Housing price increases, at least in the US, are due to regulations..plain and simple. If you make it easier for houses to be built, the supply will out pace demand and the market will force these prices down.
We should be pushing from two directions. Make it easier to build as you say from the new supply direction. Make it easier to price these more along the lines as consumption goods instead of financial assets from the pricing direction. Otherwise, new supply is soaked up by those with access to sufficient credit to run the new supply as rentals.
In the US, this partially means cracking down and reforming the federal guaranteed mortgage purchase programs. Make federal purchases only for one owner-occupied, primary residence, linked to a 1040 filing. Carve out an exception for married couples filing jointly to be able to run two primary residences through federal programs. Enforce through link of federal loan guarantee programs into the IRS datasets holding the declared primary residence.
There are a lot of people who could never qualify for privately-held and privately-administered mortgage loans taking full advantage of the backstop provided by the taxpayers in the federally-guaranteed programs, and renting out the units. They're welcome to work as real estate investors, just not on the back of taxpayers' liability. Many of these people are in the NAR, and they will scream very loudly and donate very generously if this ox is in danger of goring.
But deflating the asset inflation of real estate is a necessary evil to counter the now-obvious impacts of inflating these with over-generous credit and credit terms. Real estate is not an ailing industry with national security interest that needs any form of propping up.
Do away with the expensive marketing subsidy to the mortgage loan industry, and eliminate the mortgage interest deduction. It only kicks in if you itemize (and even then, you have to qualify under the new personal+standard higher deduction rule, so only an estimated 5% of filers will take advantage of it), and it is only a big benefit in the first few years of the amortization schedule.
Nonsense. Land is a scarce resource. Neighborhoods aren't getting any bigger - they can't get any bigger. So the only way for a city to increase its housing supply is to increase its density, and that runs into a buzzsaw of local politics.
In theory, supply is infinite because you just build somewhere else. But people don't want to live somewhere else. They don't want to commute an hour and a half each way because that's where the cheap land was. The price I pay for my 1800sf 1/10 acre in south Minneapolis would buy me three times that in the burbs, but I don't wanna live in the burbs. I want to live in Minneapolis.
What does "NIMBY" mean in these contexts, though? I think this is more handwaving.
I live in a city that is taking active steps to increase its density and affordability (https://minneapolis2040.com/). This directly affects my neighborhood. There are two kinds of construction going on around us. First is higher-density apartments/condos in the 3-5 story range, often with first level retail. These aren't replacing homes, though - they're replacing light industrial like warehouses.
Second, and this is an interesting rebuttal - some of the 100 year old houses are being torn down and replaced with new, larger (and much more expensive) houses on the same lots. So a worn-out 1200sf bungalow on 1/10 acre gets turned into a 3200sf quasi-mcmansion on the same lot. These new houses cost 50-100% more than the old houses in the neighborhood do (more like 100% for the run-down homes they replace). But they are contributing zero to the overall density - they're still single-family dwellings. Even the old two-flats in the neighborhood contribute more density.
So rather than increasing density, they're increasing cost of living. That is your #invisiblehand in play, without NIMBYism stopping anything.
I don't know about MN specifically, but the teardown+upsizing is usually a direct result of zoning restricting multifamily development. A 4500sf lot could hold 3-4 townhomes that probably cost similar to the sale price of that 1200sf bungalow, and together sell for more than your quasi-mcmansion. If you need a variance to build the townhomes but can build the McMansion by right, that changes the economics of time and certainty, so you end up with the McMansion. I just moved out of Bellevue, WA and that city is full of run down houses from the 50s getting town down for 4500sf $1.5M+ mansions. In general, the #invisiblehand has his thumb on the scales against legal, by-right development of denser housing.
I don't think a 4 unit townhome is practical on these small lots with alley garages. Townhome construction around here is a burbs thing, and done in large clumps of 2-10 city blocks or so of area (and which tend to be singularly unattractive and gross).
I don't think it's just zoning here. There have been some small multi-family units built. But they don't sell all that well or seem economically attractive to builders.
And back to my point... I think there's a lot of sort of theoretical macroeconomic handwaving going on when it comes to housing density that flatly rejects engaging with real world conditions in any way. It sounds smart, but it's dumb.
Again, not sure about that local market, but modern townhomes of 1500-1800sf on a ~1000sf lot is a very common form. Alley garages make it even easier because then the front can look nice instead of being 75% driveway and garage.
That's a very different situation from what's going on in the bay area. Out here we're building tons of new office space, a handful of luxury apartment complexes (that often replace older complexes that had more units than the new one), and virtually nothing else. This is a direct result of residents (AKA NIMBYs) voting for city councils that refuse to allow denser housing.
"Nonsense. Land is a scarce resource. Neighborhoods aren't getting any bigger - they can't get any bigger. So the only way for a city to increase its housing supply is to increase its density, and that runs into a buzzsaw of local politics."
Of course it's a scarce resource, but regulations don't make it any less scarce. The city where I grew up can't build any apartments past 5 stories because the local government feels like it's an eye sore. The result is housing/apartment prices that are 3X the price of other surrounding cities.
San Francisco is a good example of this. It can take a builder 10 years to actually get the permits to build a new house, because of regulations.
"The price I pay for my 1800sf 1/10 acre in south Minneapolis would buy me three times that in the burbs, but I don't wanna live in the burbs. I want to live in Minneapolis."
When you put it this way, I don't really feel bad for the high housing costs, because it seems like it's mostly about being inconvenienced.
Which regulations would you suggest caused my parents' rural South Carolina home to gain 50% in value over the last ten years? There's plenty of land, all of it zoned for agriculture or residential.
I was claiming that a 50% from 2009-2019 is a modest, explainable increase (and probably from a more reasonable base), that is probably not the result of regulation.
For contrast, Seattle's median home price was already expensive at ~$400K in 2009, dropped to ~$350K in 2012, and has doubled to ~$700K since then. In the short term, it's more due to the crazy hiring growth by tech companies here. But even though Seattle is building much more than San Francisco, the majority of the land is zoned for single family homes, so there's no way for building to catch up.
The rural home in SC sounds much more healthy and like what people want - steady increases in price, a few points above inflation.
Since I was curious about the numbers, I went back and looked it up. Since June of 2009 (ie, the same time period) median housing price in Seattle has gone from $365,000 to $655,000. Numerically that's huge, but it's actually only about 7% faster growth than my parents' property-- a growth rate that most people here, including yourself, seem to view as unexceptional. This in a city that by all accounts is exploding in population and in the midst of a dire housing crunch which demands deregulation.
Don't get me wrong-- 7% is a lot of money. But it's an effect size that could easily be explained by simple profiteering, FOMO, construction cost increases, or any number of other local factors that have little to do with the regulatory environment. Paradoxically, it could even be caused by new construction, since new homes and condos typically cost more than the homes they're replacing.
None of this is to say that I'm 100% certain regulation doesn't play a role in Seattle's housing woes. But the difference in how these two situations are perceived should, I think, represent a warning about conventional wisdom in both places.
It's the 7%/yr for decades that really gets you. There are articles about San Francisco from the 80s about how it will become impossibly expensive and drive out longtime residents if they don't increase housing production. Multiply that shortage in construction by 40 years and you end up hundreds of thousands of units short.
Seattle is actually doing fairly well, considering how fast people are moving here. Washington had more people move there than Texas (at 4x the population) and a higher % of the population than Florida. There's no way to build housing fast enough to accommodate that without tons of greenfield, but we'll see how the next 10 years go.
1/ inflation over ten years is roughly 19%. So 50% is not "slightly ahead" by any means.
2/ Residential construction cost per square foot seems like a stronger candidate, with a roughly 35% jump nationwide over that time period (remembering that this does not account for inflation). Accounting for inflation that's essentially half the price increase.
3/ Neither of these factors, if they fully explained the value increase, would support the claim that regulation is to blame.
>3/ Neither of these factors, if they fully explained the value increase, would support the claim that regulation is to blame.
The point is that the 50% increase is the baseline appreciation or in other words the increase due to everything but regulation. Things like natural inflation, construction costs, etc. A rate above that is likely due to supply being constrained by regulation (or at least that's what the GP argues).
As it turns out, extrapolating the experiences of a geographically small and economically unique metro area to the entire US is not a sound start. Regulation may very well be to blame in San Francisco, but South Carolina is about as far from San Francisco as you can get-- in more ways than miles. Your problems are just not the same as their problems.
In the US, this partially means cracking down and reforming the federal guaranteed mortgage purchase programs. Make federal purchases only for one owner-occupied, primary residence, linked to a 1040 filing. Carve out an exception for married couples filing jointly to be able to run two primary residences through federal programs. Enforce through link of federal loan guarantee programs into the IRS datasets holding the declared primary residence.
There are a lot of people who could never qualify for privately-held and privately-administered mortgage loans taking full advantage of the backstop provided by the taxpayers in the federally-guaranteed programs, and renting out the units. They're welcome to work as real estate investors, just not on the back of taxpayers' liability. Many of these people are in the NAR, and they will scream very loudly and donate very generously if this ox is in danger of goring.
But deflating the asset inflation of real estate is a necessary evil to counter the now-obvious impacts of inflating these with over-generous credit and credit terms. Real estate is not an ailing industry with national security interest that needs any form of propping up.
Do away with the expensive marketing subsidy to the mortgage loan industry, and eliminate the mortgage interest deduction. It only kicks in if you itemize (and even then, you have to qualify under the new personal+standard higher deduction rule, so only an estimated 5% of filers will take advantage of it), and it is only a big benefit in the first few years of the amortization schedule.