So, I'm really into municipal finance and fixing the housing crisis, which got me into Strong Towns. There is a solution, but it's not one that is going to make everyone happy (obviously), it is the state facilitating or even gently subsidizing incremental development.
If everyone is, by right, allowed to build the next larger "unit" of housing (for simplicity's sake, suppose 2x sqft[m2], height, and housing units of the median residential building within a half-mile radius), but not allow to massively build piles of housing on one site, then we effectively solve both problems.
Firstly, this allows for a massive amount of housing construction, with market incentives driving it. Out of the gate, you have the potential to easily double the housing supply. Secondly, the profits from the housing must be more-or-less distributed to the existing homeowners, and the potential to lower property values by building non-like for like housing doesn't exist. Neighborhoods slowly evolve, they don't rapidly change. Third, it incentivizes homeowners to build-to-last with the next stage of growth built in, because it's much cheaper in the long run to build a structure with the capacity to stack another unit on top than it is to tear down a building and rebuild the unit at double the capacity. Finally... and this is the thing that most people miss. It's fast. Smaller-scale developments need a much smaller planning phase, and there are many, many more of them to be constructed. This supports economies of scale, instead of the existing system, with all it's red tape that only allows a few actors to wade through the legal system for large developments. This should create a wide construction industry instead of a narrow one.
I really think the housing crisis is solvable with the top level government insisting that incremental development be allow by right, and that larger scale developments be put up for local review. This allows a city to grow organically, instead of all at once, but only at specific sites.
This is what the planning system in the UK prevents. It is complex to get permission to build, so it is done by property developers of landowners and for one large site at a time.
The government might also be pushed into actions that reduce house prices for other reasons.
The biggest reason for nigh house prices (particularly relative to incomes) is the affordability of mortgage payments as a result of low interest rates. Interest rates may have to be raised to control inflation.
It is a mistake to think of supply vs demand as "how many people want a house" vs "how many houses are there". Both supply and demand are curves against price. Interest rates shift the demand curve. As the supply curve is inelastic it has an even greater impact in the short term
And this discussion is hard because to just maintain current pension levels young people will need to be a LOT more productive (ie. work more, and keep less of the fruits of their labour) ... and if we're going to assign blame, the reason is that the pensioners refused to have enough kids. It's not really the kids' fault.
We all know what's going to happen too, in general. Some economic upheaval, some drastic event will create enormous disruption and then, finally, it will be politically acceptable to make the hard choice.
> the reason is that the pensioners refused to have enough kids
I thought they did have enough kids but that the next generation(s) need to breed faster.
In New Zealand and Australia ~30% of population were born in another country. I suspect our government will try and fix the working-age population hole by more immigration? New Zealand is building houses (necessary when increasing population by 50% through immigration). You can see both higher density and new suburban growth (replacing farmland) in my city of Christchurch.
It is silly to plan your retirement by looking at the situation right now. The economics of demographics will require grim changes. I'm sceptical of retirement funding, superannuation, and house sales. Even preppers seem like they have some sense. There's little information on potential solutions - everything is based on the presumption that decades away will be just like it is today.
> It is silly to plan your retirement by looking at the situation right now. The economics of demographics will require grim changes.
This is doom talk. Of course it isn't. One thing is for sure: you are going to be responsible for your own retirement, because superannuation is only meant to drive up house prices and will collapse along with house prices ... "eventually". It may not be clear when exactly this will happen, but of course in Australia it will have to happen near 2054 (when Australia's population growth will go into reverse until at least 2084).
Perhaps easier to say in Australia: Australia seems to be doing better than many countries so perhaps you don't recognise the problem. Japan and Italy already have some ~$0 houses due to demographics. Children from New Zealand go overseas so demographics in NZ are worse than Australia. An article[1] this morning asked:
"Have you seriously considered moving to Australia in the last year?" 37% said YES (and 40% of those have 'looked into it').
This thread is started by nly in London who clearly hasn't retired yet:
My mortgage runs until I'm 70 and I, like most owners now, are entirely dependent on the housing casino game continuing. I have to refinance every 5 years, so if rates spike I'm also screwed.
Try to ignore the bullshit in both but do attend to the facts.
I'm over a decade away from retirement in New Zealand, but all the signals I see here are pointing towards the country taxation base not being able to afford retirees in the future. I haven't considered Australia yet since I assume Oz won't escape the demographic wall, and if there is a future problem then being a kiwi in Oz could become unpleasant.
The narrative a year ago was that we should invest a good proportion of retirement savings into the US stock market. Recent events indicate that might not be an effective long term strategy.
A rental property was the traditional investment vehicle goal for many New Zealanders - but I've been becoming more sceptical about that idea (even though I've seen the past success).
I've no idea what the solution is, but I'm certain that the strategy that worked for my parents won't work for me.
Politicians are not going to provide a solution, nor are private developers. The solution is a crash that can't be avoided. As hinted at, this could be caused by a sustained increase in interest rates. It has happened before and it will happen again. I would even go so far as to say it is already happening in some property markets (>30% down in real terms in my city already, with no end in sight).
Well, the renters will reward any government that pushes down house prices i.e. builds more houses. And I assume there are more renters than home owners.
^^^ this
I don't think people consider the fact that a very good portion of these landowners were once renters that worked their way up and don't want to make it easier for the ones who have to do the same after themselves. It's easy to point fingers from the bottom until suddenly you're looking down from the top and the view ain't that bad
> It's easy to point fingers from the bottom until suddenly you're looking down from the top and the view ain't that bad
I wish we had specific words for this type of hypocrisy. Seeing people in wealthy USA complain about people relatively wealthier than them, rather than looking at their own wealth versus the poor in other countries. Obviously the poor in the USA aren't living the life of Reilly, but they're far beyond the wealth of the poor in India. How wealthy were the 99% Occupy Wall Street protesters?
You can't make people see what they don't want to.
> The 2011 Census tells us … around 64% of UK households owned their home
That’s not the same as the number of voters, obviously, but I’m not sure it’s a safe assumption, even before it gets into the actual voting dynamics from FPTP… there’s also presumably a lot of renters with their eyes on Mom and Dad’s home as an inheritance.
If they inherit the house they would be out of the mortgage casino and lower housing prices won't affect them so much.
Of course it won't be as valuable as an asset, but assuming they are primarily using it as a house rather then an asset then lower housing prices may not significantly affect their voting behaviour.
I would assume home owners are more likely to vote. But even with a lower voter turn out, there could still be more voting renters.
A sibling post has stats from 15 years ago but a lot has changed since then. My gut feeling is that more people are struggling to buy than to pay back mortgages but I have no stats to back that up.
This is the thing I never see addressed. Wouldn't fixing the housing crisis necessarily involve slashing down property values? Which are for a lot of people their only form of savings?
Genuine question by the way, I would like an answer.
> Which are for a lot of people their only form of savings?
It's fake savings unless you are speculating on properties.
Most people only own the place they actually live in and only resell to buy another place. A general property market crash doesn't affect the value of your house compared to other house so it's mostly neutral in this regard.
Of course people who borrowed before the crash will be in debt for longer than people who bought after but that doesn't actually change their debt situation. You might say it's unfair but well, not wanting other to be better of doesn't seem like a good reason to not solve the housing crisis.
In the end the only people who trully stand to lose are multi-owners but they are a significant part of the problem in the first place so that doesn't make me sad.
A case where it isn't fake savings is where people who work and live an a very expensive urban area, like london, may use the home as a retirement investment. So when they retire they move to a less expensive area and can use the difference in housing costs in the two areas as a retirement nest egg.
It's an interesting way to try to save, and assumes anyone will want and be able to buy it.
And that you will be able to keep the expensive property with expensive costs. Plus compare if living in the expensive vs cheap place gets you more savings...
No, it does not make sense. I can see holding a property for a child, but not as retirement.
You misunderstand I think. When you retire you sell the expensive property and then buy a less expensive property in a cheaper area. If retired, then potentially have fewer restrictions on where you live because you don't have to commute to work any more. The difference in property costs between the old and new areas is your nest egg.
You will still earn the difference between the expensive property and the less expensive one. It will just be a lot less and that’s a good thing.
Using properties as store of value or betting on them becoming more expensive have too many externalities.
Your case for exemple is directly leading to people actually living and working in the less expensive places being displaced by retirees from the city which is very much undesirable for local life.
It's not neutral if you've borrowed to buy the home...
If you're in negative or reduced equity your mortgage costs can increase dramatically when you refinance. This alone can easily cripple a large % of the population and tank the consumer economy
Why would you refinance if you're underwater? Wouldn't you walk away from the property in most cases?
Of course that doesn't eliminate the economic impact. It just shifts it elsewhere.
An decent case can probably be made for the government to take on such loans and offer some scheme to forgive the difference if certain criteria are met.
A sharp fall in house prices might hurt some people, although the number who would be in negative equity is probably smaller than you'd think. A quick Google says only 28% of homes are owner occupied with a mortgage, and the vast majority of those will have paid off substantial capital.
I think the premise is worth questioning though:
It's true that many people have most of their wealth tied up in their house. But unless they want to substantially downsize, they can't access these savings.
In general it seems bad that it's common for people to have most of their wealth in an illiquid, undiversified investment that they also live in.
The best answer I've seen is gradually increasing land value tax (yes, Georgist style). Would slowly deflate the market - but much more at the top end than the low end. Would also encourage efficient use of land. And be a new source of revenue that can replace other taxes.
Yes and no.. Slashing the problem completely is no worse than not fixing it since a climb into the stratosphere also has to burst.. I.e. with a new generation rejecting traditional lifestyles.
I think the solution is to artificially build new cities with ideal logistics. Distant cities inevitably draw away housing consumers but by least influential first and are outside each others influence for NIMBYs.
A nominal increase in value, while becoming more affordable in real terms might be feasible.
However to do this would require inflation of other goods, matched by wage rises, which would require actions that the British political establishment is not willing to take.
Making prices stagnant over 10-20 years would allow wages to catch up. This hurts speculators and finance way more than individual families and allows for a more gradual transition.
It's probably only something you can fix across generations.
You're totally right. It would be better for home owners since high houses prices make everything about buying and selling houses more expensive. You can't realise your housing gains except by dying. Or downsizing, but many old people rattle around in 3+ bedroom houses until they die or are forced to go into a retirement home.
It would also involve building more houses, which is bitterly and loudly opposed by a subset of home owners. Home owners are also richer, older, and vote much more than the (generally) poorer, younger renters.
If you're not planning on selling your house it's future value is irrelevant. All I care about is the purchase price of my "forever home".
The only difference it makes it that if your lender gives more favourable interest rates when your loan to value ratio improves. So if you purchase a house and the price doubles, your LTV is already 50%. Conversely if it drops after you paid off half the mortgage, your LTV might be shit
I'm not sure if the thing about LTV is true considering the whole picture, since the loan is larger. A larger loan at a lower interest rate still has large monthly payments. (I'd have to do the maths to be sure ...)
I looked up one of the major banks in my country and the difference in mortgage rates and monthly repayments for different LTV ratios is as follows for a €500k property with €50k down payment:
LTV <50%: 3.75% €2668pm
LTV >80%: 4.15% €2762pm
Over the lifetime of the loan you'll spend roughly half of the time paying the upper rate and half paying the lower rate.
However, if, over the first 10 years of the mortgage, your house halves in value due to a recession then you won't break the 50% LTV mark until year 15 (2040).
On the other hand, if house prices were to increase by 50% over that period then you might hit the 50% LTV mark within 7 years (2032).
The difference between the total mortgage interest in these two scenarios is €9216. The only thing that changed was the valuation of the home.
Yes, but that doesn't mean the people who had houses that lost value are screwed. It just means that they didn't pocket as much profit as they could have. They bought a value and a rate they could afford. They're no more or less screwed if the value of the house goes down. They're screwed if they can't pay the mortgage. Lots of people are screwed by high housing costs. The only rational conclusion is to lower housing costs. I say this as someone paying a mortgage.
Exactly. At some point a lot of people are going to discover that they are the bag-holders.
It's unfortunate, and at an individual level you can't blame people that felt compelled to purchase a home (only one!). However, if people are honest with themselves, they would admit that the only reason they were willing to pay such a high price is because they expected the price to increase. In other words they were speculating. After a certain point, nobody was buying for the actual ROI (i.e. income potential or substituted rental value). Not only was this mistake made, but it was made using massive leverage in most cases.
TLDR; Nobody was willing to admit that they were making a risky investment. A risk that it may turn out that they couldn't afford to make.
Yes. But that's just like any fake token being used by olds as a retirement plan.
Seeing as the olds control almost all of the wealth of industrialized nations, they should as a group be held entirely responsible for paying for entitlements and benefits for other elderly. The young should not be burdened with this. They have more burdens than they can handle already and are soon genetically extinct unless the olds take the boot from their neck.
Please stop spreading generational divide. Those olds were burdened with this just like today's young. Somehow some people think olds had it easy. Housing issues are not us(young) vs them(old).
I have more things in common with any young person from the other side of the world than I have with the olds from my own nation, city or street. It is what it is.
The olds have been waging a vicious economic war of extermination against the young for the entire 21st century. And now the cycle has to stop, because there are almost no more youth to exploit, and will be even less in the future.
No previous generation behaved like the current olds. We have to be much better than them, and let their twisted ways be forgotten.
Which creates a huge pool of people who are opposed to making houses more affordable.