Chicago is so ridiculously cheap compared to the rest of the very small group of "large american cities with big functional public transit networks." Never thought I'd really consider moving back home, but that's definitely something I didn't appreciate growing up.
Given the lack of geographic constraints, it's amazing how expensive the DC area is. In % terms since 2000 it looks like only SF has exceeded it out of the big cities. NYC had a lower increase, and Seattle is only just now getting to a similar level. I hate looking for housing here.
Part of what's keeping Chicago home prices low may be a relatively high property tax that's predicted to increase in the near future, in order to stabilize underfunded pensions.
There was an interesting discussion on HN about a year ago about the Greek debt crisis and how the Greek State had effectively increased property taxes to 6%+, to the point where prices cratered and the re-sale market in some areas froze up. I think the catalyst for the discussion was an article about heirs refusing to inherit certain properties because the hassle to sell, and upkeep costs in the meantime, just wasn't worth it. It made me appreciate that if things get bad enough, governments have a legal and fairly accessible mechanism for confiscating a large portion of the property wealth held by their citizens.
Chicago also has a very weak job market in the tech space. Relative to the Bay, Seattle, LA and NY, it has practically zero noteworthy growing and innovative companies.
Most of Chicago's top talent is stuck at places like Boeing or Exelon where they make a good living in the low to mid six figures, but it's really hard to get a huge surge in home prices like in the Bay without employee equity going up 100x, which just doesn't happen with the large mature companies that dominate the landscape in Chicago.
In my experience, this lack of innovation sits squarely on the shoulders of the wealthy in that city. They have expressed very little interest in being educated in the tech space. For example, in 2013, when I tried to explain to them why a bitcoin brokerage could be a good idea, I had to try to educate them in ways that are totally unreasonable. How do you even explain what bitcoin is to someone who only understands basic arithmetic and whose tech chops extend to Excel and web sites? In the end they all just assumed I was pitching a scam, and I don't really blame them, given how the whole thing must just sound fake. But in the Bay, where VCs are run by really intelligent people who can go home to read and understand the white paper and who probably know more than the people they invest in, it's a wonderful starting point.
Lately, VCs like the Pritzker group have really opened up to taking risk at least, but they're kind of just throwing darts randomly into things they don't understand (see Outcome Health). We really need people like Larry Page and Gordon Moore (or whoever, you know what I'm saying) here to help allocate funds in productive ways.
I do not expect the pension to last. It seems like a failed socioeconomic experiment. Corruption and mismanagement play a role for sure but the big killer is increasing life spans coupled with declining fertility. With 1.5-2 kids per couple and an extra 20 years of retirement the math does not work. The only thing that could save it is crazy economic growth but that is unlikely.
Exactly. It might not sound like a big deal if life expectancy increases from 70-75. That's only a 7% increase!
But, when the retirement age is 65, you're retired for TWICE as long. That's a huge difference. Either pension contributions need to increase AT LEAST two-fold, benefits cut in half, or retirement age is always set at life-expectancy - 5 years.
Not to mention, somehow now 62 is the new 65. Making the problem almost 3-times as bad.
Meanwhile, in the rest of the civilized world, we are increasing pension age, replacing defined benefits pensions with defined contributions, and lots of micro effects. The pension system is, of course, workable. It just needs adjusting to longer expected lifespans and, of course, increased funding from people of working age.
No, the incentives of taxpayer funded defined benefit pensions (lifelong annuities for worker and spouse) are unsustainable.
Problem 1 is the inability to forecast 30 years into the future, problem 2 is the people whose money is being spent (future taxpayers) aren't in the decision making process.
Problem 3 is low voter turnout among non government employee populations, so politicians do whatever they have to make sure government employee unions vote for them.
Problem 4 is no requirement to actually provide accurate funding, because the costs will be understated in the first place (see problem 3), and the liabilities are far into the future so money will be diverted for other pressing matters.
If you think the above is not correct, all you need to do is look at the funding status for all the taxpayer funded pensions in the US, conveniently exempt from the rules that privately funded pensions have to adhere to (which made them disappear because it turns out they're too costly).
However, as long as the US can print money (I.e. have a powerful military), then they can inflate away all these debts the taxpayers have so just try to make sure your assets are inflation resistant, preferably in high cash flow businesses with barriers to entry that can sustain price increases.
But those numbers are averages. You can't form your retirement plan to live to the age of exactly 75 no matter what the life expectancy is- the real value could be anywhere from 70 to 105..
>Part of what's keeping Chicago home prices low may be a relatively high property tax that's predicted to increase in the near future, in order to stabilize underfunded pensions.
Is it really noticeably higher than other comparable cities with good public transit? Also, in my experience, most people don't make real estate decisions based on underfunded pension liabilities.
It's more likely that prices are low for the simple reason that inventory is high: Chicago is geographically massive compared to its coastal brethren like SF or Boston. Even so, if you want to live in a 'hip' neighborhood like Lincoln Park or Wicker Park, you'll still find yourself footing a goodly sum of money. It's neighborhoods like Rogers Park or Bridgeport that are more reasonably priced. This is without even going as far as more denuded areas like Englewood.
The contention among some folks is that since real estate is the only captive taxation target (people, and businesses, can leave) for Chicago, the only realistic future scenario for resolving Chicago and Illinois’s pension insolvency is to dramatically raise property taxes. That, in turn, suppresses demand for assumed in-future-more-expensive real estate.
Are there any well-known theories that explain these disparities? I was quite surprised by the nearly-flat cost of housing in Germany (relative to inflation), for example. Is this a product of legislative, economic, or cultural differences?
They also make land available to build on, unlike former UK colonies which all use a combination of zoning to suppress supply and loose credit to increase bidding levels.
RE value is all about location and all factors related therein. Ie everything from local legal factors through to view and relative scarcity. RE in constrained places will always have a higher price/sqft than less dense places. The markets also somewhat ensure all the other costs of RE (ie building components like steel, wood, and labor) cost around the same from place to place. But land can’t be arbitrated between localities.
What does this house price number here capture? Cost of a single-family home? Buying cost of residential buildings in general? Or some combined index of actual housing cost?
some speculations:
A large part of the German market is renting, even more so in the "hot" cities. Many smaller towns and rural areas are struggling, so there are likely quite a few cheap houses available there which keep an average down, even if home prices in boom areas increase.
Buying a house is one of the few widely "acceptable" reasons to go in debt, but many Germans still try to avoid or at least minimize it.
Weirdly enough I've been looking at homes in ruralish areas and contemplating buying one to live in and work remote for a few years. Might be able to do it cash, even in an old walled city, and it seems like it wouldn't be the worst way to learn German for myself and my infant.
Germany has had a bit of a problem with a low birth rate. There's also a cultural dislike of debt I believe. I eye properties on immowelt with envy pretty often.
The numbers differ A LOT if you live in one of the major cities in Germany. The house my parents bought in 2005 in Munich is worth at least 2x at this point from what I have seen in property sales in the neighbourhood.
This says the price of mousing in SF has only increased by 78% since 2000. I spot-checked that, and the first alternate source of data I could find, https://www.paragon-re.com/trend/san-francisco-home-prices-m... , says the increase has been much larger.
It looks like the Paragon data is nominal dollars but the Economist adjusted to account for inflation. If you flip the Economist chart to nominal dollars, it's a +158% difference, so that's a good chunk of the difference but not all.
It is unclear which definition of "San Francisco" they are using. Is it just the city of San Francisco, the San Francisco-Oakland-Hayward, CA Metropolitan Statistical Area, or the San Jose–San Francisco–Oakland, CA Combined Statistical Area? I would guess that since San Jose is not listed separately, they are using the CSA, which includes a lot of outlying areas.
The cost of the actual home is only one third of the story. The other two thirds being interest rate and property tax. I'd love to see an analysis with those other variables.
I've forever wanted to see this, and I'm not sure if I just suck at searching, or if no one does this.
It doesn't seem like it should be /too/ hard. I mean, property taxes are going to be different in different regions of each country, but getting a rough average shouldn't be too hard. And it's not too hard to get interest rates for countries for the past 20-ish years.
The problem is that you don't have to just find two numbers (interest rate, tax rate) for each location and year. You have to account for:
- different approaches to mortgages (fixed term vs not, different typical terms, etc)
- extremely different tax regimes (e.g., Switzerland has no property tax, does have a wealth tax, and adds to your income an estimated rental cost for the property)
And now once you've gathered all of that data, you get to figure out how to make it all comparable :)
Great point -- but by taxes, I meant to include all that stuff. I guess that could get really tricky over time, since Switzerland--I'm guessing--introduced these laws within the last 30 years. But given that the economist article only covers like 30 countries, it doesn't seem like it's that much work. Maybe I'll take a stab at it.
Comparing them is a good point as well. The economist article doesn't go far enough in my opinion.
I'm interested mostly in mortgage payment vs rent. And mortgage payment vs income (after taxes).
Even income after taxes is a little tricky. Not sure if they're are any countries with REALLY high sales tax, but things like that could be worth considering.
Not sure how it works in the US but in the UK you pay a stamp duty tax when your purchase a property, and then "council tax" on a monthly/annual basis which pays for municipal services like refuse, social care etc
Interestingly the amount of council tax you pay is tiered based on a valuation of the property in the 1990s.
Yup, I'm a dual US/UK citizen. I equate council tax with property tax, the major difference being renters are liable for council tax as well, and in the states the property tax is usually built into the cost of rent. The property tax in the states is also based on the valuation of the home, updated by an assessor every 10 years or so. Interest rates are still universal for mortgages AFAIK.
I have a theory that real estate remains the only undervalued asset class left in the US. All of the attention has been in the stock market over this economic cycle, and people are likely still scarred from '07. Sure the housing market has gotten insane in the Bay Area and a few other large metros. But outside of that there are crazy deals to be had right now.
Fantastic. I'm sharing this far and wide. I knew my economy was nuts, this proves what a unique blend of nutty economies I'm part of. AU outranked by NZ for outrageous house price inflation! who knew? Ireland is looking good right now. All that GFC lunacy paid off in a huge housing stock I guess.
Given the lack of geographic constraints, it's amazing how expensive the DC area is. In % terms since 2000 it looks like only SF has exceeded it out of the big cities. NYC had a lower increase, and Seattle is only just now getting to a similar level. I hate looking for housing here.