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Thread: The horrible housing blunder

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    Default The horrible housing blunder

    This one's for you politalker since you were big on people needing to own their homes. I used to be in that camp. Now I recognize home ownership doesn't make sense for everyone nor is it always the wise economic decision. And we can see negative economic repercussions throughout the economy from government's pushing for it. This article is the cover story for this week's Economist. It's worth the read.




    The horrible housing blunder

    Home ownership is the West’s biggest economic-policy mistake

    It is an obsession that undermines growth, fairness and public faith in capitalism


    conomies can suffer both sudden crashes and chronic diseases. Housing markets in the rich world have caused both types of problem. A trillion dollars of dud mortgages blew up the financial system in 2007-08. But just as pernicious is the creeping dysfunction that housing has created over decades: vibrant cities without space to grow; ageing homeowners sitting in half-empty homes who are keen to protect their view; and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down. As our special report this week explains, much of the blame lies with warped housing policies that date back to the second world war and which are intertwined with an infatuation with home ownership. They have caused one of the rich world’s most serious and longest-running economic failures. A fresh architecture is urgently needed.

    At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful. From Sydney to Sydenham, fiddly regulations protect an elite of existing homeowners and prevent developers from building the skyscrapers and flats that the modern economy demands. The resulting high rents and house prices make it hard for workers to move to where the most productive jobs are, and have slowed growth. Overall housing costs in America absorb 11% of gdp, up from 8% in the 1970s. If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s gdp could be 4% higher. That is an enormous prize.


    As well as being merely inefficient, housing markets are deeply unfair. Over a period of decades, falling interest rates have compounded inadequate supply and led to a surge in prices. In America the frenzy is concentrated in thriving cities; in other rich countries average national prices have soared, especially in English-speaking countries where punting on property is a national sport. The financial crisis did not kill off the trend. In Britain inflation-adjusted house prices are roughly equal to their pre-crisis peak, while real wages are no higher. In Australia, despite recent falls, prices remain 20% higher than in 2008. In Canada they are up by half.

    The soaring cost of housing has created gaping inequalities and inflamed both generational and geographical divides. In 1990 a generation of baby-boomers, with a median age of 35, owned a third of America’s real estate by value. In 2019 a similarly sized cohort of millennials, aged 31, owned just 4%. Young people’s view that housing is out of reach—unless you have rich parents—helps explain their drift towards “millennial socialism”. And homeowners of all ages who are trapped in declining places resent the windfall housing gains enjoyed in and around successful cities. In Britain areas with stagnant housing markets were more likely to vote for Brexit in 2016, even after accounting for differences in income and demography.

    You might think fear and envy about housing is part of the human condition. In fact, the property pathology has its roots in a shift in public policy in the 1950s towards promoting home ownership. Since then governments have used subsidies, tax breaks and sales of public housing to encourage owner-occupation over renting. Politicians on the right have seen home ownership as a way to win votes by encouraging responsible citizenship. Those on the left see housing as a conduit for redistribution and for nudging poorer households to build wealth.

    These arguments are overstated. It is hard to show whether property ownership makes better citizens. If you ignore leverage, it is usually better to own shares than to own homes. And the cult of owner-occupation has huge costs. Those who own homes often become nimbys who resist development in an effort to protect their investments. Data-crunching by The Economist suggests that the number of new houses constructed per person in the rich world has fallen by half since the 1960s. Because supply is constrained and the system is skewed towards ownership, most people feel they risk being left behind if they rent. As a result politicians focus on subsidising marginal buyers, as Britain has done in recent years. That channels cash to the middle classes and further boosts prices. And it fuels the build-up of mortgage debt that makes crises more likely.


    It does not have to be this way. Not everywhere is afflicted with every part of the housing curse. Tokyo has no property shortage; between 2013 and 2017 it put up 728,000 dwellings—more than England did—without destroying quality of life. The number of rough sleepers has dropped by 80% in the past 20 years. Switzerland gives local governments fiscal incentives to allow housing development—one reason why there is almost twice as much home-building per person as in America. New Zealand recoups some of homeowners’ windfall gains through land and property taxes based on valuations that are frequently updated.

    Most important, in a few places the rate of home ownership is low and no one bats an eyelid. It is just 50% in Germany, which has a rental sector that encourages long-term tenancies and provides clear and enforceable rights for renters. With ample supply and few tax breaks or subsidies for owner-occupiers, home ownership is far less alluring and the political clout of nimbys is muted. Despite strong recent growth in some cities, Germany’s real house prices are, on average, no higher than they were in 1980.

    A home run

    Is it possible to escape the home-ownership fetish? Few governments today can ignore the anger over housing shortages and intergenerational unfairness. Some have responded with bad ideas like rent controls or even more mortgage subsidies. Yet there has been some progress. America has capped its tax break for mortgage-interest payments. Britain has banned murky upfront fees from rental contracts and curbed risky mortgage lending. A fledgling yimby—“yes in my backyard”—movement has sprung up in many successful cities to promote construction. Those, like this newspaper, who want popular support for free markets to endure should hope that such movements succeed. Far from shoring up capitalism, housing policies have made the system unsafe, inefficient and unfair. Time to tear down this rotten edifice and build a new housing market that works. ■


    https://www.economist.com/leaders/20...policy-mistake

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    How does the Gov't restrict housing development as cited in the article?

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    Quote Originally Posted by archives View Post
    How does the Gov't restrict housing development as cited in the article?
    Go buy a piece of land and see how many government hoops you have to jump through and regulations you have to follow if you want to build a home. It's insane!
    Here in PA. you need an actual architectural blueprint to build a mere one car garage with electricity, even if you completely build it by yourself.
    Common sense is not a gift, it's a punishment because you have to deal with everyone who doesn't have it.

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    Quote Originally Posted by archives View Post
    How does the Gov't restrict housing development as cited in the article?
    Zoning, building codes, regulations and environmental laws for starters. Can go more in depth on those and how they restrict development but that answers the question.

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    Default

    Homeownership has long been the vehicle for people to accumulate real wealth. 2008 changed all that. It appears to be recovering now, but it used to be a lock. Buy a home, sell it for more and you wind up with cash or credit power. Minorities were redlined and were denied the opportunity to buy homes and lagged way behind the whites who did not have those impediments.
    If your home is going up in value. it is still a good investment. Paying rent never is.

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    I get that limitations prevent even more people from moving to cities but what prevents companies from locating in less populated areas ? Sure, keep the HQ in town but the worker bees can be anywhere thanks to high speed communication.
    "Those who vote decide nothing. Those who count the vote decide everything." Joseph Stalin
    The USA has lost WWIV to China with no other weapons but China Virus and some cash to buy democrats.

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    Quote Originally Posted by Nordberg View Post
    Homeownership has long been the vehicle for people to accumulate real wealth. 2008 changed all that. It appears to be recovering now, but it used to be a lock. Buy a home, sell it for more and you wind up with cash or credit power. Minorities were redlined and were denied the opportunity to buy homes and lagged way behind the whites who did not have those impediments.
    If your home is going up in value. it is still a good investment. Paying rent never is.
    Wrong, wrong and wrong. You have a very old school mentality. Not everyone needs to be a homeowner nor is it necessarily economically advantageous to do so.

    Did you read the article?

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    Quote Originally Posted by Celticguy View Post
    I get that limitations prevent even more people from moving to cities but what prevents companies from locating in less populated areas ? Sure, keep the HQ in town but the worker bees can be anywhere thanks to high speed communication.
    Technically nothing is preventing companies from moving out of big Cities. But young people tend to want to live in urban areas and companies want to be where the talent is...

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    Quote Originally Posted by Celticguy View Post
    I get that limitations prevent even more people from moving to cities but what prevents companies from locating in less populated areas ? Sure, keep the HQ in town but the worker bees can be anywhere thanks to high speed communication.
    Just curious, why the groan on my post? What do you disagree with?

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    Quote Originally Posted by cawacko View Post
    Just curious, why the groan on my post? What do you disagree with?
    Im sorry i must have fat fingered that as i was wondering the same thing.
    Back to your post, sure, youngins like it but thats only a portion of the work force. People will go where the jobs are. The southeast for example.
    "Those who vote decide nothing. Those who count the vote decide everything." Joseph Stalin
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    Quote Originally Posted by Celticguy View Post
    Im sorry i must have fat fingered that as i was wondering the same thing.
    Back to your post, sure, youngins like it but thats only a portion of the work force. People will go where the jobs are. The southeast for example.
    No worries, all good. Was just curious.

    I mean if you're a tech firm do you have to be in the Bay Area? Definitely not. But because companies like Apple, Google, Facebook, LinkedIn, Intel, EBay, Uber etc. are all headquartered there top talent from all over the world wants to live in the Bay Area. Thus the access to the number of high quality workers makes it such an appealing destination to run your business. Similar to large financial firms/investment banks and New York City. You don't have to be there but a number of them are for the same reasons.

    But to your point yes, there are a number of growing cities in the Southeast with businesses moving there. They have more business friendly regulations and a lower cost of living. People can afford to purchase homes. It's a good combination.

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    Quote Originally Posted by cawacko View Post
    No worries, all good. Was just curious.

    I mean if you're a tech firm do you have to be in the Bay Area? Definitely not. But because companies like Apple, Google, Facebook, LinkedIn, Intel, EBay, Uber etc. are all headquartered there top talent from all over the world wants to live in the Bay Area. Thus the access to the number of high quality workers makes it such an appealing destination to run your business. Similar to large financial firms/investment banks and New York City. You don't have to be there but a number of them are for the same reasons.

    But to your point yes, there are a number of growing cities in the Southeast with businesses moving there. They have more business friendly regulations and a lower cost of living. People can afford to purchase homes. It's a good combination.
    But there are also tech outfits thriving in Colorado, Idaho, etc because some like that scene. I would imagine those working in Silicone Valley and living in tents and cars might be as happy elsewhere. Im in tech myself so im familiar with these woes.
    "Those who vote decide nothing. Those who count the vote decide everything." Joseph Stalin
    The USA has lost WWIV to China with no other weapons but China Virus and some cash to buy democrats.

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    Quote Originally Posted by Celticguy View Post
    But there are also tech outfits thriving in Colorado, Idaho, etc because some like that scene. I would imagine those working in Silicone Valley and living in tents and cars might be as happy elsewhere. Im in tech myself so im familiar with these woes.
    No question, there is far more to the tech world than just the Bay Area. Seattle, Denver & Austin all have booming tech scenes. (and it's not just limited to those cities either)

    But the Bay Area is the epicenter of the tech world, just like NYC is for finance and L.A. is for entertainment. You don't have to be in those locations to be in those industries but clearly a lot of people are.

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    Quote Originally Posted by cawacko View Post
    Zoning, building codes, regulations and environmental laws for starters. Can go more in depth on those and how they restrict development but that answers the question.
    Most of those are legitimate, ask any fireman and he/she will tell you about buildings that have skirted building codes and regulations

    I understand the theme of your post, but when I see "regulations" used as a generalization it creates questions. most of those "regulations" didn't come out of a vacuum

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    Quote Originally Posted by archives View Post
    Most of those are legitimate, ask any fireman and he/she will tell you about buildings that have skirted building codes and regulations

    I understand the theme of your post, but when I see "regulations" used as a generalization it creates questions. most of those "regulations" didn't come out of a vacuum
    When we're talking about regulations and the development of housing we're not talking about things like sprinkler law regulations. This doesn't have anything to do with firemen.

    Because I'm really hung over after yesterday's game I don't have the energy to write out my thoughts I'll just copy and paste. The Bookings Institutute is a center-left think tank popular with many Democratic policy makers. Here's a great paragraph from a paper of there's on land use regulation. This says it all:

    ""Arguably, land use controls have a more widespread impact on the lives of ordinary Americans than any other regulation. These controls, typically imposed by localities, make housing more expensive and restrict the growth of America’s most successful metropolitan areas. These regulations have accreted over time with virtually no cost-benefit analysis. Restricting growth is often locally popular. Promoting affordability is hardly a financially attractive aim for someone who owns a home. Yet the maze of local land use controls imposes costs on outsiders, and on the American economy as a whole.""


    https://www.brookings.edu/research/r...e-regulations/

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