I think low interest rates might be the largest factor here. Purchasing decisions are made based on the monthly payment.
- Down payments are pretty hard to come up with on a $1m property
- A lot of the time you're competing with developers willing to pay cash
Both of these things are very true here in DC's housing market, and I've heard similar things from friends in other more-or-less-urban/near-suburban places.
I agree, it does create some kind of ceiling.
> A lot of the time you're competing with developers willing to pay cash
I think that's a secondary effect. Low interest rates create a market of people willing to buy at high prices that the developer is hoping to resell to. A lot of their working capital is also borrowed.
Oh yep, I totally buy this.
Yep, this made the decision for me. Do I pay 30% more rent to move into a basement? Or 50% more mortgage for a full, freehold house outside of the city?
I like living in this urban area, but a hybrid commute from a small town with the bare amenities is not bad either if it gets me a house.
I think a lot of this probably boils down to our insistence that cars be huge parts of our lives? It's really incompatible with the 15-minute city just because of the space requirements (parking at destinations, parking at homes, street width), and let's not forget maintenance costs and noise/pollution externalities. But I guess in the face of no public transit, what are we supposed to do?
I... maybe think the same thing about the tradespeople shortage as I do about the nursing/teaching shortage? We super need them, wages are going up, but supply isn't, which breaks the law of supply and demand (more or less). I think the cause here is a culture one, like there's not a lot of prestige or money in this blue/pink collar kind of work (generally, not always), so people (millennials) went into white collar professions instead, so we have a glut of people with bachelor's degrees and college debt, and a shortage of people with trades credentials. I'm handwaving a lot, but it seems intuitively true to me.
I do think that it's a tough field to keep "staffed up" since it can wear people out pretty quickly, so it needs a constant influx of newcomers.
I think you're probably right about attrition, also the work can be hard on people. But also I think I read somewhere there just aren't a lot of people going into the field. Something about parents encouraging their kids to go to college and become white collar professionals instead of blue collar laborers. That rang true to me too.
Ireland had a shortage of housing until the GFC, when suddenly they didn't. I'm expecting NZ to discover the same over the next year or so.
I really think it's as simple as banks lending excessively for non-productive purposes.
What does it mean to be 'unspent'? If it's put into bank accounts and banks risk the money on mortgages or something, then it gets spent by proxy, and drives up housing costs as banks seek to create new loans
Having unspent money ripe to be spent seems like it should be considered a significant driver. Spending a little bit more here and a little bit more there is seen as no big deal when your bank account is flush.
Wouldn't this just be spending the stimulus money? What I'm saying is that most of it hasn't been spent, so it can't count as that much "extra money in the mix" as most people think.
Most likely it is being spent. Slowly. Like you said, some of it has been spent already. It is unlikely that stopped. It just hasn't been blown all at once.
> What I'm saying is that most of it hasn't been spent
Me too, more or less. If it were already spent then bank accounts would be tight and people wouldn't be able to spend more. However, if they're only dipping in a dollar or two at a time, they can both spend more and leave their bank accounts almost untouched. At least for a while. Give it enough years and it may eventually erode to nothing, but in the short term you don't have to spend much of it to pay more at the store. Inflation is a little higher than usual, but not that high in the grand scheme of things.
Well, in fairness, at the onset of the pandemic there was a looming fear of deflation and we weren't very far from that actually happening. All that stimulus money was poured into the economy by the central bank specifically to create inflation, per inflation target mandates. The idea is not unwarranted.
But also not that simple. Where the money ends up is equally important. You could 'print' trillions of dollars, but if you gave it all to Bezos, not much would change. He'd just sit on. Maybe inflate some assets like real estate, but he's not going to drive up the price of bread. Bread relies on purchases from the masses who don't have more money to spend in that scenario.
If you distributed that money out to everyone, however, then they each do have more money for bread. Then you can start to see inflation come of it as people start to compete with their extra cash in hand.
- Housing prices are bonkers due to chickens coming home to roost on lots of policies (lack of tradespeople due to cultural stigma and wage inequality/social welfare state for contractors, bad zoning and NIMBY-ism, non-existent public transit, education policy creating 30% very bad schools, 65% mediocre schools, 5% good schools, and very expensive private schools).
- Supply chain shocks due to COVID.
- Oil went bananas.
A couple of things that might be undersold:
- A lot of people left major cities and have lower/zero housing costs.
- A lot of people aren't paying their student loans (heard this costs the US $4-5 billion/mo, which is quite a stimulus package).
A couple of things I think it probably isn't:
Stimulus/Rescue: I heard a stat on a podcast that said the vast majority (maybe 2/3?) was unspent, so it seems unlikely this is a major driver.
Wage growth is pretty interesting. Reading about it, it seems like a lot of people left the labor market or switched to lower-demand roles/careers. People take this fact and say "see, labor supply went down relative to demand and the price went up". But if you've got 10 employees costing you $1m/yr and three quit, leaving you with 7 employees costing you $1m/yr, sure wages went up, but not overall? I haven't seen this kind of analysis out there, so I wonder if there's some politicizing by the "we need low inflation at the cost of unemployment" people towards the "we need full employment at the cost of inflation" people.