My father bought his house in a small Massachusetts town in the fifties for peanuts. It’s worth about ten times that now. But salaries only went up about four times as much in the same time period. Someone told me this was because hippies in the 1960s would rent places and live there in large groups. And landlords didn’t like this, but couldn’t legally discriminate against them. So they just raised the rent to a price the hippies couldn’t afford. Is this true? I just don’t get why the real estate market went so nuts compared to general inflation. My father was lucky to buy at the right time. My generation isn’t as lucky.
It’s a combination of the mortgage market, which has offered virtually anyone the opportunity to go into deep debt to buy much more house and property than they can afford, and speculation, which has pushed prices vastly beyond any rational expectation for a return on investment. This cumulated in the mortgage bond market which started out as an alternative to municipal and treasure bonds for very conservative investors with deep confidence in the highly regulated home mortgage market to a wildly overleveraged system of speculation, short positions, collateralized debt obligations (collections of mortgage bonds bundled together to conceal the fact that most of the underlying mortgages were poorly or entirely unsecured), and the financial collapse of 2007-08. See The Big Short for a precis of what happened to the residential real estate market.
Stranger
part of it is also limiting supply. this is especially bad in California which is short 3-4 million homes, in large part due to restrictions on new construction or construction of multi family units.
When the stock market stops paying big, big funds shift to where the profit can be had! And once they get into the real estate market, they totally dominate and drive prices WAY up.
Home buyers will never be able to compete with hedge and retirement funds in the same market.
It would take an awful lot of renting hippies to have such a dramatic and long-term affect on the housing market. Note that this isn’t just a US phenomenon - house price inflation is also a major issue in the UK and other places. Reasons are multiple and include -
- Supply and demand. We aren’t building enough houses for our increasing populations. I read an interesting article that house prices were actually higher in pre-1850s England than in 1900 - because in the late 1800s, there was a massive house building boom (my current 1880s home is a legacy of that)
- Easier access to finance. I remember my father saying the bank back in the 50s had a strict limit on how much money they would lend, to the point of how many mortgages they would underwrite in any one year. They would effectively ‘sell out’ of mortgages so you couldn’t get one.
- We’ve got more money. Many families now have two incomes coming in, so we have more to spend.
The Earth’s population has almost tripled since 1960, but there’s still exactly the same amount of space. Of course prices are increasing.
Lets look at real numbers. The median salary in 1950 was $3,300. The median salary today for Americans 25-34 was $49,920. That’s a 15-fold rise.
The median home price in 1950 was $7,354. The median home price from the same site in 2020 was $336,900. That’s a 45-fold increase.
In 1950, a house cost about 2.3 years income, today it’s less than five years income. That’s significant. But if you look at that page, virtually all the slope in the graph (in inflation-adjusted dollars) comes in this century. Housing prices rose gradually in the 20th century and zoomed only recently. Hippies renting houses couldn’t possibly be a factor.
What changed in the past twenty years? Supply and demand has already been mentioned. The pace of contraction has lagged while population boomed. Houses are vastly preferred over rentals, and the suburban population grew while cities shrank and housing prices within them plummeted. (Want a cheap house? Move to Detroit, Cleveland, Rochester, or Bridgeport. You say no? Then you don’t want a cheap house, you want a different thing entirely.) Mortgage rates dropped to compensate. My first house in 1981 had a 20+% rate. Today 4% is high, and no-interest mortgages are commons. Houses have also boomed in size, from 933 sq. ft. in 1950 to 2333 sq. ft. today. You would expect a house three times larger to cost three times more, especially as inflation has driven the cost of housing supplies up more quickly than inflation. Houses also have far more amenties than those tiny suburban bare-bones boxes of the 1950s. A Levittown house would almost count as a tiny home today.
The psychology of the market is also different. People used to buy houses as long-term investments. They expected to stay and raise a family in one, or at least move once from a starter home to a larger house. Today’s jobs don’t offer lifetime employment and people buy houses with the expectation of moving soon and flipping them at a higher price. With low- or no-interest mortgages, the investment in such a house is minimal over a short period.
tl;dr Housing prices have gone up for good reasons and none of those reasons have anything to do with boomers.
Housing doesn’t have to take up a lot of land. Two to three story townhouses or walk up apartment buildings can house about 20-25 units on an acre of land. The median household is 2.5 people, so thats about ~60 people per acre. US population only went up by about 80% since 1960 also.
https://www.webpages.uidaho.edu/larc301/lectures/housing.htm
Density is generally expressed in Dwelling Units per Acre (DU). In small towns and typical subdivisions in America the densities range from 4 to 5 dwelling units per acre for detached single family housing.
Duplexes and cluster housing achieves 6 to 8 units per acre.Two and threes story row or townhouses provide about 20 units per acre.
Three story apartment complexes achieve 25 units per acre.
Multiple story buildings can achieve densities from 50 to more than 100 units per acre. These high values are possible partly because underground parking becomes economically feasible in residential building 6 stories and taller. Surface parking requires more site area than the building if underground parking can not be provided. This results in dispersed buildings and lower residential densities.
Any details on these “no-interest mortgages”? I’ve never heard of such a thing, and doubt very highly that they’re common, assuming they exist altogether.
I wouldn’t expect that. That ignores the cost of the land, which can be a high percentage of the total cost. (Though the cost of land has probably gone up more than the cost of construction in most places, for reasons given by you and others in this thread.)
My apologies. I meant interest-only, i.e. no principle payments at first.
Strict single-family zoning is a major part of the supply constraint equation, which has been the de facto standard since the 1950s in the US. By now the suburbs have expanded so far out that in any reasonably sized metro area they’ve reached a point of diminishing returns as far as proximity to jobs.
At the same time, city living has made something of a comeback, even in dowdy cities like Detroit, Cleveland, and Buffalo. Crime-ridden bombed out neighborhoods are still struggling, but any remotely nice city neighborhood has seen their housing prices soar in the last decade or two, and especially in the most recent few years.
That said, even in a lot of cities single-family zoning reigns supreme, so while fixing up some abandoned homes or infilling a few lots brings some properties back into the market, they’re not really adequate to satisfy demand and before you know it those neighborhoods are “full.” Proposals for larger apartments are often fought tooth and nail by the local NIMBY crowd to such a degree that they’re often canceled altogether, leading to many of the most affluent (even if already dense) neighborhoods, like Lincoln Park in Chicago, losing population as new projects are scuttled while duplexes and triplexes are converted to mega-mansions, or neighborhoods are down-zoned to prevent lot subdivision, basement/garage apartments, or anything other than large-lot single-family homes over fear of traffic and “neighborhood character.”
Such neighborhood and regulatory hurdles mean projects that do find a place to build need to be huge in order to amortize all of the regulatory costs and lost opportunities, but when it takes years of variance hearings, neighborhood engagement, redesigns, and financing approvals just to build a 200-unit apartment, there’s little hope that it’s going to have much impact. The small local developer who wants to build a couple of 4-plexes is not able to navigate those waters, and that’s if they’re able to secure financing in the first place. So you’re left with typical suburban single-family tract housing or multi-story apartment blocks with few options in between that would be more amenable in scale and detailing to their surroundings.
Another factor that is often missed is the trend of reduced household size. What used to be a perfectly adequate home for a family of four in 1950 is today considered a starter home for a single person or a childless couple. A stable neighborhood (or city as a whole) can have full housing occupancy and still see population declines over time because of that. While this isn’t quite as much a factor in price as it is for reduced population and density, since children can’t buy homes, fewer multi-generational households, group homes, and aversion to roommates or subleasing does increase demand and prices.
The rest of your analysis be as it may, this is the wrong number. Houses are bought by households not by individuals. The average individual salary - among those who are working - would have been similar to the household average salary in 1950. These days, it’s probably off by 150% or so.
But otherwise, there should be no real expectation that all metrics would scale together when you’re talking about price. The price of a thing is based on the price of all other things in the world, tax laws, production capabilities, availability, etc. The price of a two bedroom condo in Russia is the same as a nice car; in the US, the condo is liable to be 10x more expensive than the car.
The free market doesn’t believe in consistency.
Sure they could. Quite a lot of places used to limit single-family house occupation to one group of people related to each other; using various definitions of “family”.
I’m not sure that’s still much around; defining “family” in a manner that holds up in court gets complicated. Here’s some discussion of the issue.
– Part of the problem with affordable housing around here is people, and sometimes companies, buying up property in order to use it for short-term rentals; which can bring in a lot more money than renting by the month, and can result in the property also being priced out of reach of most who are looking for a place to buy and live in.
Not without sewer and water systems, they can’t. And those things cost money.
That sort of density also tends to go with sidewalks, street lighting, municipal trash pickup, etc., etc. Which also cost money.
Does all of that cost less than housing the same additional number of people on one-acre or larger lots so they can each have private septic and wells, with no sidewalks, no street lighting, and no municipal service beyond road maintenance and mail delivery? I expect in many places it does; but it still costs more than housing one-third the number of people.
Everyone has sort of touched on it: land, they’re not making any more of it. And if you want to be in the “desirable” areas, then you compete with others wanting the same.
Come to West Virginia (and no insult to me, but you really don’t, do you?) and you can get relatively cheap land and housing, but you like that Uber ride to the airport and theaters and night clubs within walking distance.
Low interest rates will always increase the price of homes because most people don’t pay cash; they budget a monthly payment, and a lower interest rate will make a higher price more affordable putting more people in competition for the same home, driving prices up.
My google search says that in 1960, the US had 180 million people. Today it is 332 million. If you are looking to buy a house, you are competing with more people.
Maybe- depends on where you are talking about. I live in NYC which although it is very densely populated overall, is not entirely full of giant apartment buildings. There are plenty of one and two family houses - and what prevents more* people from buying them and changing them to buildings with a couple of more units ( going from 1to 2 or from 2 to 3 or 4) either by remodeling or demolishing/rebuilding isn’t sidewalks or sewers or street lighting. It’s either 1) zoning 2) neighborhood opposition or 3) the impossibility of providing off-street parking, which is now required in some circumstances.
- It does happen sometimes - my son lives in a 13 unit building that replaced a single family house.
I don’t know how to separate out “nice” neighborhoods for other cities, but I watch prices in Rochester closely. I moved into my nice house in a nice neighborhood 35 years ago. Houses get snapped up as soon as they come on the market, which is seldom because everybody stays on until dragged out in an ambulance, alive or dead. Over 35 years, the price of my house has doubled. If looked at as an investment, that’s one of the worst possible. People live in the neighborhood for the niceness and the housing rather than flipping homes. There are no, literally no, nice neighborhoods in Rochester where prices have “soared.” I don’t think there are any in the suburbs either.
This is probably true, but it reinforces my contention that people in the past did not as much of an advantage as some people claim.
In general, to respond to several comments, single-family homes have a cultural advantage that was vastly boosted by tax laws that make mortgage interest deductible. Both racism and classism contributed to their dominance. Suburbs were white “refuges.” Multi-unit housing was thought to attract “undesirables” and zoning and tax laws made them difficult if not impossible to build.
The whiteness of many suburbs continue, but the 2020 census found that more than half of black residents in large metro areas live in the suburbs. I don’t have firm numbers but it seems reasonable to think they are also moving into single-family houses, because that’s the most numerous alternative. Which is culturally great, but it does give more competition for the available houses.
Median housing prices rose by 15% in 2021, but are expected to rise only by 3% this year. Other articles say that favored areas rose by 30,40,50%, insane numbers. Supply and demand. But you don’t have to live in Austin. Like California, they want people to stop coming.
I live in Santa Barbara. Over the last 29 years my house has gone up by a factor of about 7. Plus I didn’t pay cash for the whole thing, I put 20% down. Plus I got a mortgage interest deduction. Plus my housing costs are a fraction of what it would cost to rent. To be fair, there were lots of associated expenses but it’s been one hell of an investment.
True. But it’s also true that there are a lot of people who don’t want to share walls and floors with multiple neighbors; and/or who want to have space for gardens, lawns, dog pens, etc., etc., etc. . . .
Isn’t your #3 (off-street parking) part of #1 (zoning)?
Our city recently changed the law to allow building of accessory dwelling units on residential lots. One parking space is required for the ADU, though this is waived if the lot is within 1/4 mile of transit or a bike boulevard. That’s not a tough standard to meet; there are maybe a handful of houses within two miles of where we live that are outside of the 1/4 mile exclusion zone.
When you get right down to it, zoning is a great way to drive exclusivity in access to housing. What would NYC be like if they restricted Manhattan to what kinds of houses stood there 200 years ago? Higher-density housing ends up being a lot cheaper per capita.
On Nextdoor around here, our main topics are crime, lost pets, homelessness, and NIMBYism regarding new development. I can’t say much about the first two, but the number of people who don’t realize how related the last two are staggers the imagination.
There’s also people who would prefer to drive a Maserati, or eat lobster and fillet mignon for every meal, but we don’t subsidize those or make Toyotas and hamburgers illegal.