more attractive asset class, the value investors who buy real estate for price stability or tax reasons would stick around with lower yields.

Yet you'd be helping everybody else who didn't take on irresponsibly large debts.

House prices would go down though - a house with a high recurring tax is much a less attractive investment.

My city has several blocks of its downtown used for surface parking lots. If a lot with a building paid the same tax as the parking lot, how long do you suppose it would take for the parking lots to turn into skyscrapers with parking garages?

Of course, this would also force people to sell their property to pay the tax.

(If by "education" you mean "learning something", then yes, I agree with you. If you mean "college degree", though, not so much.)

I don't mean to be a smartass, but https://en.wikipedia.org/wiki/Conspicuous_consumption

In addition to that. Do you see the broad concept of conspicuous consumption increasing or decreasing? All of the signals I see show it decreasing thanks to the great recession and the new generation coming into the market. Dave Ramsey, MMM, et al have started to make it trendy to be frugal. Once it starts to become trendy to go to vocational training or straight into the job market a cultural shift can happen quickly.

Because of its combination of white collar income/career attributes and vocational like self-training nature, I think Computer Science will be at the forefront of this trend. Note how few people advise ''go back to school and get a degree in computer science'' and rather ''learn how to code'' (boot camp, self taught, however possible).