Here’s my potential explanation for why rising rents hit the poor harder: If you only have enough housing for 80% of your potential households, the lowest rents will be set by the ability to pay of the 20th percentile, and the 10th percentile household will have to suck it up or leave.
Restricted housing will also cause the rich to outbid each other for the most attractive homes and drive the price up, but that effect is probably less intense because they won’t be completely outbid—they will just have to eventually lower their standards (forcing everyone down the housing quality ladder to boot).
Yep. Paid $435 for a one bedroom in a moderate crime neighborhood in 2000.
Now paying $1,328 ( weird number I know) for a two bedroom in a violent drug addled neighborhood several miles further from the center.
There’s nothing under $1k in the old ‘hood.
And I’m making way less than I did in 2000.
Lots more to discuss obviously but we are about to repurpose a massive former sportsball site into some kind of taxpayer funded ‘ campus ‘. A mix of housing would be far more beneficial I think.
That’s one toxic result of enforcing a shortage of important human needs. People start making mental lists of who is deserving and who isn’t. The shortage makes people mean and selfish.
I guess but other people have already run the numbers in Canada, it’s not physically possible to build housing fast enough for the current inflow of migrants. Even if you built more housing, you would still need to match immigration to the actual capacity of the construction industry to meet demand.
Maybe it would be a more productive question to ask why a per capita construction rate that would have been the bottom of 20th century recessions is now our capacity limit.
Because we have financialized and de industrialized our economy. I would estimate that about 70% of the US gdp is basically fake, FIRE is fake. When more money is printed, asset prices go up so FIRE goes up, but money is not real wealth. Timber, ore, oil, factories, etc. are wealth. Building houses requires expenditure of real resources, it’s not just by numbers in a computer like FIRE.
Hence why the US arms industry can only manage about half the artillery production that Russia can, despite the Russian economy being supposedly tiny compared to ours. Their economic numbers are not padded with borrowing/money printing FIRE shenanigans.
Kevin, I'm curious why rent inflation hits lower income folks harder than higher income. Is that because zoning restrictions are binding more tightly on higher density housing? Or is it because higher income folks have more options for reducing their real housing consumption, so that nominal consumption rises by less than for lower income folks who are already in the lowest tier housing available and so the only way for them to reduce real consumption is to start moving multiple families into single-family units or something?
From what I can tell most new housing is aimed at people in the upper half of the income bracket, and its being built on virgin land (outer suburbs and exurbs).
If you're going to face high fixed costs, you're not going to bother with lower end housing. And if you're building on virgin land that far out, it's a given that you're going to need a car and potentially have a long commute (so you need a certain level of income).
There is another aspect that people in the middle class and above really don't want to live around poors. Crime, dysfunction, misbehavior at school. It's a lot easier not to have any low end housing in a development to compress the socioeconomic class.
The distribution of housing is overwhelmingly determined by moves and trades that families make within the existing stock of homes. Having an affordable city doesn't really require building a lot of affordable housing. It just requires building a lot of housing.
Yeah. I think it’s a combination of all of that. More inelastic demand and more supply constraints so rent inflation is higher. Rent takes more of their income so rent inflation bites harder.
It really presents an opportunity, because the basic foundation of higher real incomes has been growing. But the income is just all being claimed by real estate. A building boom would unlock a generation of progressive real income growth that’s already there.
When it comes to housing in the United States, the best advice I can give young people is: "Get a time machine and go back to the 20th century---pick a decade that meets your aspirations for housing type and quality."
BTW, Brian Potter had a good essay on the cost factors of building a new house. He posted an interesting graph of land cost as a percentage of sale price for a new single family home. Since the 90's it's bounced around between 20% and 30%---which actually seems pretty reasonable. I'll guess that homebuilders look for sites that pencil out to this range. What skews this ratio of course, is crazy places like San Francisco, L.A., Boston suburbs where land value is screaming for density interventions that are prohibited by regulations.
Somehow, orthodox macroeconomists keep saying US living standards are higher than ever.
Anyone who grew up in L.A. or NYC a few decades back knows that is not true.
(Let alone what happened to the Rust Belt and Detroit).
The big fixes are 1. Build waaayyyy more housing 2. Upgrade infrastructure on time and on budget.
The inability of political systems to deliver on these basics is helping to undermine public confidence in everything---government, media, free markets, private enterprise. Not good. Societies need some sort of glue and confidence to hold together. Even nationalism is a positive if it does not become excessive (imperialism etc).
Side thought: Safe streets and secure borders are probably minimum requirements as well.
In short, we probably all want to live in Switzerland or Luxembourg.
"RBA Governor Says International Border Closure Could Fuel Surge in Wages
Australia could face a surge in wages growth and inflation if the closure of the country's international borders to foreign workers continues for some time, Reserve Bank of Australia Gov. Philip Lowe said Thursday.
In a speech to economists, Mr. Lowe said the most significant challenge to labor supply in the country was the closed border, which has normally been a major source of skilled workers for the economy over many decades."
---30---
So...open borders to reduce wages, but under-build housing to skyrocket rents....
People in Canada are steaming btw. Two generations ago, a great place for an average middle class dude (with warm clothes). Now, unaffordable. That is progress? The orthodox macroeconomists will croon Canadians are better off than ever.
Here’s my potential explanation for why rising rents hit the poor harder: If you only have enough housing for 80% of your potential households, the lowest rents will be set by the ability to pay of the 20th percentile, and the 10th percentile household will have to suck it up or leave.
Restricted housing will also cause the rich to outbid each other for the most attractive homes and drive the price up, but that effect is probably less intense because they won’t be completely outbid—they will just have to eventually lower their standards (forcing everyone down the housing quality ladder to boot).
Yep. Paid $435 for a one bedroom in a moderate crime neighborhood in 2000.
Now paying $1,328 ( weird number I know) for a two bedroom in a violent drug addled neighborhood several miles further from the center.
There’s nothing under $1k in the old ‘hood.
And I’m making way less than I did in 2000.
Lots more to discuss obviously but we are about to repurpose a massive former sportsball site into some kind of taxpayer funded ‘ campus ‘. A mix of housing would be far more beneficial I think.
Agenda ‘47 cities can’t come soon enough.
Maybe we could also think about getting a handle on immigration.
That’s one toxic result of enforcing a shortage of important human needs. People start making mental lists of who is deserving and who isn’t. The shortage makes people mean and selfish.
That doesn't even make sense.
I guess but other people have already run the numbers in Canada, it’s not physically possible to build housing fast enough for the current inflow of migrants. Even if you built more housing, you would still need to match immigration to the actual capacity of the construction industry to meet demand.
Maybe it would be a more productive question to ask why a per capita construction rate that would have been the bottom of 20th century recessions is now our capacity limit.
Because we have financialized and de industrialized our economy. I would estimate that about 70% of the US gdp is basically fake, FIRE is fake. When more money is printed, asset prices go up so FIRE goes up, but money is not real wealth. Timber, ore, oil, factories, etc. are wealth. Building houses requires expenditure of real resources, it’s not just by numbers in a computer like FIRE.
Hence why the US arms industry can only manage about half the artillery production that Russia can, despite the Russian economy being supposedly tiny compared to ours. Their economic numbers are not padded with borrowing/money printing FIRE shenanigans.
Kevin, I'm curious why rent inflation hits lower income folks harder than higher income. Is that because zoning restrictions are binding more tightly on higher density housing? Or is it because higher income folks have more options for reducing their real housing consumption, so that nominal consumption rises by less than for lower income folks who are already in the lowest tier housing available and so the only way for them to reduce real consumption is to start moving multiple families into single-family units or something?
From what I can tell most new housing is aimed at people in the upper half of the income bracket, and its being built on virgin land (outer suburbs and exurbs).
If you're going to face high fixed costs, you're not going to bother with lower end housing. And if you're building on virgin land that far out, it's a given that you're going to need a car and potentially have a long commute (so you need a certain level of income).
There is another aspect that people in the middle class and above really don't want to live around poors. Crime, dysfunction, misbehavior at school. It's a lot easier not to have any low end housing in a development to compress the socioeconomic class.
The distribution of housing is overwhelmingly determined by moves and trades that families make within the existing stock of homes. Having an affordable city doesn't really require building a lot of affordable housing. It just requires building a lot of housing.
Yeah. I think it’s a combination of all of that. More inelastic demand and more supply constraints so rent inflation is higher. Rent takes more of their income so rent inflation bites harder.
It really presents an opportunity, because the basic foundation of higher real incomes has been growing. But the income is just all being claimed by real estate. A building boom would unlock a generation of progressive real income growth that’s already there.
When it comes to housing in the United States, the best advice I can give young people is: "Get a time machine and go back to the 20th century---pick a decade that meets your aspirations for housing type and quality."
BTW, Brian Potter had a good essay on the cost factors of building a new house. He posted an interesting graph of land cost as a percentage of sale price for a new single family home. Since the 90's it's bounced around between 20% and 30%---which actually seems pretty reasonable. I'll guess that homebuilders look for sites that pencil out to this range. What skews this ratio of course, is crazy places like San Francisco, L.A., Boston suburbs where land value is screaming for density interventions that are prohibited by regulations.
Right.
Somehow, orthodox macroeconomists keep saying US living standards are higher than ever.
Anyone who grew up in L.A. or NYC a few decades back knows that is not true.
(Let alone what happened to the Rust Belt and Detroit).
The big fixes are 1. Build waaayyyy more housing 2. Upgrade infrastructure on time and on budget.
The inability of political systems to deliver on these basics is helping to undermine public confidence in everything---government, media, free markets, private enterprise. Not good. Societies need some sort of glue and confidence to hold together. Even nationalism is a positive if it does not become excessive (imperialism etc).
Side thought: Safe streets and secure borders are probably minimum requirements as well.
In short, we probably all want to live in Switzerland or Luxembourg.
"RBA Governor Says International Border Closure Could Fuel Surge in Wages
Australia could face a surge in wages growth and inflation if the closure of the country's international borders to foreign workers continues for some time, Reserve Bank of Australia Gov. Philip Lowe said Thursday.
In a speech to economists, Mr. Lowe said the most significant challenge to labor supply in the country was the closed border, which has normally been a major source of skilled workers for the economy over many decades."
---30---
So...open borders to reduce wages, but under-build housing to skyrocket rents....
People in Canada are steaming btw. Two generations ago, a great place for an average middle class dude (with warm clothes). Now, unaffordable. That is progress? The orthodox macroeconomists will croon Canadians are better off than ever.
Something not right with the profession.
Side note: Safe streets would be a plus.