[WealthVsSurvive]

The short answer is that a house is no longer a place to live, but an abstract financial asset. The problem with divorcing occupation and use from finance and ownership concerns remediation of grievances. The benefit of such a system concerns maximizing the building's utility. I'm personally in favor of a more boring housing market, in addition to automatic tenant enrollment in equity-sharing programs (ie, due to living in a building and paying rent, the person who experiences hardship and loses tenancy still has some small, depreciating ownership based upon what they paid as rent). This helps solve the problem of financial engagement for the less financially literate, in addition to enabling higher-density housing to be built.

[mcdeltat]

Bingo. People love to go into some deep analysis of housing and "agh it's a really hard problem", but it's simple at the end of the day: we have constructed, and continue to construct, a society where housing is not considering a right, but instead a way to inflate your bank account. It smells like this from the prospective house buyer at the bottom all the way to the government propping up the system at the top. Time to change the system. I refuse to believe that out of all the great things humanity has achieved, effective housing (shelter, of all things!!) is unsolveable.

[toomuchtodo]

The system will not change because the folks in charge profit and maintain power from a system of accelerated financialization. They then wring their hands and clutch their pearls as young people take rational actions by not having children (rapid fertility rate decline), worried what happens to the pyramid scheme as it runs out of steam. Their crisis is the young cohort's survival mechanism.

Young people have to do their best to survive in an unfavorable macro for the life they have left, and old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).

https://news.ycombinator.com/item?id=40338619

https://www.ted.com/talks/scott_galloway_how_the_us_is_destr...

https://www.youtube.com/watch?v=u-PinTQcuik

https://www.axios.com/2024/07/25/adults-no-children-why-pew-...

[almost_usual]

> old folks age out eventually (which is the only way they give up power, the power which is needed to make change to improve the macro).

A lot of those old folks have children who will inherit their homes.

[mcdeltat]

I think there may be something in this point. Lots of generational wealth in my area. Property investment is nearly a sport. The entry bar for which is lower if you already have wealthy parents providing you property (or equivalent buying power) for yourself, so the eye turns to property for investment. I know people in their early 20s, decently well off, already thinking property investment is the correct option for them. The rich get richer and the poor get poorer.

[camgunz]

I think the common case is for medical bills to drain retirement savings and home equity.

[toomuchtodo]

And a lot of folks don't have parents leaving them a portfolio or a high value asset they can live in. A material amount of people 55+ have no retirement savings, have material amounts of debt, or are in similar situations where the house might have to be sold versus be conveyed to children at death to break even (healthcare, senior|nursing home, memory care facility costs until death).

If you are lucky enough to inherit an unencumbered (or one with a mortgage you can at least afford) residential property you can live in as a young person when your parent(s) pass, that is fantastic luck. Take the win if you can get it. That is not the mean experience, based on the data.

https://www.gao.gov/financial-security-older-americans

https://www.nbcnews.com/business/consumer/generational-wealt...

https://www.nytimes.com/2023/05/14/business/economy/wealth-g... | https://archive.today/fpbNK

https://www.deseret.com/business/2024/09/10/millennial-gen-z...

[brailsafe]

This was the case with my dad and he isn't even 55. His house wasn't even worth all that much relatively speaking, but he had too much debt, not enough income, and too many expenses (more kids).

It's fairly likely we won't see any inheritance from him. The 2 of us who can realistically work for a living might make more, but it's not looking likely either of us will ever be able to retire. On the other hand, if I chose the same life, it's plausible I could buy a house eventually, but buying a house in my home town isn't worth the trade of living in my home town.

[toomuchtodo]

Not advice, educational purposes only. Speak to an estate planning attorney. Depending on resources and objectives, a property can be transferred into a corporate or trust entity. Parent rents from the entity, this covers the mortgage payment. Upon parent's death, property basis is stepped up (no capital gains), beneficiaries retain control of the asset. If children wanted to rent it out to cover the mortgage, they can. Federal statute prohibits a lender from accelerating the note when a property is transferred from parent to child(ren) (Garn-St. Germaine Act). This preserves the equity in the asset while shielding it from creditors (potentially, strongly contingent on state creditor law). Speak to an estate planning attorney.

Primary residence equity is the largest component of wealth in most family estates, ergo maximize efforts and opportunity to protect that wealth. When it’s gone, it’s gone. Good luck.

[boogieknite]

in my experience its normal that old folks have lots of children and inheritance works out that the house is sold and revenue shared among children instead of one of the children moving in

[boogieknite]

Im a rube but it my knee jerk reading tfa is there has to be some correction or young people are financially and domestically doomed. The solutions you listed here seem great. Is there momentum behind establishing these in the US?

Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely? If the latter, what are smart people expecting?

[frmersdog]

You are correct.

>Is it more likely the trend continues and young people will simply become priced out, or is a correction more likely?

As a layman, take this with a huge grain of salt: it depends. By established rules, a major correction should be imminent. In fact, it should have happened one of several times already.

Examples of catalysts include a bond liquidity crisis in late 2019, the flash crash at the start of the COVID pandemic, the Gamestop debacle in early 2021, the collapse of the Chinese real estate market later in 2021, and the US bank collapses of early 2023. There are also others, though several venture into conspiracy theory territory.

In every example I mentioned, unprecedented action was undertaken to prevent a catastrophic event that might have lead to financial contagion across global markets. There will be probably be more. It remains to be seen whether authorities will continue undertaking steps to shore things up when the bubble threatens to pop. (Trump's return to office is an interesting wrinkle; grab another grain of salt, but it's my opinion that the Gamestop thing only got as bad as it did because the regulatory regime under his tenure was asleep at the wheel.)

It should be noted that a correction doesn't necessarily lead to affordability if purchasing power simply continues falling or remains stagnant, as a result of a weaker job market. There are people who believe that sellers will simply refuse to drop residential real estates prices, as they have with commercial properties. Consolidation of ownership under large entities - as we've already seen to some extent - would allow owners to simply squat on properties, perhaps renting then out. Who knows what happens to the algorithmic rent fixing lawsuits, that might have brought those costs back to Earth a bit, after this year's electoral red wave.

[toomuchtodo]

A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask. There is not enough labor to build more units at any reasonable rate, so it'll be a slow burn as the system reaches equilibrium over time (new housing comes into the market when owners must sell, demand destruction due to pricing). Due to demographics, a lot more housing could be satisfied by smaller units accounting for reduced forward looking family formation, but the challenge remains in sourcing labor to build these units.

With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.

https://www.voronoiapp.com/demographics/Over-Half-of-Househo... ("Over Half of Households in the U.S. Don't Have Kids")

https://www.fanniemae.com/research-and-insights/perspectives... ("U.S. Housing Shortage: Everything, Everywhere, All at Once")

https://www.fanniemae.com/media/45106/display ("Fannie Mae: The U.S. Housing Shortage from a Local Perspective")

https://www.marketplace.org/shows/marketplace/the-housing-se... ("APM Marketplace: The housing sector droops under a labor shortage and price hikes")

https://www.businessinsider.com/baby-boomers-housing-wealth-... | https://archive.today/OsNgL ("Business Inside: Baby boomer homeowners got rich from skyrocketing house prices. Now they can't find retirement housing.")

https://www.bloomberg.com/news/articles/2024-09-18/us-faces-... | https://archive.today/Lyr5t ("Bloomberg: US Faces a Deficit of 6 Million Workers in Less Than a Decade")

https://www.axios.com/2024/06/27/labor-shortage-workforce-ec... ("Axios: Labor shortages are the new normal")

https://www.axios.com/2023/08/27/labor-shortages-air-traffic... ("Axios: Labor shortages plague high-stakes industries")

https://www.axios.com/2023/05/08/us-labor-shortage-older-wor... ("Axios: Why labor shortages could be here to stay")

[ericmay]

Never say never, but yes, agreed. And that shortage depending on how it’s calculated may be more pronounced if we look at where people plan to live in the future. Central Ohio where I live is on track to gain in population while the state as a whole loses population. A house in a rural county doesn’t necessarily count/help, even if it’s included in official “here are many houses we have” statistics.

Home builders, especially with a risk-free 4% return today, do not have any incentive to build “cheap” or “affordable” housing, and as material prices continue to increase because there are 330 million people in America who also want those resources, new builds will have to continue to increase in price and perhaps decrease in quality, depending on how much oil goes into the construction of the house. Home builders, absent clear evidence of industry collusion will simply increase their profitability and will not build ‘starter homes” or “affordable housing”.

We can address the issue in a few ways, for example removing artificially limiting zoning practices, generally speaking, or perhaps the elected government can just pay for cheaper housing, or we can craft good legislation.

But on its own I don’t see a good catalyst right now that will cause home prices to “correct”* without a treatment worse than the disease (economic depression or global war or something else that is otherwise catastrophic).

* The term “correction” is popular but misused. The current price of an asset is always correct. When an asset decreases in price, that decrease is no more correct than a corresponding increase in price.

[toomuchtodo]

Great points, great comment. An additional measure to solve for this would be by making remote work a protected labor right (assuming it does not overly burden the employer and such), so workers can move where the housing is, or the housing is cheap. But we'd rather let old, status seeking folks at the top of the corporate ladder "show workers who is in charge" and maintain control while workers get extracted from for higher than necessary rent or mortgage payments near an office (where housing is in demand but very slow for additional supply to come online, if it ever does at all).

https://news.ycombinator.com/item?id=39037589 ("HN: Remote work doesn't seem to affect productivity, Fed study finds")

https://www.stlouisfed.org/on-the-economy/2024/nov/why-do-wf... ("Federal Reserve Bank of St Louis: Nearly half of people working from home — who moved to a different state — moved because of housing.")

People argue about paperclip maximizers that don't exist yet while being unaware of the one they live their lives in today.

[ericmay]

Thanks - back at you!

[tmnvix]

> A correction won't occur because there is a housing shortage of between 3-8M units, depending on who you ask.

I'm not from the US, and unfamiliar with the statistics, but in NZ the general narrative has been similar - i.e. "the property price boom was due to a shortage caused by an increase in population and a lack of new stock".

For NZ, this doesn't hold up when looking at actual statistics.

- Prices rose x4 between 1995 and 2021 (inflation adjusted).

- The total number of households to total number of dwellings remained relatively unchanged over the same period.

- The average household size remained steady (i.e. it's not just a case of each dwelling housing more people).

Given the above (and some other evidence), my assumption is that the property boom was not driven by increased demand for homes, but by steadily declining interest rates causing an increase in demand for investments. If this is true, and we are at the end of the era of ever decreasing interest rates, then I believe a correction is entirely possible (it is well underway in NZ - 30% down in 3 years in my city).

I would be interested to know what makes the US situation so different (my feeling is that the situation in most anglo countries is similar - if not so extreme as NZ with regard to price rises and population increases).

[toomuchtodo]

US institutional ownership is too low nationwide to be material compared to new housing build rate when considering overall supply shortage. Of note, there is institutional concentration in certain local markets, which diminishes purchase supply in those localities (and potentially contributing to price level firmness in those localities).

https://nlihc.org/resource/gao-releases-report-institutional...

https://www.gao.gov/products/gao-24-106643

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

[tmnvix]

Thanks.

When I said "steadily declining interest rates causing an increase in demand for investments", I wasn't referring to institutional investment only (for residential properties this is almost entirely insignificant in NZ). I was referring to the motivations of all purchasers.

Nobody was paying the average of NZD1M for just a home - they were making an investment with future capital gains in mind (as well as getting a home). Now that credit is no longer cheap those capital gains are less than assured - even negative. So a correction is occurring. The correction has not been caused by a drop in demand for homes/places to live.

[frmersdog]

This is a misconception that gets perpetuated because of a conflation of a shortage of physical housing units (which does not exist) and a shortage of affordable units (which does)[1]. This shortage is highly local, as your Fannie Mae sources discuss; it is best characterized as a mismatch between local resources and opportunities. This suggests that it's not merely a matter of market failure, but additionally (if not principally) one of municipal mismanagement.

The solution is already known, as it has been executed successfully in many places, including Singapore, the UK[2], and the Soviet Union: the government builds units directly and either sells or rents them according to affordability rather than cost. This will destroy housing as an investment, which would certainly have knock-on effects, but in terms of solving the problem at hand - "Are there enough places for people to live?" - it's adequate. Chalk up any resulting difficulties as a redistribution of the externalities of letting the problem fester for so long.

>With regards to the labor market, due to structural demographics and labor shortages, it is highly unlikely in my opinion that the job market weakens to the point where housing experiences a crisis from a rapid, sustained increase in homeowners who cannot afford their mortgage payments.

Please see GP for examples of situations where just that exact scenario happened (China, relevant because of the potential for financial contagion) or almost happened (the rest). It's unwise to bet the labor market on the ability of officials to pull novel remedies out of thin air every time a systemic threat appears.

[1] https://www.tandfonline.com/doi/full/10.1080/10511482.2024.2...

[2]https://www.youtube.com/watch?v=jZpLiJdIGbs

[DrillShopper]

Every time there is the potential for a correction (2008 being close to mind) the government just hands the banks a ton of taxpayer money because they're "too big to fail".

So I wouldn't expect a correction until the US is unable to borrow more money or defaults on its debt.

Much like climate change it will already be too late by the time young people have the power to change it. So I'm not surprised many of them have sort of checked out from the "spouse/house/kids" grift/grind

[ipython]

This is all well and good but as someone who just went through a renovation, the cost of labor and materials is astronomical. Yes the land is expensive too but it’s not like it was free to get construction crews out either.

So while it is a financial asset, the cost is still tied to the cost of physically constructing the thing.

[masto]

The part I found strangest about the house-buying process (in 2015) was that the real estate agents, mortgage brokers, etc., had a fundamentally different conceptual framework than we did. I thought we were looking for a place to put our stuff, where we would stay basically permanently. They were assuming we'd sell it in 5-10 years. I didn't understand this unstated premise at first and it led to some confusing moments.

[Eddy_Viscosity2]

Another short answer is that actual inflation could be much larger than the "official" inflation numbers use for these calculations.

[xienze]

> The short answer is that a house is no longer a place to live, but an abstract financial asset.

This line of thinking is commonly repeated, but it fails to take into account the old “location, location, location” thing. If you bought a house that was once in the middle of farmland 30+ years ago but now that house is on (let’s say) two acres of land in the middle of a coveted suburb of a large city where the average house sits on .2 acres, why _wouldn’t_ that house (or more accurately, the land) have appreciated greatly in value?

A LOT of these houses that “boomers” bought were once out in the boonies, and now those places are desirable, developed areas.

[bigtex88]

Henry George is screaming from his grave. We know how to fix these sorts of problems but we will never take the steps to actually fix them.

[blindriver]

There should be no tax on selling a primary residence if and only if you buy another primary residence. Otherwise tax it like capital gains or higher. Make it economically unfeasible for people to own more than one house. I’m generally a capitalist but i’m okay with this because the housing situation is ridiculous.

Hedge funds and other corporations should be disallowed from purchasing single family homes. Period.

[tmountain]

This sounds interesting. Where is it typically put into practice?

[deadbabe]

People don’t have the right to simply live in highly desirable areas for very cheap.

It is time for people to accept that if they want affordable housing they should look at some lesser developed areas in the country. Otherwise it’s pay to play.

[angmarsbane]

People don’t have the right to simply live in highly desirable areas for very cheap - I find that it's less people can't afford to live in their dream locations as people can't afford to live where their jobs are, or within reasonable commuting distance.

[frmersdog]

And the jobs? The amenities that make areas highly desirable require workers who can actually commute to them.

It's a game of chicken. The people who live in these areas and expect to be served without complaint either acquiesce to density and lower property values, or risk (occasionally fiery) demonstrations against the unfair and unworkable situation. Their goal is to keep the game running, so that everyone else doesn't decide on one or the other end state. Essentially, "Highly desirable areas that are too expensive for low/middle-income workers," is a transition state.

[cheema33]

In my city, the homeless are offered free housing that is away from the downtown area. They do not want it. Preferring instead to camp in downtown where they want to be.

Cheaper housing is available if people are willing to move to less densely populated areas.

At the end of the day, housing is all about supply and demand. Like most other things in life. There is not enough supply in the areas where people want to live. And no country has been able to figure out a solution for that problem.

[mattnewton]

> And no country has been able to figure out a solution for that problem.

Minor nit, the "solution" is well known, it's to increase supply of housing by removing zoning regulations and letting the increase in demand pull more supply out of the market. It's just not politically popular, everyone is for it in the abstract but campaign against multifamily homes being constructed in their backyard. Basically, we know how to build homes but do not know how to convince people that neighbors who can't afford McMansions are still desirable neighbors.

[mcdeltat]

What about when housing is equally unaffordable in the less desirable areas? Keeping in mind that wages are probably less in those areas.

Also, less desirable areas are not necessarily constructed to be any more functional or sustainable, so why should we promote that? Areas that are "less desirable" in my city are swathes of oversized, copy-pasted houses massively spaced apart with near zero amenities. 100% car dependent. Near-dystopian land use, really. We don't need more of that. Instead, I'd much rather take amore sustainable approach to housing across the board.

[tantivy]

What happens in society when every city is filled with the retired rich and zero actual workers?

[HarryHirsch]

Look at Aspen, CO - the indigent commute in from far away because they are priced out and disposable.

[Invictus0]

In places like Lisbon and Milan, the rich live in the center and the young folks live on the outskirts. The outskirts then become trendy and cool and filled with bars and restaurants and cafes (can also look at Brooklyn, and now we are seeing a second Harlem Renaissance as well). Eventually the rich realize this and move to that place, and then the young people move again. But no matter what, the young people always end up living in the most desirable area because they commune with each other and create a desirable community in that place; meanwhile retired wealthy people are inherently uncool and consume more than they contribute.

[MarkusQ]

The price of houses will fall and the price of basic services, food, etc. will skyrocket as people flee the stagnant cities and core economic activity moves elsewhere. It will never go this far of course (zero actual workers is an asymptote), but that's the way it will trend.

[mattnewton]

This is already happening in many neighborhoods in California. I imagine elsewhere in the US too. People who keep it running have to commute long distances.

[saulpw]

There is nowhere someone can live for $200/mo, as they could in some lesser developed countries. The floor has been established by speculation, building codes, and minimum services. It sounds like a good idea to make sure all dwellings have electricity and running water, but when the alternative is a tent under the freeway, it's actually much worse.

[boogieknite]

been noticing this for years.

solar and starlink keep on improving. i continue to be surprised remote work communities arent commonly developing in scenic, non-traditional locations. it seems idealistic, but makes a lot of sense on paper

[charlie0]

100%. I myself am waiting for less fringe "network states" to appear so I can join one.

[mattnewton]

We're past that and to the point of neighborhoods voting against any development and supply increase.