Homes are up in price because zoning rules preclude development of new houses sufficient to meet demand, creating an imbalance in supply vs. demand. Interest rates only shift that equilibrium. Concretely, Japan's monetary and interest rate policy has been almost the same as the US for decades however they haven't seen an increase in housing prices in nominal terms since 1990. They federalize zoning so councils can't preclude you from building safe and reasonable housing, and this allows supply to meet demand.
Housing is driving inflation in the US, not responding to it - remember, inflation is the measured drop in purchasing power calculated from prices. Zoning causes house prices to go up, which in turn means the purchasing power of the dollar is calculated to be lower.
Punitive zoning rules are inflationary.
[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
I think you are trying to say that CPI and Inflation are the same thing.
> I think you are trying to say that CPI and Inflation are the same thing.
I think you are trying to say that money supply growth is inflation, it is not. Even the rejected Austrian school would agree.
The supply did grow and the money went to banks, to the US government, etc. You can look at the Federal Reserve’s balance sheet and see entries for US treasury bonds, mortgage backed securities, etc. The US government then went and spent that on things, and the value of mortgage-backed securities increased which decreases the return on the investment and thus encourages banks to take on higher-risk investments. These activities drive inflation. So, no, an increase in the amount of money isn’t inflation, but a higher quantity of money supply times velocity does, by definition.
SF is pricey because of high engineers' earnings, foreign cash inflows, on a background of low rates.
The whole zoning discussion ignores the fact that investing in housing became hugely popular in the last decade, largely due to monetary policy as well as faverable tax policies.
By the way just with regular <2% YoY inflation, a $1m home in 2005 was worth $1.3m+ in 2019 (before covid and the current inflation spike), and that is with regular inflation.
Because homes cost a lot of money to begin with, the compounding effects of “healthy” inflation is going to be noticeable, and that doesn’t even factor in the low supply in the market.
https://www.macrotrends.net/countries/JPN/japan/population-g...
Despite a massive decrease in population, Japan has been mostly flat, when they should be in a strong deflationary environment due to demand destruction - because, you know, people being dead.
So hey, if the US population would decrease .5% a year (doesn’t sound like a lot, but it adds up fast - 1.75 mln/yr if in the US), we could also tame some inflation!
Thought exercise.
There are 140,000,000 houses in the US. What do you think would happen to the price of each house if there were 280,000,000? If you answered anything other than 'they would still go up for some reason despite many of them being empty and derelict' then we are in agreement that it is a supply and demand issue. Ergo a zoning issue.
There is massive excess supply of housing in Japan.
They literally demolish entire villages because no one lives there anymore.
Everyone who can moves to Tokyo, and prices there are insane.
In the US, if we had 288 million homes, the big question would be ‘where?’.
We already have millions of acres of land with literally no zoning rules at all. Even Greenlee County Arizona (1500 sq miles) is more than enough.
No one would want to though, because it’s not the place people want to live.
The answer to where is “up.”
https://japanpropertycentral.com/tag/tokyo-apartment-prices/
Tokyo prices are running 908k yen/square meter, or $685 square foot. While manhattan real estate is $1.5k/sq Ft and San Francisco $1k/sq ft - median incomes are dramatically lower in Japan, as is purchasing power, with the median Tokyo income being only $66k/yr.
There is a reason the stereotypical apartment in Tokyo is tiny - on average 65 square meters (700 square feet), of which only 41 square meters (441 square feet) is livable space.
That’s often for more than one person.
Outside of Tokyo, property is nearly free. Inside Tokyo it’s expensive, crowded, and tiny.
Looking at the national stats, it roughly averages out.
But that isn’t this utopia you seem to think is occurring.
Put a billion houses on Jupiter, and their value will be zero, while new york remains expensive
I don't think you'll ever get much cheap housing, unless you build a ton along the periphery of a population center (which people don't want). You'd have to build at least 20% more housing for the price to drop 10%, and most of that housing will be where people don't want to live.
Zoning ‘overhead’ is people trying to control perceived negative effects and assert boundaries on what they will and will not accept.
Building more freeways doesn’t result in lower traffic for any length of time, because traffic increases based on available capacity in high demand areas.
If we put a billion houses on Manhattan (somehow), there would still be ‘in’ and ‘out’ areas with high prices and restrictions, with those high prices driven by managed scarcity.
Because being selective is a large part of HOW an area becomes and stays desirable. It’s not possible for one to stay that way for long without some attempt to defend itself, in my experience.
Saying ‘prices wouldn’t be high and we could all have what we want if we just got rid of zoning’ doesn’t reflect what is really going on.
Now, busting the worst offenders with artificial scarcity, like monopoly/trust busting, could easily have a lot of value as it has gotten over the top in a lot of areas.
But frankly, remote work and increasing costs of funding should do a lot of that anyway here soon.
They only depreciate
I don't think that's the case. Development was occurring so quickly, supply exceeded demand, and new houses sat or became entangled in bad mortgages. Property values increase as a function of population, which sounds the same as supply and demand but isn't quite. Housing prices increased because labor, builder and materials rates increased.
“Inflation”, unqualified, means consumer price inflation. Asset price inflation is a completely different thing, with slightly overlapping potential causes, and completely different effects.
> What the Fed is doing with this move is patching the balloon and preventing a deflation. That is, bank has a run on deposits because people want their money back; bank is out of liquid cash; bank sells bonds/MBS that have mark-to-market less than par thus realizing losses.
Systemic firesales that drop asset prices aren’t “a deflation”, because, like inflation, unqualified “deflation” refers to consumer price deflation.
A 10000x increase in rent makes carrots unaffordable even if the price of carrots hasn't changed
You would be better positioned to make that argument if you could demonstrate a basic understanding of what the distinction is.
> People’s main thing they have to pay on a regular basis is rent or mortgage, so the cost of housing should be included in the consumer inflation index.
The cost of housing as a consumer good (rent, actual or, for homeowners, imputed) is included in inflation measures (consumer price index, PCE, etc.)
The asset price of residential real estate is not, but that’s a different thing.
This makes it very difficult to get into the market since our rules require 15% of your loan in up-front capital. For a 1 room apartment that means about one year of salary saved up. Yay boomer economy...!
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
What the Fed is doing with this move is patching the balloon and preventing a deflation. That is, bank has a run on deposits because people want their money back; bank is out of liquid cash; bank sells bonds/MBS that have mark-to-market less than par thus realizing losses.
The downstream consequence that we didn't see with SVB was the bank starting to call unsecured loans, and pull back on lines of credit etc. Which should in turn have triggered the turning in of the leased Lambos and Audis....