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mister.shoes
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Housing Market/Economics - General Topics

Postby mister.shoes » June 5th, 2015, 7:27 am

This article came across my Twitter feed yesterday, despite being over a year old.
http://www.forbes.com/sites/eamonnfingl ... sed-to-do/

I found it very interesting, especially because it really shows that the American dogma around housing prices isn't such a universal truth after all.
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Re: The economics of housing

Postby MNdible » June 5th, 2015, 8:51 am

It's worth noting here that German population growth has been less than US population growth every single year (both as a percentage and in actual numbers) since at least 1960. In several of those years, Germany has actually had negative population growth.

Anecdotally, I've been to Goerlitz, and while it has a lovely town center, it is not what one would think of as a thriving metropolis. It's also got some massive blocks of former East German housing to provide plenty of supply.

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Re: The economics of housing

Postby seanrichardryan » June 13th, 2015, 9:28 pm

Q. What, what? A. In da butt.

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Re: The economics of housing

Postby David Greene » June 14th, 2015, 11:05 pm

Lots of interesting comments on this one.

I am reminded of this long-rendered piece of advice: "Losers measure themselves against others; winners measure themselves against their goals." Minneapolis and St. Paul, keep moving toward what you are: properous cities with amazing amenities. While sprawl hurts the urban areas, as long as our cities and urban suburbs keep improving, we're accomplising our goals.

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 10:09 am

I'm pretty concerned about the featured couple who say they couldn't get a house that big without interest rates where they are. That tells me they're awfully close to their upper limit.

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Re: The economics of housing

Postby EOst » June 15th, 2015, 10:35 am

xandrex wrote:I'm pretty concerned about the featured couple who say they couldn't get a house that big without interest rates where they are. That tells me they're awfully close to their upper limit.
Not really surprising. As the housing crisis demonstrated, people are really terrible at planning against unexpected changes in circumstances. That said, they also look young enough that their earnings probably have significant room to increase... but then, why are they going for a house that big at their age, with no kids in the picture?

We don't have kids, and I'd probably have a different perspective if we did, but I honestly can't imagine what we would do with 4500 square feet of house. That's six times the size of our apartment! Hell, it's four times the size of the house I grew up in. How do you get big enough furniture to fill it?

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 10:56 am

The Bell museum had a really good program about housing a few years ago. The display showing the growth in house size over 150 years was astounding.

Back in the day, the owner of a 4,500 sq. ft. house would have employed several people to maintain it.

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 10:57 am

I mean, we've got a relatively small house in the Wedge and even with a kid it feels big to me. I can see how with three or four kids it would be cramped, but then again the attic and basement aren't finished yet.

It's pretty easy to fit a family of six in one of those old houses. Or at least it should be.

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Re: The economics of housing

Postby FISHMANPET » June 15th, 2015, 11:00 am

I think if you're designing your own house it can get pretty easy. Oh yeah we'll want a master suite for us, with a sitting area and his & hers (well, looks like his & his here) vanity, and we plan on 3 kids so 3 more bedrooms, and they'll need a playroom, and a guest bedroom, and oh you've always wanted a craft room, and we should put a family room downstairs, and sharing bathrooms is a hassle let's give every bedroom their own bathroom.

My mom built her own house and she managed to keep it pretty tame, but it's pretty easy to do "just a little bit more" when budget isn't a constraint (it wasn't for her). We may look at that 4500 sq ft house and say budget is a constraint, but they didn't, or at least decided to grow right up until it was a constraint. Who knows what they would have done if interest rates were 3%?

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Re: The economics of housing

Postby Anondson » June 15th, 2015, 11:26 am

One child per room is a modern thing. Making the "need" for more sq. feet a modern choice. Kids can sleep more than one per room fine.

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Re: The economics of housing

Postby FISHMANPET » June 15th, 2015, 11:51 am

On one hand people got by with more than one kid per room in the old days, but people used to get by without indoor plumbing or electricity and I feel like you could just make the same argument for not needing those as you could for not needing extra rooms.

We're a much wealthier society than we were 50 or 100 years ago, and one of the ways that's expressed is in more square foot per person. Nobody's holding a gun to these people's head, they're making the choice to build a 4000 sq ft house on their own. And in a vacuum, who are we to tell them they shouldn't? I mean, they can afford it (at least as much as anyone can afford a house, their income is probably going to go up over the next 30 years, and even if they couldn't survive extended unemployment of one or both of them, that's not exactly unique).

Now to affordability, we're (society) already subsidizing this with low gas prices, the mortgage interest tax deduction, and even imputed rent. So if we think this outcome is "bad" then maybe those are better targets for change. Rather than telling people "the hive mind has decided you've made a bad choice and are therefore a bad person" it's much easier to just say "the full cost of your choice to society is being presented to you, you are free to do what you'd like."

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 12:11 pm

^^^ This is exactly how I look at it too. The problem comes in when I try to translate this into ordinary conversation. So I'm looking for help. How do you all talk to the average layperson about sprawl, sustainability and the choices people make? How do we spread the message that it is public policy driving all of this?

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 12:48 pm

Anondson wrote:One child per room is a modern thing. Making the "need" for more sq. feet a modern choice. Kids can sleep more than one per room fine.
Having more than one bedroom can certainly make things larger, but I grew up in a family of six (plus many dogs) where each kid had their own room in a house that my parents had custom built. Our house was two floors (main floor and a finished walk-out basement) totaling maybe 2,400 square feet. The idea of nearly doubling that space would be ridiculous. We had more than enough space. But we skipped out on things like formal living and dining rooms, only one small office, etc. Could have used another bathroom. That's about it.
FISHMANPET wrote:Now to affordability, we're (society) already subsidizing this with low gas prices, the mortgage interest tax deduction, and even imputed rent. So if we think this outcome is "bad" then maybe those are better targets for change. Rather than telling people "the hive mind has decided you've made a bad choice and are therefore a bad person" it's much easier to just say "the full cost of your choice to society is being presented to you, you are free to do what you'd like."
I agree here. The big thing is finding out how to make these changes without instantly wiping out property values or forcing people out of their homes due to cost. A family can't pack up their exurban home and move quickly, nor buy more fuel-efficient cars right away most of the time. We created this mess over 60 years. It'll probably take twice as long to correct that mistake (and by then, we'll be on to another decades-long mistake).

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 12:57 pm

xandrex wrote:I agree here. The big thing is finding out how to make these changes without instantly wiping out property values or forcing people out of their homes due to cost. A family can't pack up their exurban home and move quickly, nor buy more fuel-efficient cars right away most of the time. We created this mess over 60 years. It'll probably take twice as long to correct that mistake (and by then, we'll be on to another decades-long mistake).
If there's one thing I agree with Strong Towns on, it's that the crash is coming whether or not people want to admit it. The recent financial meltdown was but a foreshock.

People have to start making these changes now if they want to avoid being caught in a very bad place later. The first thing to do is to stop encouraging more exurban building on large lots. Halt freeway expansion. People moved to their homes given the existing transportation conditions, so why should we expand capacity which is only going to encourage further wasteful land use?

This is also why, unlike Strong Towns, I support targeted transit investment in the suburbs. If we densify the suburbs around transit it will be a much better situation than we have now and it'll be incremental change. Getting suburban families used to riding the bus and rail will make it easier to make further transitions in the future.

I'm am all in favor of eliminating the home mortgage interest deduction and the state homestead deduction. If that forces people out of their homes, they had no business being there in the first place.

The sad truth is that we have to inflict some pain on some people now and over the decades to come to avoid excruciating pain for everyone later on.

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 1:32 pm

David, surely you can't be so cold about people losing their homes. No, I don't think anybody should be commuting 20+ miles into work, but it's not those people that will lose their homes. The gated communities and wealthy suburbanites will take a dent, but be just fine. It's the growing pockets of poverty and working-class families that live a couple miles from work but still drive that will get shafted.

If the Titanic is headed for the iceberg and we know it, shouldn't we find the safest, calmest way to nudge people out and then try to keep the worst of the worst from happening for the stragglers? Or should we just hop off the ship ourselves, let the ship hit and sink, and then pat ourselves on the back. "Well, they had no business being out in the exurbs anyway."

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 1:35 pm

I don't think I'm being cold. If someone is really going to lose their house due to the loss of a tax break, then it's more than likely they are going to lose their house for some other reason. The tax breaks for SFHs are super-regressive.

I'd be in favor of phasing in elimination of the tax breaks. Immediately eliminate the break for people making $80k+ and then gradually move down from there. Give people time to plan, sure. But we have to get off this gravy train.

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Re: The economics of housing

Postby mattaudio » June 15th, 2015, 1:41 pm

"Wealthy suburbanites" is an illusion, for the most part. People are leveraged to their eyeballs to have a $400k home with two expensive cars in the garage. Those are the places that literally have no future, if interest rates creep up towards double digits. Heck, even 6-7% mortgage rates would erode a large share of that purchasing (borrowing) power.

Sure, it may look great at first for the people who can hold out and cash flow their low interest rate mortgage payments. Especially if their current cost of capital is less than future inflation. But what happens to the value of their asset? That's the crazy thing about valuation as it relates to speculation - as things look fine and values creep up, there's a steady appreciation in value. But, if suddenly the cost of money goes up and pushes people's housing budgets down, it's the higher segments of the mainstream housing market ($400-$800k) that will crumble. When the majority of buyers of a $400k home today have a $300k budget in a year or five due to interest rates, those homes suddenly become $300k homes (or worse, if things spiral downward). It will get ugly, fast.

Regarding your second point... it's too late to steer the Titanic out of the way. All we can do at this point is to try and slow the ship down a little to minimize how fast the water comes in. We can't avoid the sinking at this point. We need to have an honest triage process, and realize that there are plenty of areas that may well have no future. And instead of propping those areas up to protect people, we need to be honest with people about that reality and do whatever we can to soften the transition.

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Re: The economics of housing

Postby David Greene » June 15th, 2015, 2:35 pm

mattaudio wrote:When the majority of buyers of a $400k home today have a $300k budget in a year or five due to interest rates, those homes suddenly become $300k homes (or worse, if things spiral downward). It will get ugly, fast..
Indeed. That's the other part of this culture we need to disrupt: this idea of house as investment. I didn't buy a house expecting a return. I figure if I get $0 for our house, it will be no worse than if I'd spent that money on rent and I got some enjoyment of the house in the process. Any money I get out of the house is cream. Now, that doesn't mean I don't care about property values at all, as I certainly do expect to get some money back when we sell the place. I'm just not staking our financial future on it.

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 2:39 pm

David Greene wrote:I don't think I'm being cold. If someone is really going to lose their house due to the loss of a tax break, then it's more than likely they are going to lose their house for some other reason. The tax breaks for SFHs are super-regressive.

I'd be in favor of phasing in elimination of the tax breaks. Immediately eliminate the break for people making $80k+ and then gradually move down from there. Give people time to plan, sure. But we have to get off this gravy train.
But we’re not just talking real estate taxes (though that plenty of people have argued against in city council meetings for fear of losing their homes right here in the none-suburban area we call Minneapolis). FISHMANPET mentions a higher gas tax and things like imputed rent (okay, that’ll likely never happen). Things that you mentioned like ending freeway expansion. These aren’t bad things. Few on this site are against these things. But to pretend that ending this will someone no be a shitstorm for the thousands and thousands of service workers out in the suburbs who will need to be there so long as business exists out there, to wipe our hands clean because all these people just know that they’re somehow rigging the system is schadenfreude. The rich can move into the city or a close suburb if things go wrong. They’ve got the resources. You need to phase things in unless you really want to just abandon the poor.

This isn’t some call for continuing what we’re doing now. It’s being sensible that there are real people out there who work hard and maybe bought property there because it was near their job at the time and it was all they could afford and it had good schools and was a safe place for their kids to play. If the storm (or iceberg in my last metaphor) is coming, then why not be decent humans and try to help each other out rather than smirk and think, “Hey, at least it wasn’t me.”

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Re: The economics of housing

Postby xandrex » June 15th, 2015, 2:41 pm

mattaudio wrote:"Wealthy suburbanites" is an illusion, for the most part. People are leveraged to their eyeballs to have a $400k home with two expensive cars in the garage. Those are the places that literally have no future, if interest rates creep up towards double digits. Heck, even 6-7% mortgage rates would erode a large share of that purchasing (borrowing) power.

Sure, it may look great at first for the people who can hold out and cash flow their low interest rate mortgage payments. Especially if their current cost of capital is less than future inflation. But what happens to the value of their asset? That's the crazy thing about valuation as it relates to speculation - as things look fine and values creep up, there's a steady appreciation in value. But, if suddenly the cost of money goes up and pushes people's housing budgets down, it's the higher segments of the mainstream housing market ($400-$800k) that will crumble. When the majority of buyers of a $400k home today have a $300k budget in a year or five due to interest rates, those homes suddenly become $300k homes (or worse, if things spiral downward). It will get ugly, fast.

Regarding your second point... it's too late to steer the Titanic out of the way. All we can do at this point is to try and slow the ship down a little to minimize how fast the water comes in. We can't avoid the sinking at this point. We need to have an honest triage process, and realize that there are plenty of areas that may well have no future. And instead of propping those areas up to protect people, we need to be honest with people about that reality and do whatever we can to soften the transition.
I’m not talking about your over-leveraged Joe and Jane Larson out in Minnetonka. There are plenty of actually-wealthy families in the Twin Cities, and they’ll be just fine, mortgage interest deduction or not. Sure, their housing values might plunge, but a family with a comfortable six-digit income (not exactly a rare thing in any number of suburbs) can take a loss if they need to. Sure, it’ll hurt. But they’ll recover (maybe one less vacation…oh darn). Value isn't even all that important until you need to sell. Otherwise, you've got an asset you can actually use. But who’s going to want to live in a ticky-tacky suburban development by the (apparently crumbling) highway, which more closely mimics the cheaper developments? Nobody. Those people don’t really have a choice. They’re stuck. Maybe they’ve bought too much house, but I’d rather help them improve their situation before things get really bad.

If you read my Titanic metaphor, I don’t mention steering. I’m not claiming you can avoid some of the repercussions (though, like everyone who cries about Social Security being “bankrupt,” I think it’s an over-the-top reaction to an admittedly serious problem, but one that can be mitigated if we take the right steps). There very well might be places that don’t have a future, but I’d rather give people in those places a fighting chance to get out while they can and in a way that doesn’t destroy working- and middle-class families. Yes, there will be pain, but to accept that as a given is callous. Fight to help every person and every family. I don’t care if they’re overleveraged, under water, rich, poor, whatever – it’s schadenfreude to build a system, have people buy into it, know that it will all come crashing down, and still shrug your shoulders.

And that’s really where I’m differing with you and David, at least in this conversation. There’s plenty of pointing the fingers at people here, but surprisingly little at the system. We’ve built one that encouraged the far-flung suburbs. Because everyone likes their slice of the American Dream and isn’t as well versed in infrastructure lifecycles as Streets.mn, people buy that vinyl-sided home in Rogers.

I think plenty of our beliefs line up closely enough. It’s the approach. And if that’s where we have to agree to disagree, then so be it.


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