These are the mechanisms by which the housing market has been driven to absurdity. But that reason why were here is that politicians and by extension the electorate on whose behalf they govern, decided to turn housing into a retirement plan. We then created enormous government programs to encourage people to partake in this scheme, which only robbed the future to pay the present. And now that many families have substantial wealth tied up in housing, it will be nearly impossible to voluntarily undo this mess.
There is no perfect system. That doesn't mean you don't implement systems. You just police them better to make sure that kind of problem doesn't happen any more.
Applied to any useful purpose, though, there are externalities and there is the unexpected. If you include those externalities in your model, you not only have a more complicated model, but you probably have an even larger surface of externalities.
First of all, we should separate the value of the house from the value of the land, which is determined by its location. In my country, brand new houses in Ostrava (a rust belt city where I was born) cost about half as much as brand new houses around Prague (the capital), even though they are of the same size, on same sized lots, built from the very same materials by the very same Ukrainian gastarbeiters according to the very same technical standards etc.
This isn't just pure gamble, but reflection of the fact that Ostrava isn't particularly attractive for employment even for the natives, while Prague is a major hub attracting professionals from the entire Slavic half of Europe and even some Westerners. An order of magnitude, if not more, people want to move to Prague than to Ostrava. This must have an effect on the land value.
Second, the quality of the house matters. A wooden Japanese-style house depreciates quite fast. A modern brick house built to strict specs will outlast you and your kids, so the material depreciation is much slower. It might even be slower than pure inflation.
I'd say this is fairly true in the US. When you compare houses and the amount of similar quality property of say San Francisco or Austin to rural parts of say... Texas or Wyoming, you're going to find that at the same price point (a reflection of market value estimation), you get a lot more in Wyoming or rural Texas in terms of land and the quality of house than in the metropolitan areas described. When you compare metropolitan areas, housing and property is often significantly more expensive in areas where there is more opportunity for the working class or even businesses.
Look around the globe, for how long have all central banks been doing nothing but printing money? Printing money to economy just like adrenaline injection to body, it for sure helps in some scenarios but it also kills if you don't know when to stop. All the central banks delayed the crisis by printing money and got away by manipulating the data to make CPI looking low. It would be probably okay if they did that only one time or two.
So here we are.
However, even if the bank needed to have deposits or collateral on hand, to stop the "printing money" aspect of new loans, this same thing could happen because homes are collateral on mortgage.
Really I think it mostly driven by the supply demand mismatch, and in particular a belief that local governments will not allow the supply to meet demand.
There's a great recent Fed paper that shows the absolute huge correlation between prices and the supply/demand mismatch. It further shows that demand volatility has been higher than supply volatility so recent effects are explained by that demand volatility.
The only way to solve this is to out build demand and shock prices down. IMHO.
Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.
https://fred.stlouisfed.org/series/TOTRESNS
Banks did not want to lend out money and lowering the reserve percentage is one of the few tools they have to try to encourage banks making loans. It just so happens that it didn't do cause an uptick in loans
On the other hand, if they didn't need cash on hand to offer loans any random small bank could loan a 1 trillion dollars to someone. They can't because they don't actually have that money.
Consider a bank with 3 billion dollars total and 2 billion in deposits. They only need to care about reserve requirements on 2 billion and can use the other 1 billion for anything because it's their money. In effect cash on hand are assets and deposits are debt. Reserve requirements are just a question of how much leverage they can legally have.
The reserve rate was taken to 0 during covid...
Falling interest rates have been great for people as more people own homes than at any other point in history.
But printing trillions more last year was a flaw. At least got physical proof that MMT doesn’t work.
I'm not sure about elsewhere, but rates of home ownership in Australia have declined since the 1980's [1], neatly coinciding with a decline of interest rates [2] and a rise in house prices as a proportion of income [3].
[1]https://www.aph.gov.au/About_Parliament/Parliamentary_Depart... [2]https://www.rba.gov.au/statistics/historical-data.html [3]https://www.aph.gov.au/about_parliament/parliamentary_depart...
Edit: for example, Sri Lanka's outcomes are exactly what have been predicted by MMTers, and Sri Lanka took exactly the opposite of what MMTers have been recommending forever:
https://twitter.com/fadhelkaboub/status/1516630826896744451?...
I don't know what it is about MMT but it always seems like people are intentionally not listening to what people say, and then inserting other words in their mouth. Marxists like Henwood are particularly prone to doing that, for example. Critiques of MMT seem to be based on intentional misunderstanding and misrepresentation.
Not in the US, and this article is about Americans.
Seriously, you seem to think there's something profound about "total population numbers go up, all the numbers go up"?
Houses are for families to live in. The primary asset houses should provide are the family and the work they do, not the house. But if a house costs so much money that the family can't really take risks, then the house just becomes a debt prison.
You can build 8-15 new houses in about a month for what it costs for one outside of LA.
So it’s the land and location you’re investing in which is certainly not a depreciating asset. Where I live it’s an old town that doesn’t have anymore room to build and way more people want to live here than there could ever be homes. So prices continue their rise even if you invest very little in the home. Saying that, you’re right that owning a house means taking care of it which costs money.
When was this ever true?
If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.
When I was looking for a house in Seattle, many of the $800K bungalows were sold with the expectation that the buyer would level the existing house and build something new. During the same time frame in the rust belt (particularly Detroit) , however, many housing parcels were sold for less than the value of the structure due to the undesirable location of the land.
And yet, I own many worthless things that also exhibit that property (like a picture my niece drew of me and my cat). There is a totemic quality to possessing something, but that is almost always personal and independent of the thing's market value. Outside of "collectible" properties (structures with historical significance like castles or Frank Lloyd Wright houses), houses have a market value related to the imputed rent they produce and potential productivity of the land.
Now add on to that interior details, floor coverings, appliances, and such many of which are lucky to last 10 years and the numbers start to add up.
People don't generally want to enter 50+ year long commitments for physical assets/money.
> Now add on to that interior details, floor coverings, appliances, and such many of which are lucky to last 10 years
Interior stuff pretty much lasts forever if the house is kept at a stable temperature range & humidity. I have 1 nice hardwood door inside my house installed 12 years ago. It looks and works like brand new. You can basically pick things for inside your house that will last forever.
There's a pretty common trend on HN and in general to embellish house upkeep costs. I think it's mostly people who rent doing it, because they have no idea what it actually costs or aren't handy enough to do simple repairs.
I think it will be more interesting with "basic structure integrity" at the century scales. Do we really know economic impacts when tract housing/wood structures are tested well? I'm thinking past time scale of the electric and plumbing overhauls at the 50-100 year marks. There is a ton of housing out there that is less than a century old.
Houses can be constructed better, as well. The house I grew up in is now over a century old and it's the same roof, because it's concrete.
From a building sciences perspective, if possible, I almost always recommend a standing seam metal roof due to a 40-50 year lifetime (and you can mount solar panel racking to the standing seams without penetrating the roof).
There's basic ongoing maintenance yeah, but I don't think that counts as deprecation in any sensible way does it? If you keep your oil paintings in a mouldy cupboard they'll rot, but we don't say art is a deprecating asset because of this. You just make sure they don't rot and clean them every now and again.
Houses can stand for hundreds and hundreds of years. As they get older they get more valuable because people like older buildings for aesthetic reasons.
Is this really true in general? I mean sure I can find examples of it being true, but it's kind of assumed that many of the old houses in my parent's neighborhood of San Diego are teardowns whenever a buyer comes interested.
The house fundamentally is in a "moldy cupboard". Its entire purpose is to provide shelter from the "mold".
I don't think your house is representative of the US housing market. I once lived in an apartment in a 17th century masonry building in Alsace, and it didn't seem to give my landlord nearly as much grief as my parents' 1960s-era suburban home in Houston did to them.
The original construction costs will probably have been recouped after 370 years of continuous occupancy, though. :)
Inflation would only be an 30x increase from 3k to 90K
You don’t say that your oil painting has depreciated because it was damaged in a house fire. Property in Detroit has been ‘damaged’ by social decline.
Though that’s true in the literal sense, there are only a handful of instances in American history where they was empirically the case.
Not to mention you don’t specify a locale which is the most important thing in real estate, heck, these days perhaps a neighborhood.
Land behaves very different from other assets, because there is a finite amount of it, and it generates economic rent. And the increase in land value generally comes actions not of the owner, but of others, and of the government deciding what is allowed on the land (which happens at the local level, where a small cabal of landowners can exert great influence over a small number of officials making decisions).
And unlike speculation on, say, lumber futures, speculation on land by buying it and hoarding it is actually a huge economic damper. Real estate speculation, by holding a property underdeveloped until it can be sold for maximum profit, creates a land bubble because it withholds productive use of that finite resource that everybody is trying to get.
The best way to solve this would be to, IMHO, tax away all the economic rents that land generates. This removes the speculation, and ensures that every piece of property that is being underutilized will get transferred to someone who can better use it. This will keep housing prices down, because more houses will be built in high demand areas. It's a tax that would greatly improve economic efficiency, housing affordability, and our overall productivity. (It does need to be paired with zoning reform, though).
We also need to reinvigorate our construction sector's productivity, and reduce the shocks to it from the boom bust cycle, but that takes different policy.
If you do a search for long term housing price data you will see that until the burst of inflation in the mid 1970s house prices were mostly flat. There was still inflation and wear, but the prices remained about where they were. In this environment where house prices are flat and houses wear out the asset becomes known for its depreciation.
The big thing about locales is their vulnerability. It really is the case that back then some undesirable people moving in to a community could start a cascade of people moving out. In that case prices went from flat to falling fast. If you really did pick a great locale then your reward was prices remaining flat.
https://fred.stlouisfed.org/series/MSPUS
Not to mention you can collect or save on rent which also goes up with inflation
Even if only 10% of the jobs are taken by a single company or industry, losing that is sufficient to stop price growth.
First, since so many voters are invested in the housing market, it's almost political suicide to do anything about it now. Protection and even increasing property prices has become an explicit political goal on every level.
Second, as you see more and more corporations enter this market and become stakeholders, this trend is only strengthened as corporations are the true constituents. And no it doesn't matter which party is in power. The corporations have bought both of them.
I'd say the biggest difference between now and 30+ years ago is the level of disposable income people have such that second homes, vacation homes and bigger homes have become way more common.
The first part is still true. The thing is that it's bounded by a smaller and smaller percentage wages, and it's always the highest wages that determine this.
Housing prices being bound by seller capacity to pay means that there are not enough houses. If housing prices were determined by the cost of the houses, then we would have finally reached the point where there is adequate supply b
If I don't get a house this year I'm giving up on using real estate and moving onto my boat. I wish more people would do things like this.
The whole idea of fearing loss of value was completely different: Nowadays houses are bidding chips and people want to make the numbers go up to feel rich. In the past sharp losses of value meant the area was no longer desirable so that people were not moving in and so wages would no longer support prices in that area. Either things were modest and relatively stable or unstable and sinking.
The current attitude toward housing is based on the recent explosion of house prices which is driven by financialization, extremely low interest rates, and demand outpacing supply where there are jobs. Economic, political, and demographic changes are very likely to wipe all of that out in a relatively short period.