The middle-class "housing-income trap" is destroying your life - Politics Forum.org | PoFo

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#15166324
The middle classes are stuck in a housing-income trap. We've been seeing housing prices explode in many cities for many years, and how is that costing us? 50 years ago most wives stayed home and their husbands worked, and most couples could still afford a home. Now most wives work, so we have many dual income households. If households almost doubled their income, where did that extra money go? Well much of it goes into mortgages via bidding on houses, since all couples are still competing in bids on homes.

Let's say middle class incomes go up another 30k per person. Over time a lot of that income is going to go right back into housing bids due to their competitive nature. So no matter how much average incomes go up for the middle class, their standard of living will never go up very much as a group. They're just paying more for the same stuff (inflation).

Imagine how much better off the middle classes would be if house prices only went up ~4% per year and they had an extra $500-1000 every month in mortgage savings in their pockets to spend on other things. Everyone would be retiring earlier and driving nicer cars and having more kids etc. Most other industries would be making more money also if household spending in those industries increased.

With the status quo most people are stuck in a hamster wheel while the developers win, the banks win, the real estate agents win, and everyone else loses.
#15166329
Unthinking Majority wrote:The middle classes are stuck in a housing-income trap. We've been seeing housing prices explode in many cities for many years, and how is that costing us? 50 years ago most wives stayed home and their husbands worked, and most couples could still afford a home. Now most wives work, so we have many dual income households. If households almost doubled their income, where did that extra money go? Well much of it goes into mortgages via bidding on houses, since all couples are still competing in bids on homes.

Let's say middle class incomes go up another 30k per person. Over time a lot of that income is going to go right back into housing bids due to their competitive nature. So no matter how much average incomes go up for the middle class, their standard of living will never go up very much as a group. They're just paying more for the same stuff (inflation).

Imagine how much better off the middle classes would be if house prices only went up ~4% per year and they had an extra $500-1000 every month in mortgage savings in their pockets to spend on other things. Everyone would be retiring earlier and driving nicer cars and having more kids etc. Most other industries would be making more money also if household spending in those industries increased.

With the status quo most people are stuck in a hamster wheel while the developers win, the banks win, the real estate agents win, and everyone else loses.


Yea, I guess part of this effect is the keeping up with the jonese attitude that people have. Everyone want ths nice house as such and such down the street.

My question is... something has got to give right?
#15166331
Rancid wrote:Yea, I guess part of this effect is the keeping up with the jonese attitude that people have. Everyone want ths nice house as such and such down the street.

My question is... something has got to give right?

Many middle class Americans in the 1950s lived in a 1500 square feet three bedroom home with one bathroom and no AC. Today middle class wants 3.5 bathrooms and much more.

Wilie Mays the best ball player of his era earned 125K a year
#15166333
Rancid wrote:Yea, I guess part of this effect is the keeping up with the jonese attitude that people have. Everyone want ths nice house as such and such down the street.

My question is... something has got to give right?

Well increasing household incomes is far from the only thing driving up house prices, so it might be a while.

If you're 30 years old buying a house today, many are having their parents help them out on down payments and whatnot. So now there's 2 generations of wealth being dipped into to afford a home.

And then if housing prices keep going up, speculators will keep seeing it as a great investment and buy in, increasing prices further. As with anything speculative, all good things usually come to an end. Maybe if interest rates rise it something will give.
#15166334
Julian658 wrote:Many middle class Americans in the 1950s lived in a 1500 square feet three bedroom home with one bathroom and no AC. Today middle class wants 3.5 bathrooms and much more.

That's true. But then look at the size of the lots now. No front yard, no backyard, neighbor's house attached to yours lol.

Wilie Mays the best ball player of his era earned 125K a year

Also didn't have free agency though.
#15166338
Rancid wrote:Yea, I guess part of this effect is the keeping up with the jonese attitude that people have. Everyone want ths nice house as such and such down the street.

My question is... something has got to give right?


One reason for that increase is that household formation changed, decades ago the norm was having two adults + whatever children. Now adults can perfectly form a single person household, and each of them wants to live independently. That drives demand up.

Furthermore, add the issue of economies of agglomeration (the idea that there may be efficiency/cost gains in geographically clustering economic activity together), which drives demand for living in specific places (e.g. large cities) up. And it can also drive demand for living in specific parts within the cities up for similar reasons (maybe you want to be close to the office, or have access to good public transportation, or have good connectivity for a short commute - along with having all the amenities large cities are known to provide).

At last, consider in some places that zoning laws try to limit density as much as possible, since high density can and does affect quality of life since density causes a lot of noise pollution (we're noisy when in groups), air pollution (due to traffic congestion) and lack of privacy (we're all close to each other), which in turn affects the value of existing homes and thus creates an incentive for existing home owners to vote for restricting densification of their neighborhoods (since they'll take a capital loss if they leave, all out of the largest investment of their lives). These pressures, in turn, limit construction and hence the ability for supply to meet demand, even more so if other regulations in top of zoning are factored in (such as rent controls limiting residential investment in the long term, which in turn means supply doesn't adjust as well, all sorts of construction fees, in some cases labor regulations that make construction labor more expensive as well, etc).

What will give is likely in-person work. If not, then cities will become denser, as I highly doubt there will be a sociological change towards sharing beyond the student and first few working years (as people age we become less willing to do so for plenty of reasons). The pandemic showed that a move towards remote work can be feasible in several industries so I'm guessing this will become more common and, as such, will mean that there aren't as large agglomeration economies as they used to be and hence there won't be as much demand to live in specific places. I can imagine many remote workers moving to the suburbs or even rural areas outside of the cities looking for cheaper real estate, depending on how often they have to physically show up at work and how much they like (or dislike) living in cities/more densely populated places.
#15166352
Unthinking Majority wrote:The middle classes are stuck in a housing-income trap. We've been seeing housing prices explode in many cities for many years, and how is that costing us? 50 years ago most wives stayed home and their husbands worked, and most couples could still afford a home. Now most wives work, so we have many dual income households. If households almost doubled their income, where did that extra money go? Well much of it goes into mortgages via bidding on houses, since all couples are still competing in bids on homes.

Let's say middle class incomes go up another 30k per person. Over time a lot of that income is going to go right back into housing bids due to their competitive nature. So no matter how much average incomes go up for the middle class, their standard of living will never go up very much as a group. They're just paying more for the same stuff (inflation).

Imagine how much better off the middle classes would be if house prices only went up ~4% per year and they had an extra $500-1000 every month in mortgage savings in their pockets to spend on other things. Everyone would be retiring earlier and driving nicer cars and having more kids etc. Most other industries would be making more money also if household spending in those industries increased.

With the status quo most people are stuck in a hamster wheel while the developers win, the banks win, the real estate agents win, and everyone else loses.


Welcome to the right side of commonsense. Disposable income of course drives up what people can afford and as a result what they will bid on in something that is essential and in low supply compared to demand.

We have already been talking about the need to build more homes in another thread which would address this problem. But what your post does is address another problem which we haven't spoken of, which is 'why are we working more and getting less, where is my earned wages going'? Clearly it is going to those who own private property, the letting agencies or the banks who loan you the money for the mortgage. This is unfair but is fine as long as people can afford to pay what they bid for a property as it is a conscious choice. But 2008 happened for a reason and was the result of the US housing crisis as it was down to people taking mortgages they couldn't afford. Which means people are bidding beyond what they can afford due to necessity not affordability which is something that a government should address.

I don't know what or where the next economic crisis will be, but I am pretty sure it will come from America and have something to do with people defaulting on borrowing.
#15166359
Julian658 wrote:
Many middle class Americans in the 1950s lived in a 1500 square feet three bedroom home with one bathroom and no AC. Today middle class wants 3.5 bathrooms and much more.



That's more true than you know. The lifestyle of people was a lot more modest than it is now. Typically, one car, fewer vacations (and they didn't usually involve travel by jet).

On the flip side, that was also the beginning of leisure as a thing for middle class workers.
#15166360
Unthinking Majority wrote:
Well increasing household incomes is far from the only thing driving up house prices, so it might be a while.

If you're 30 years old buying a house today, many are having their parents help them out on down payments and whatnot. So now there's 2 generations of wealth being dipped into to afford a home.

And then if housing prices keep going up, speculators will keep seeing it as a great investment and buy in, increasing prices further. As with anything speculative, all good things usually come to an end. Maybe if interest rates rise it something will give.



At least two trends will have a headon collision.

One is that the burbs are not sustainable. Things work out fine as long as the economy is growing. But switch that to fewer buying homes, and it all starts to unravel.

Fewer kids today will be buying homes, many don't even want to.

It's already started, what used to be the flight to the burbs has largely stopped, and will reverse.

https://www.youtube.com/watch?v=7IsMeKl-Sv0&t=9s
#15166405
125k in 1973 = 740,467.34 in 2021

B0ycey wrote:Welcome to the right side of commonsense. Disposable income of course drives up what people can afford and as a result what they will bid on in something that is essential and in low supply compared to demand.

We have already been talking about the need to build more homes in another thread which would address this problem. But what your post does is address another problem which we haven't spoken of, which is 'why are we working more and getting less, where is my earned wages going'? Clearly it is going to those who own private property, the letting agencies or the banks who loan you the money for the mortgage. This is unfair but is fine as long as people can afford to pay what they bid for a property as it is a conscious choice. But 2008 happened for a reason and was the result of the US housing crisis as it was down to people taking mortgages they couldn't afford. Which means people are bidding beyond what they can afford due to necessity not affordability which is something that a government should address.

I don't know what or where the next economic crisis will be, but I am pretty sure it will come from America and have something to do with people defaulting on borrowing.


CAPITALISM!
#15166414
late wrote:At least two trends will have a headon collision.

One is that the burbs are not sustainable. Things work out fine as long as the economy is growing. But switch that to fewer buying homes, and it all starts to unravel.

Fewer kids today will be buying homes, many don't even want to.

It's already started, what used to be the flight to the burbs has largely stopped, and will reverse.

https://www.youtube.com/watch?v=7IsMeKl-Sv0&t=9s


I wouldn't be so sure about suburbs for the reason I mentioned earlier: Remote work should reduce the demand for physically showing up to work, which should in turn relieve demand in large cities.
#15166418
wat0n wrote:
I wouldn't be so sure about suburbs for the reason I mentioned earlier: Remote work should reduce the demand for physically showing up to work, which should in turn relieve demand in large cities.



Watch the video.

For most communities, if they aren't growing, they are in financial trouble. If they shrink, they are in deep trouble, and there is really no way at this point to avoid the burbs losing people.
#15166422
late wrote:Watch the video.

For most communities, if they aren't growing, they are in financial trouble. If they shrink, they are in deep trouble, and there is really no way at this point to avoid the burbs losing people.


I'll watch it later, but what makes you believe I'm wrong about it? I'm not sure their financial troubles have necessarily much to do with what I'm mentioning.

If people are able to work remotely, I'd expect them to try to cut down on housing costs by moving elsewhere.
#15166423
wat0n wrote:I wouldn't be so sure about suburbs for the reason I mentioned earlier: Remote work should reduce the demand for physically showing up to work, which should in turn relieve demand in large cities.


Maybe, but your assumption is that people choose where they live because of work, and many don't prioritize work location in there decision on where to live. In fact, my generation (millennials) picks where to live based on where they want to live/play. That is, millennials like city living. They want to live in the city. This includes me, I live in the city, my job in is in the suburbs. I want to live in the city. I know many of my peers have the same attitude. I like that I can walk my kids to a park near by, I like that we can walk to a few restaurants and bars, I like that i can walk to a few great bus stops and the rail, etc. etc. If I could dump my car, I would. Millenials and Gen Z have the lowest rates of drivers license in the history of American young people. Future generations want to live in the city.

Gen Z (my kids) are projected to have the same attitude.

I tried living in the suburbs because it was near my job. Fucking hated it. Fuck suburbs. Let's build density in the cities, and great infrastructure with it!

MAKE CITIES GREAT AGAIN!

USA! USA! USA!

Fuck the CCP! :?: :lol:
#15166428
Rancid wrote:Maybe, but your assumption is that people choose where they live because of work, and many don't prioritize work location in there decision on where to live. In fact, my generation (millennials) picks where to live based on where they want to live/play. That is, millennials like city living. They want to live in the city. This includes me, I live in the city, my job in is in the suburbs. I want to live in the city. I know many of my peers have the same attitude. I like that I can walk my kids to a park near by, I like that we can walk to a few restaurants and bars, I like that i can walk to a few great bus stops and the rail, etc. etc.

Gen Z (my kids) are projected to have the same attitude.

I tried living in the suburbs because it was near my job. Fucking hated it. Fuck suburbs. Let's build density in the cities, and great infrastructure with it!

MAKE CITIES GREAT AGAIN!


Indeed, but you don't need everyone to think like that (you could also add those who choose where to live based on school quality into that group of non-movers). You're good to go if a substantial percentage of the population takes work location into account in the decision.

If you truly took what I said above seriously, you could in fact live in your favorite city in the nation and work in a different state (I have plenty of colleagues that do just that, in fact, even before the pandemic). If cities have become too expensive, some people will move out to cheaper suburban places, small towns or even rural areas and that will push prices down.
#15166430
wat0n wrote:
I'll watch it later, but what makes you believe I'm wrong about it? I'm not sure their financial troubles have necessarily much to do with what I'm mentioning.

If people are able to work remotely, I'd expect them to try to cut down on housing costs by moving elsewhere.



Even if they work from home, the cost of maintaining roads, sewer, and policing in a low population density area remain.

One other thing, the reason it started, and what keeps it going, is Federal subsidies. Those will be reduced, or have reduced effectiveness, or disappear. That's already started.

Carter was the last guy to raise the gas tax. Inflation reduced that modest tax by 33%. That's a hidden subsidy, and it will eventually have to change. Europe got high gas taxes in the 1970s, and they've been good for them in a number of ways.
#15166433
wat0n wrote:
Indeed, but you don't need everyone to think like that (you could also add those who choose where to live based on school quality into that group of non-movers). You're good to go if a substantial percentage of the population takes work location into account in the decision.

If you truly took what I said above seriously, you could in fact live in your favorite city in the nation and work in a different state (I have plenty of colleagues that do just that, in fact, even before the pandemic). If cities have become too expensive, some people will move out to cheaper suburban places, small towns or even rural areas and that will push prices down.


Perhaps. However, living in a different state is a tax problem for companies. We are seeing that now, where companies like Google are banning working from Hawaii or whatever.

Sidenote, I don't like remote work by the way. I look forward to going back in the office.

Things move better when people see your face. It's also known that those that show up get promoted more and get bigger raises than those that are remote.
#15166440
late wrote:Even if they work from home, the cost of maintaining roads, sewer, and policing in a low population density area remain.

One other thing, the reason it started, and what keeps it going, is Federal subsidies. Those will be reduced, or have reduced effectiveness, or disappear. That's already started.

Carter was the last guy to raise the gas tax. Inflation reduced that modest tax by 33%. That's a hidden subsidy, and it will eventually have to change. Europe got high gas taxes in the 1970s, and they've been good for them in a number of ways.


How large are those costs? Do they outweigh the rent differential?

Rancid wrote:Perhaps. However, living in a different state is a tax problem for companies. We are seeing that now, where companies like Google are banning working from Hawaii or whatever.


Do you have more information on this?

Rancid wrote:Sidenote, I don't like remote work by the way. I look forward to going back in the office.

Things move better when people see your face. It's also known that those that show up get promoted more and get bigger raises than those that are remote.


Indeed, that's why I would think most people will live close yet outside the city they work in. Supercommuting 5 days a week sucks, but it is probably bearable to do it 2-3 days a week in exchange for saving, say, $1000 in rent monthly.
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