I see charts from the 1960’s – 2000 showing wages keeping up with the cost of housing. Then there’s a huge boom in housing cost. What factors caused the price to jump so high? Is it only the low interest rates, or did something else happen?
For example: [https://imgur.com/a/8HWIlqx](https://imgur.com/a/8HWIlqx)
Edit:
This guys just uploaded a video today answering the question I posted. He says a lot of the same things that you guys said too[https://www.youtube.com/watch?v=eL9DBjfhWAE](https://www.youtube.com/watch?v=eL9DBjfhWAE)
In: 50
Low interest rates and the easing of borrowing requirements are probably the two biggest. Getting a mortgage used to be tough and interest rates were really high. My parents bought their first house in the early ‘80s and it was like 13% interest and had to have 20% down. Fast forward to early 2000s and rates were 5% and you could buy with no money down NINJA loan (no job, no income, approved). This led to huge increase in the number of people that could buy homes they couldn’t afford and prices shot up.
/u/97zx6r gave a couple of really good reasons. Here are a couple more:
– NIMBYism and zoning – people who bought before don’t want new construction near them, and therefore block it in local politics. Zoning forbids all kinds of housing that used to be able to be built, but can’t now due to the local laws.
– McMansionism – developers buy a plot of land and naturally want the best return they can get on their money. So do they build affordable starter homes? Of course not, they build McMansions. In denser areas, do they build affordable apartments? Of course not, they build ‘luxury’ condos.
So basically, there’s no incentive to build affordable housing, and even if there was, it would be illegal in most places due to zoning.
That means that what little housing is available can appreciate at stupendous rates. According to my mortgage company, my house’s value went up 39% in the year and a half since I bought it. Nice for me, but that’s ridiculous, and a real punch in the face for anyone who hasn’t bought yet.
The median household income has grown <50% since 1960? That’s very surprising
The short story is that most of the value of housing is its location, i.e. proximity to good schools, jobs, and other nice amenities.
And proximity is by definition scarce. It’s really hard to build new, high-value neighborhoods from the ground up. If you look at the highest housing prices in America, it’s because they’re located within close proximity to things like Silicon Valley or Wall Street or Hollywood, stuff that took decades to accumulate in value.
So when everyone in the country gets a raise, a disproportional amount of that goes towards bidding up prices for scarce things, hence why housing is going up in price faster than things we can build more of.
The ELI5 answer is because they’re not making any more land, and not many new neighborhoods people want to move into.
It’s illegal to build housing in much of the country (something like 70% of LA county is zoned for single family residences)
Because of [Baumol’s Cost Disease](https://en.wikipedia.org/wiki/Baumol_effect). The first thing you need to understand is that the “inflation” statistic is completely contrived. If you bought your house in 1980, your housing costs stay flat for the rest of your life. Around 63% of Americans own their own home. They did back in the 1960’s, and they do now.
So, what that means in practical terms, is that housing cost increases get jammed down to be born by younger people just starting out in life, and people who will never be able to afford a house.
The other thing you need to understand is that as other stuff gets cheaper, like TVs, computers, mobile phones, clothes, etc., that frees up the share of people’s incomes they can afford to spend on other goods, and if those goods are still scarce, their prices go **UP**. That’s why education, health care, and housing continue to outpace inflation: Because efficiencies everywhere else increase the amount of money competing for these limited resources.
Prices are, at the end of the day, a rationing mechanism. If there aren’t enough houses to meet demand, their prices will go up.
Either buy a smaller house of move to a city where the cost of living is lower.
Average home size in the early 1950s was under 1000 sq ft. Now it’s about 2500 sq ft.
I live in a city with a very high cost of living and 1000 sq ft homes are over $1 million.
I think their are several factors. Supply and demand are most likely the primary reason, though.
The boomer generation laws around the building restrictions helped reduce supply. Then, corporations realized renting could be profitable and started buying up homes. Even China is buying up US homes and renting them.
Less homes built and fewer homes for sale equals higher value.
Edit – I get several calls a year from companies wanting to buy my house and asking if my neighbors might be selling soon. Companies… not real estate agents.
They considered houses as investments and not just shelter. Price must go up, otherwise their investment doesn’t pay off. That value has gone up higher than wages.
It won’t stay high if more people ‘work from home’ because then they can live almost anywhere.
Because you don’t look at the right metrics, the right one is the median monthly mortgage payment on the average monthly take home pay
This one factor in interest rate variations and get a real feel on how much the house cost in reality to the average homeowners because at the end of the day the weekly/monthly budget drive the show in decision making for people
Looking at the right metrics, the story is very different, it tell about how the 80s were nightmare and how much house affordability actually improved in the years after and how it was overall pretty good from the 2010-2020 and how now it’s at an absolute worse but definitely doesn’t tell the story of your graphic with a gab constantly growing
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