Re:We've Built Cities We Can't Afford
by AnthonyMouse on Sunday April 19, 2020 @08:09PM
(#22919908)
> But higher interest rates cause lower asset valuations, which increases the marginal utility of paying more than the minimum payment each month.
That requires having enough income to pay more than the minimum payment each month, which isn't really compatible with working less. And to the extent that this is helpful in allowing people to work less after the house is paid off, it would just tend to increase housing prices by a corresponding amount as long as there are still constraints on increasing the housing supply, because people would just bid them up by the amount that it's worth it to be able to do that.
> You can't take out a securitized loan to buy groceries, but everything that can be financialized shoots up. Even non-scarce manufactured goods like cars.
That's not necessarily the same thing though.
Suppose you can afford a $300 car payment and interest rates are such that a $300 payment translates to a $20,000 car. Then interest rates go down such that you can get the same car for a lower payment or a $30,000 car for the same payment.
Some people are going to choose the better car over the lower payment. That kind of looks like the same cars getting more expensive even if it's really people buying better, more expensive cars. Especially confusing when they're the same vehicle models but the later model years had a bunch of premium features added to them because the manufacturers noticed hardly anybody was buying the ones without them.
> I agree that increasing the supply of housing is a good thing. But you're never going to get rid of positional goods - few want to live in a tiny apartment their entire life.
You can't get rid of positional goods but you can move them up-market so they aren't necessities anymore.
Living in a tiny apartment with a long commute is terrible. People will be willing to work full time for many years to avoid it. But if you build a large number of normal sized houses or condos a reasonable distance from where people work, so that they cost the same as tiny far away apartments currently do, would people be so willing to give up years of their lives just to avoid living there instead of the giant mansion you could then get with two full time salaries?
Affluent people would then live in the giant mansions because they can afford it, and it would still be a positional good in that respect, but that doesn't detract from the dramatic improvement it would be over the status quo.
By contrast, it really doesn't matter what you to do interest rates, if building new housing is prohibited then the number of people who get to live in satisfactory housing is dictated by the amount of such housing that currently exists. Which makes everybody a lot more inclined to do whatever it takes not to be the ones stuck in the crappy housing.
That requires having enough income to pay more than the minimum payment each month, which isn't really compatible with working less. And to the extent that this is helpful in allowing people to work less after the house is paid off, it would just tend to increase housing prices by a corresponding amount as long as there are still constraints on increasing the housing supply, because people would just bid them up by the amount that it's worth it to be able to do that.
> You can't take out a securitized loan to buy groceries, but everything that can be financialized shoots up. Even non-scarce manufactured goods like cars.
That's not necessarily the same thing though.
Suppose you can afford a $300 car payment and interest rates are such that a $300 payment translates to a $20,000 car. Then interest rates go down such that you can get the same car for a lower payment or a $30,000 car for the same payment.
Some people are going to choose the better car over the lower payment. That kind of looks like the same cars getting more expensive even if it's really people buying better, more expensive cars. Especially confusing when they're the same vehicle models but the later model years had a bunch of premium features added to them because the manufacturers noticed hardly anybody was buying the ones without them.
> I agree that increasing the supply of housing is a good thing. But you're never going to get rid of positional goods - few want to live in a tiny apartment their entire life.
You can't get rid of positional goods but you can move them up-market so they aren't necessities anymore.
Living in a tiny apartment with a long commute is terrible. People will be willing to work full time for many years to avoid it. But if you build a large number of normal sized houses or condos a reasonable distance from where people work, so that they cost the same as tiny far away apartments currently do, would people be so willing to give up years of their lives just to avoid living there instead of the giant mansion you could then get with two full time salaries?
Affluent people would then live in the giant mansions because they can afford it, and it would still be a positional good in that respect, but that doesn't detract from the dramatic improvement it would be over the status quo.
By contrast, it really doesn't matter what you to do interest rates, if building new housing is prohibited then the number of people who get to live in satisfactory housing is dictated by the amount of such housing that currently exists. Which makes everybody a lot more inclined to do whatever it takes not to be the ones stuck in the crappy housing.