[AnthonyMouse]

> I think for most folks actually living in these high cost areas, capital appreciation is not the primary motivation.

Sure, they want a house so they can live in it. But who wants to pay a million dollars, which you either have to pay interest on (if borrowed) or can't collect interest on (if not), when it's only going to be worth the same amount of money in 30 years? At 5% interest, the lack of equivalent appreciation more than quadruples the opportunity cost of buying the house over the course of 30 years. It changes what they're willing to pay.

> Also I disagree that they are universally destructive - how else do you explain the long term success of high price cities such as London, New York City, Hong Kong, etc.

It has always been the case that some cities are more expensive than others, but that's not what we're talking about. Nor are we talking about small affluent sections like Manhattan. If you look at, say, Brooklyn, it was historically affordable to ordinary people (and 20 minutes from Manhattan). That's what's changed.

And there's no way housing in San Francisco isn't a massive bubble. It's hard to predict how long it will be before the crash, but it's obvious that it's not sustainable.

[isostatic]

> But who wants to pay a million dollars, which you either have to pay interest on (if borrowed) or can't collect interest on (if not), when it's only going to be worth the same amount of money in 30 years?

People who want to live somewhere?

House prices tend to be what people can afford to live. People tend to budget x% of their household income on housing. With lower interest rates, it means houses are more expensive. With two full time workers it means houses are more expensive. With higher wages it means houses are more expensive.

Since 1990 house prices (in real terms) in the US have increased about 15%, but disposable household income has increased nearer 80%. Even in SF from 1990 to 2016 house prices only increased about 80% in real terms, and I suspect that average household income has increased far more

[nly]

Are you comparing inflation adjusted house prices against unadjusted income?

The % of take home pay people are putting, on average, in to housing here in the UK (ok, different economy) has gone from something like 20-25% in the 1950s to something like 40-50% now.

I myself live in London and put 47% of my take home pay in to rent. That's without property related tax. I'm in the top 5% of earners in the land and can only afford a modest ~45sqm apartment. If my rent goes up next year and my income stays the same, I will have to consider a longer commute.

[isostatic]

Nope. But these are averages, London is extreme. My mortgage in Cheshire costs 25% of my takehome pay (not the household takehome pay) - and half of that is paying off the capital. That's on a 4 bed semi.

Two earners on median £27k take home about £44k. 25% would be £900 a month, which is more than enough to rent a house.

This house is half an hour out of Manchester, 40 minutes out of Leeds: https://www.rightmove.co.uk/property-to-rent/property-372566...

£625pcm rent.

[nly]

Regional house prices are correlated with regional demand which correlate with regional job opportunities. I could go live in the sticks but then I'd struggle to find work. I moved to London because I couldn't find satisfying opportunities in the South East, 25 miles outside of London, let alone in the suburbs of Leeds. If I hadn't moved to London my 10 hour work day would have become 12-13 hours, including a nasty rush hour commute, and I would still have been paying £500/month in transport for the privilege and a high rent.

The problem here is that salaries don't scale in a linear fashion with regional property prices. In places like London, where quality property supply is low, rents are set to the absolute maximum, while still filling tenancies, and salaries, just as else where, are set to the bare minimum to fulfill demand. The result is rent as a % of take-home is maximized.

There are only three solutions. Lower property prices and rents (more housing supply), higher salaries and/or a more regionally distributed job market.

Don't get me wrong, i'm not bitching. I'm comfortable. But when people hear what you earn, and you can see by the way they react that they think you're a rich git, they just don't see these realities.

[TheOtherHobbes]

How is that disposable income distributed?

[isostatic]

That's the median income. At the top 10% incomes have increased dramatically more.

[timcederman]

They said that about Australia 15 years ago and the heat in the market is only just coming off.

Housing prices aren't just going up in San Francisco. It's the entire Bay Area. In the last collapse, houses in "good" locations didn't lose any value. There was a pause for a couple of years (or in cities like Palo Alto, none at all) and then they started going back up again. Other cities, e.g. Alameda (http://rereport.com/alc/charts/a_all_sfr.png), suffered losses of over 50%.

I expect to see something similar if there is a collapse of the overall bubble, but there will still be extremely expensive housing. We've been through it all before. https://www.nytimes.com/1990/08/29/business/california-sees-...

edit: also I said they're not "universally" destructive, which I stand by, so long as some affordable housing options remain.

[AnthonyMouse]

> They said that about Australia 15 years ago and the heat in the market is only just coming off.

It is absolutely true that housing bubbles can span decades. But the longer they grow, the bigger the pop. Unless you deflate them first by increasing supply.

> In the last collapse, houses in "good" locations didn't lose any value.

The last collapse wasn't caused by the same things. What happened then is that banks loaned money to people who couldn't pay it back, which inflated housing prices until they started to default. The people who live in Palo Alto had better credit, didn't default, and could still get a loan even after the crisis (or didn't need one), so the houses in that area didn't lose value.

What's happening in this case is that housing in some areas is getting so expensive that even people making six figures can barely afford it. When it gets to the point that they actually can't afford it, the high end status of the neighborhood won't save them.

And a crash doesn't have to result in cheap housing. It can be a move from preposterously expensive housing to "only" very expensive housing. But if that's a 50% reduction in value, people are going to be unhappy.

> also I said they're not "universally" destructive, which I stand by, so long as some affordable housing options remain.

You may be right that if you consider only the most expensive houses, they may not lose as much value, because they're the ones that are actually worth ten million dollars. But non-universality is a small consolation if the effect still hits 85% of the local housing stock.

[timcederman]

I think we can agree to disagree given the subjectiveness of what we're evaluating. But I will completely disagree that I'm only considering "the most expensive houses". Relatively expensive houses, sure, but in the average (or median), not absurd.

Also, I want to point out that it was an anecdotal article asserting broad outcomes. I don't think you can be so reductive about the current housing market.