Author Topic: Notes on a permanent housing shortage  (Read 4312 times)

schneider

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Notes on a permanent housing shortage
« on: July 24, 2017, 09:26:50 AM »
Or: what if the bubble never bursts?

I live in a very HCOL area on the east coast of the USA. Rents are very high, but mortgages are higher still even if you can scrape together the 20% down. We've been renting for years, and, through a lot of very good career luck and a little bit of financial discipline, we've finally gotten together enough money that we could put 20% down if we really wanted to. We're tired of renting and all the indignities that go along with it, but the conventional wisdom would I think be not to bother in this market. (If you like made-up numbers: rent is $2500ish a month if you're lucky [but a lot of people wind up paying closer to $3K, or much more than that if you want to live in a downtown "luxury" building]; if you bought the same place at 20% down your mortgage would be about the same but then you'd be paying taxes and HOA fees — and you'd still have to worry about your condo association's cash flow. And as you'd guess, the market is extraordinarily tight — finding a rental is super stressful, buying a place is much worse. It's a common story.)

But, in our part of the world, the housing market seems to have outpaced the stock market for a long time (not by a huge margin lately of course), and cost of housing has grown a LOT faster than inflation and normal cost-of-living salary adjustments (we've only been able to get ahead because we make a lot more than the average renters do). This shouldn't be surprising: people are moving to our city (because the local economy is very strong), but housing has a ~100% occupancy rate and the city isn't remotely serious about building more. So even though financially we're doing great, housing eats up a bigger and bigger fraction of our income every year and seems likely to do so forever.

What scares me is I think I may have just described just about every large city in the world(?) that has a healthy job market! The way I see it, the housing shortage will only go away if
  • Something changes politically so that more people can be shoved into the same land area (seems very unlikely given how much power property-owners wield in setting zoning and permitting policies and how much the status quo benefits them).
  • Something makes people stop moving to all the major cities — which probably means that the good jobs that bring us all here would have to go away.
B has happened in the Rust Belt, of course (it seems like a very low risk in the expensive coastal cities these days), but the only solution to A that I've seen in the US in my lifetime is build more suburbs or exurbs. Like most people on this forum, we have no desire to live that far from work, and anyway, they aren't building more housing out in the suburbs where we are either.

I'm wondering if any other young(-ish) professionals feel the same way, and what they're doing about it.

I see three options:

  • Rent indefinitely. Having students upstairs and downstairs and laundry way down the street is getting old, but that feeling might just be weakness that needs to be eradicated. (The option of renting someplace somewhat nicer and considerably more expensive exists, of course.)
  • Bite the bullet and buy a condo just to give us some certainty around our costs and some exposure to the very hot market. This seems like a bad idea: as plenty of other threads have discussed, this could go pretty badly for us if the bubble bursts at the wrong time! (An aggressive real estate investor would argue that my mistake was deciding that housing was "too expensive" years ago; market timing remains unavoidable with real estate.)
  • Try to do some locational arbitrage to a prosperous-enough city with much cheaper real estate but where the job market is still fairly reasonable — Chicago, Austin, Pittsburgh, or someplace like that. It feels like I read articles about people moving from San Francisco to Austin just about every month, and I worry that in five or ten years it'll be "too late" to move there too, in the sense that by then the permanent housing shortage will have set in there too. This has some appeal for family reasons but, as I've expressed in other threads, I doubt we would come out ahead financially on any reasonable timetable.

Am I missing something? Did we just pick a lousy time to be born? This is the definition of a first-world problem, I know — I don't mean any of this is a self-pitying way, just trying to make a rational plan.

cats

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Re: Notes on a permanent housing shortage
« Reply #1 on: July 24, 2017, 10:09:22 AM »
We have a similar issue (SF bay area).  At the moment we are still renting.  We do now have the capital for a 20% down payment on some kind of condo or small house, but there are so many cash buyers (I think around 20% of home purchases are cash in our area), and it's also incredibly common for houses to go for prices that are way, way over the asking price (our neighbors recently sold their home...for roughly $400k more than they were asking...and what they were asking was not low), that the prospect of buying is pretty overwhelming. 

For now, we are staying put in our rental.  Our planned FIRE date is still a couple of years out, and while we would in many ways like to stay in the Bay Area, we are planning to relocate, though still hashing out the details of where (would like to be closer to family but not wild about geography of said family).  As you note, many people are already moving away and creating housing shortages and higher prices in the second-tier metro areas. It's definitely something I worry about, but haven't figured out a good answer/solution.

Usury

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Re: Notes on a permanent housing shortage
« Reply #2 on: July 24, 2017, 10:34:53 AM »
Real Estate is very sensitive to local market conditions.  That being said, this is probably the first time I've heard anyone say that there may be a "permanent" housing shortage since before the crash of 08.   In fact it makes me want to short REIT's....LOL.

Evidence from around the country shows that there is housing supply available.  In many areas the supply is down from prior years and we do have a temporary "sellers-market", but there appears to be a lot of new construction activity to "catch up".  So the idea of a "permanent" housing shortage seems very short-sighted to me.  Also, as baby boomers retire/downsize/die-off, I would suspect this would counter-act that concern as well by dumping more supply onto the market.

I'm employed in the mortgage lending industry, so I'm sharing my personal opinion based on my own observations.

If I were in your shoes and your goal is to retire quickly (inside 10 years), I'd advise renting very cheaply, stashing very big with the goal of retiring quickly and then moving away somewhere to a lower cost area.   If you never plan to leave, well that's a different story.  I have often said to people that if I lived in a very high cost living area in a major city, there's likely no way that I'd ever own.  YMMV, DYODD.


MountainTown

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Re: Notes on a permanent housing shortage
« Reply #3 on: July 25, 2017, 09:15:52 PM »
I liked this post as I can relate to it in a lot of ways. See my other posts for an OCD like tendency to house hunt, choose the wrong houses, lose out on several more, and labor over the decision. It's a tough market.

Your market sounds even tougher...in a way. My market is sort of a break even on whether it's cheaper to rent than buy. With your market I am kinda wondering? It sounds like New York to me ...or even stories I hear of Brooklyn. While it seems like renting can be a pain in the ass there(way more so than here)...does the rent really compare to the price of buying when you factor in things like HOA's, taxes, maintenance, etc?

Also people in bigger cities tend to be way more mobile in their careers and tend to benefit greatly. My same friend in NYC...leveraged his career there, made a ton of money, got a free degree, then bailed as his wife got a job across the country. She used to work for Etsy--now she works for Airbnb. In fact I hear right after she left they started doing layoffs so she really benefitted there.

No idea what YOUR situation is. Mine is pretty stable, my job isn't going anywhere most likely, and I have some family here. I love it here and don't want to move....and I still struggle with the decision to buy. Part of that is I have an awesome landlord who has never raised rent so I am well below market.

Anyways, to answer your question...I think it really depends on your situation more than the market. Though I do hear what you're saying. People are saying the same thing in my town. We are geographically restricted, there's no more land, etc, etc. Then again that's exactly what people said peak the last housing bubble. Everyone was talking about how "they ain't makin' more land" and how you should buy no matter what.

waltworks

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Re: Notes on a permanent housing shortage
« Reply #4 on: July 25, 2017, 09:43:49 PM »
Sooner or later:
-Boomers will downsize and put their houses on the market.
-Hipsters will realize that there are a lot of cool places not located on the coasts.
-Jobs will be super duper mobile and you can work from Pie Town NM (real place) for Google.
-Restrictive zoning laws will get changed/abolished and the Bay Area/Seattle/Denver will build upwards.
-Earthquake/rising sea levels/other disaster will make coastal real estate less desirable.

etc, etc. RE won't outpace inflation forever, because that would make no sense unless we saw crazy population growth. Which we won't in the US (or anywhere else in the developed world).

-W

$200k

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Re: Notes on a permanent housing shortage
« Reply #5 on: July 26, 2017, 12:55:33 PM »
Sooner or later:
-Boomers will downsize and put their houses on the market.
-Hipsters will realize that there are a lot of cool places not located on the coasts.
-Jobs will be super duper mobile and you can work from Pie Town NM (real place) for Google.
-Restrictive zoning laws will get changed/abolished and the Bay Area/Seattle/Denver will build upwards.
-Earthquake/rising sea levels/other disaster will make coastal real estate less desirable.

etc, etc. RE won't outpace inflation forever, because that would make no sense unless we saw crazy population growth. Which we won't in the US (or anywhere else in the developed world).

-W

I think these points are completely valid.  Here are some counterpoints though from what I've observed in CA markets.

- Boomers are transferring these properties to their children who live in them or rent them out.  Rents are so high, and property is so scarce, the next generation would rather enjoy the home, or instead, the cash flow and low property tax basis permitted by CA's beneficial Prop 13 rules.
- Hipsters and other rational people will decide to leave, but that won't change demand issues as much since CA markets are impacted by international buyers to who want to own multiple CA properties.
- Same as above.  More people will work remotely, but the combination of low supply and high demand by international buyers will not affect RE prices if people decide to leave en masse.
- There is enough pressure from enviro groups and local politicians who will resist increased density, though it may eventually happen and relieve pressure, the effect on housing supply is likely decades offs.  By then, people who are looking to buy (like me and maybe OP) will be in 60s and 70s.
- A segment of homes will no doubt be affected.

Sorry, I only have counterpoints and no solutions.  I'm in CA and in the same position as OP, though I don't think the issue is so bleak.  With the exception of SF Bay Area generally, there are a myriad of options in CA suburbs where the cost is not so bad, though there are tradeoffs.
 

ysette9

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Re: Notes on a permanent housing shortage
« Reply #6 on: July 26, 2017, 01:57:20 PM »
I'm in the Bay Area so I completely understand where the OP is coming from. In my mind the real question that you need to answer is where do you see yourself in the long-term? If you want to stay where you are, then the thing to do is suck it up and buy. That is what we just did. I ran the analysis and over the past 5 years the housing market in our area has outpaced our generous salary increases. I knew I wanted to stay here, was afraid of getting priced out, and have NO willingness to commute from a place i don't really want to live at. (Been there, done that)

I wish I had bookmarked the article when I first read it because I can't find it when I go back and look. In short, I stumbled upon an analysis someone did over the past 100+ years of housing in San Francisco proper and found that the average appreciate in housing cost was a fairly steady rate that was several percentage points above inflation. So we can certainly argue that it is an unsustainable growth rate, translating into a bubble that needs to burst, but that bubble has been growing for 100 years so far without busting. I'm not willing to bet my own money on that kind of a time frame.

Real estate is very location-dependent. Here the stock of housing is very limited due to geographical and zoning restraints. You sound like you are in a similar situation. Until the NIMBY-ers and the environmentalist realize that the best thing to do is actually build MORE housing where people want to live, this isn't going to change anytime soon.
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seathink

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Re: Notes on a permanent housing shortage
« Reply #7 on: July 26, 2017, 02:06:28 PM »
In the same boat. Hollywood, the West Side, Downtown, Mid City: everywhere is being torn apart and rebuilt with high rise mixed use where the retail on bottom sits empty and half the expensive condos/apartment balconies are empty. I've met trust fund kids working for billion dollar startups that can't afford their rent. I pass mansions in Cheviot Hills and Beverly Hills that are being razed for McMcMansions. There's a state-of-the-art apartment building down the street from my office where rents start at 10k and amenities include use of the Rolls and chauffeur for tooling over to BH. It's meant to capture the Dubai crowd, the 1% of 1%. My transitional neighborhood sells houses for over a million. :/

Meanwhile, the working class is moving out http://www.latimes.com/business/la-fi-california-migration-20150101-story.html, and even the City of LA can't build its Affordable Housing for LAUSD teachers in Los Angeles. Teachers can rent apartments in Gardena, Compton-adjacent, 15 miles south of the and commute less. https://home.lausd.net/apps/news/article/380816

These factors leave me to believe that even if there were a 50% drop in market value tomorrow that didn't correct for even over a decade, a good chunk of people in LA would still be priced out of SFH in the ritzy areas, which they are building over the normal areas by the hour.

For myself, I'm going to rent until Option #3 becomes available. Or, execute Option #4, my dream, which is to somehow find a not-completely-hillside-spot north of Dominic Toretto's house and build a geodesic dome. :) Which we'd use as a basecamp to power to FI. Or Option #5 – Van Living at Friend’s. But yeah, buying an actual house will be something I do elsewhere.

Or, yeah, if NIMBY went away.
“Keep what is of no use at the moment, and later you will find what you need, one of her grandmothers had told her, the water in which you soak them will also serve to cook them, and whatever remains from the cooking will cease to be water, but will have become broth. It is not only in nature that from time to time not everything is lost and something is gained.” ― José Saramago, Blindness

The stockmarket is the worst place you grow your money passively except for every other alternative.

sokoloff

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Re: Notes on a permanent housing shortage
« Reply #8 on: July 26, 2017, 02:10:35 PM »
But, in our part of the world, the housing market seems to have outpaced the stock market for a long time (not by a huge margin lately of course), and cost of housing has grown a LOT faster than inflation and normal cost-of-living salary adjustments (we've only been able to get ahead because we make a lot more than the average renters do).
I'm in Cambridge, MA and while our housing market [for purchasing] has been very strong for a while, it has decidedly not outpaced the even-stronger stock market.

Housing costs are definitely rising faster than general inflation and CoLA-type adjustments, but not as fast as equities.

schneider

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Re: Notes on a permanent housing shortage
« Reply #9 on: July 28, 2017, 06:59:36 AM »
Thanks for all the feedback!

I'm in Cambridge, MA and while our housing market [for purchasing] has been very strong for a while, it has decidedly not outpaced the even-stronger stock market.

There aren't a lot of places with stronger real estate markets than Cambridge, so if this is true for you it's pretty likely that it's true for just about everyone, including me. Certainly, I haven't compiled data to support my earlier claim, so I retract it. :) For high earners who can save a high fraction of their income (and at the moment, that's me), this probably changes the math. If housing is eating up a lot of your income (most normal people, but maybe not most people reading this thread) it might be an academic distinction.

I wish I had bookmarked the article when I first read it because I can't find it when I go back and look. In short, I stumbled upon an analysis someone did over the past 100+ years of housing in San Francisco proper and found that the average appreciate in housing cost was a fairly steady rate that was several percentage points above inflation. So we can certainly argue that it is an unsustainable growth rate, translating into a bubble that needs to burst, but that bubble has been growing for 100 years so far without busting. I'm not willing to bet my own money on that kind of a time frame.

This is precisely how I view the problem.

Real Estate is very sensitive to local market conditions.  That being said, this is probably the first time I've heard anyone say that there may be a "permanent" housing shortage since before the crash of 08.   In fact it makes me want to short REIT's....LOL.

LOL indeed! I do get what you're saying. I certainly understand that real estate can't out-pace inflation everywhere in the US, forever, but it seems to me that it can far outpace inflation (and has!) for a very long time in places where you have a reasonable commute to a large number of decent jobs. Of course, a lot is wrapped up in the definitions of "reasonable commute" and "large number of decent jobs", as $200k rightly points out.

For myself, I'm going to rent until Option #3 becomes available. Or, execute Option #4, my dream, which is to somehow find a not-completely-hillside-spot north of Dominic Toretto's house and build a geodesic dome. :) Which we'd use as a basecamp to power to FI. Or Option #5 – Van Living at Friend’s. But yeah, buying an actual house will be something I do elsewhere.

I like your fourth and fifth options (not that I'd want Dom as a neighbor)! For me this is most of the appeal of this community: thinking creatively about what we actually want and how to get it without all the other consumerist trappings gives us a lot of more freedom compared to regular suckers with their McMansions and jet skis.

In our specific situation: we should be able semi-FIRE to a lower-COL area in 1–5 years depending on our margin of error. (Because of the many problems surrounding healthcare in this county, we assume we're going to need a job with benefits essentially forever, but we'll at least be in the position that it doesn't matter which job as long as they'll take care of us if we get sick. This is not the forum to expound on that, but it does mean that the amount of money we need to down-shift is a lot smaller than the amount of money you'd need to do a "classic" FIRE.) We like it here and would ideally stay 5+ years, but not forever: at some point, we're going to need to be close to family and moving to where they are is going to be a lot easier than moving them here.

So we're probably going to do exactly what everyone is suggesting to people who aren't dead-set on staying forever: rent as cheaply as we can stand, be mindful of our privilege, and stay flexible. In the probably-unlikely event the real estate bubble bursts but our income stays the same, we'll be pretty reasonably-positioned to buy here and maybe we'll stay a while after all; if not, that's okay too.

seathink

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Re: Notes on a permanent housing shortage
« Reply #10 on: July 28, 2017, 07:24:43 PM »
For me this is most of the appeal of this community: thinking creatively about what we actually want and how to get it without all the other consumerist trappings gives us a lot of more freedom compared to regular suckers with their McMansions and jet skis.
Quote

Ah, thanks!

Quote
In our specific situation: we should be able semi-FIRE to a lower-COL area in 1–5 years depending on our margin of error. (Because of the many problems surrounding healthcare in this county, we assume we're going to need a job with benefits essentially forever, but we'll at least be in the position that it doesn't matter which job as long as they'll take care of us if we get sick. This is not the forum to expound on that, but it does mean that the amount of money we need to down-shift is a lot smaller than the amount of money you'd need to do a "classic" FIRE.) We like it here and would ideally stay 5+ years, but not forever: at some point, we're going to need to be close to family and moving to where they are is going to be a lot easier than moving them here.

So we're probably going to do exactly what everyone is suggesting to people who aren't dead-set on staying forever: rent as cheaply as we can stand, be mindful of our privilege, and stay flexible. In the probably-unlikely event the real estate bubble bursts but our income stays the same, we'll be pretty reasonably-positioned to buy here and maybe we'll stay a while after all; if not, that's okay too.

We are also looking  at working longer but more consciously than the highest 9-5 bidder here as soon as able. And I feel you when it comes to family. Moving aging parents to Los Angeles is not something I'd like to do in the future.

Keep up the good fight!
“Keep what is of no use at the moment, and later you will find what you need, one of her grandmothers had told her, the water in which you soak them will also serve to cook them, and whatever remains from the cooking will cease to be water, but will have become broth. It is not only in nature that from time to time not everything is lost and something is gained.” ― José Saramago, Blindness

The stockmarket is the worst place you grow your money passively except for every other alternative.

lost_in_the_endless_aisle

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Re: Notes on a permanent housing shortage
« Reply #11 on: July 28, 2017, 07:54:16 PM »
In the same boat. Hollywood, the West Side, Downtown, Mid City: everywhere is being torn apart and rebuilt with high rise mixed use where the retail on bottom sits empty and half the expensive condos/apartment balconies are empty. I've met trust fund kids working for billion dollar startups that can't afford their rent. I pass mansions in Cheviot Hills and Beverly Hills that are being razed for McMcMansions. There's a state-of-the-art apartment building down the street from my office where rents start at 10k and amenities include use of the Rolls and chauffeur for tooling over to BH. It's meant to capture the Dubai crowd, the 1% of 1%. My transitional neighborhood sells houses for over a million. :/

Meanwhile, the working class is moving out http://www.latimes.com/business/la-fi-california-migration-20150101-story.html, and even the City of LA can't build its Affordable Housing for LAUSD teachers in Los Angeles. Teachers can rent apartments in Gardena, Compton-adjacent, 15 miles south of the and commute less. https://home.lausd.net/apps/news/article/380816

These factors leave me to believe that even if there were a 50% drop in market value tomorrow that didn't correct for even over a decade, a good chunk of people in LA would still be priced out of SFH in the ritzy areas, which they are building over the normal areas by the hour.

For myself, I'm going to rent until Option #3 becomes available. Or, execute Option #4, my dream, which is to somehow find a not-completely-hillside-spot north of Dominic Toretto's house and build a geodesic dome. :) Which we'd use as a basecamp to power to FI. Or Option #5 – Van Living at Friend’s. But yeah, buying an actual house will be something I do elsewhere.

Or, yeah, if NIMBY went away.

Here is a possible reason why all of the condos going up in LA are expensive/luxury units:

"For all buildings in an R4 zone (AKA condos and rental units with more than 3 units) each unit is required to have 1 full size dedicated parking space. Compact spaces are not allowed, nor tandem spaces. In making our assessments as to required space for parking, the typical calculation is that each full parking stall will require 375sf of space (after considering not just the space itself but also the required drive aisle, egress, out of the structure, etc. So that 800sf apartment is actually 1175 sf to build.

...

Unlike most major urban cities such as New York or Chicago, Los Angeles has a requirement for each unit to have at minimum 100sf of planted open space on site. At least 50% of that open space must be “common open space”. What that means in real terms is that you are required, by code, to have a rooftop or podium garden on your building. As a developer you want as many balconies as possible, since you can charge more for a balcony and typically not so much for a nice communal garden / roofdeck. But even if you give every single unit a balcony, you STILL are required to have that stupid garden to a size of 50sf per unit. At least 25% of that garden must be planted with heavy plants / planter boxes that jack up your dead load and thus jack up the cost of the building’s structure.

So now that 800sf apartment you are building is actually a 1275sf apartment, with a garden and a large parking space.

...

This is why you will never again see a new skyscraper in Los Angeles with condos selling for the lower middle class. They literally can’t build a legal building to code and charge acceptably without destroying their own business."

NoNonsenseLandlord

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Re: Notes on a permanent housing shortage
« Reply #12 on: July 29, 2017, 09:26:57 AM »
Keep renting.

When you rent, you need to maximize the rental cost savings.  Buy only what you need, where you need it.  Let others buy the mowers, snow blowers, etc.  Walk to work.  Use the extra commute time to get a side hustle going, or get a promotion at work.

englishteacheralex

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Re: Notes on a permanent housing shortage
« Reply #13 on: July 29, 2017, 09:29:55 AM »
Our story:

We're in Honolulu, generally considered to be in the top three most expensive housing markets in the country. We've lived here fifteen years, in several locations around Oahu. Our jobs are extremely stable. Three years ago we realized that rent was outpacing inflation, and that it was becoming increasingly difficult to find a 3 bedroom place for less than $2400/month in any area that had an acceptable commute.

We have two children under three years old. Both of us work full time. We're not interested in early retirement. Renting was starting to feel sub-optimal. Buying a place seemed out of reach, but we started looking anyway.

A move-in ready SFH with three bedrooms and an acceptable commute is around $850k here. That wasn't a viable option for us. But we started getting creative about neighborhoods and housing situations.

Thankfully, we found a neighborhood in Honolulu that is completely un-sexy. No proximity to beaches, no gorgeous mountains. No tourist appeal at all. Instead, a large loop of Soviet-era cinder block high rises (we call ours The Gulag). Actually, some of the high rises are pretty nice. There are lots of parks, a serviceable strip mall with a grocery store and a drug store in the middle of the loop, a nice sidewalk, a library, a rec center with a large swimming pool...none of it is particularly impressive-looking, but all of it is extremely functional and within a 1.5 mile radius of our building. We walk everywhere.

Our neighbors are mostly immigrant and first generation families from the Philippines, China, and Micronesia. It's a very hard-working area. Very friendly, down-to-earth people.

So--we bought our condo there. It was $364k. Three bedroom, two baths, a tandem, uncovered parking stall. 850 sq ft. Nothing about our place is pretty or spacious, but it works for us. The HOA fee is $620/month, which covers two pools, two workout centers, a bbq area, and a rooftop kitchen/party area.

As basic (and let's face it, ugly) as this condo is, it's so cost-effective and efficient I've come to the opinion that coastal cities with crazy real estate markets should be building dozens of buildings just like it.

So that's my advice: look for an unsexy neighborhood, and be prepared to buy an unsexy place. We don't really see our condo as an investment; more a way to optimize our housing needs. Rents in our building are around $1900-$2400/month, so about the same as what we pay for our mortgage and HOA fees. Clearly it was a better financial move to buy. Will the housing market in Honolulu continue to outpace inflation? IDK; North Korea and climate change loom quite threateningly. We'll see.
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CalmSeas

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Re: Notes on a permanent housing shortage
« Reply #14 on: July 30, 2017, 11:37:43 PM »
This is basically the same question that I signed up to post about a few weeks back! In my area (Bay Area) I want a 3 BR for family reasons, and renting is around $4.8k/month versus buying at $1.3 to 1.5 million. A lot has already been covered in this discussion, but a few other factors I have considered:

Pro:
-Buying lets you leverage your down payment, so you capture the full appreciation of your outrageously expensive home
-You can deduct mortgage interest, and mortgage interest remains really low
-You "lock in" a price and avoid getting priced out, presuming your income stream stays stable
-You are free to upgrade the place at will

Con:
-The leverage cuts both ways; if something happens to decrease home values, you can lose a lot of money on your outrageously expensive home
-In my area at least, with property tax, HOA fees, maintenance, and the mortgage added together renting lets you stash cash much faster into investments that are way more liquid than home equity (index funds, etc)
-It creates a big barrier to moving if work or family life demands a move; the fees associated with selling are very expensive. This would especially hurt if laid off in a downturn, for instance.
-You have to do your own repairs and maintenance
-If you get upgrade-happy you further reduce your savings rate (v renting, where you can't do substantial upgrades)

Also, for those who want to stay for decades, waiting longer probably translates to higher sale prices. If housing prices increase just 5% per year and they are already around a million, for instance, that's 50k added to the purchase price for each year of waiting. If they are closer to two million, saving and shopping for three years could cost $300k or more.

I haven't decided what to do yet, but am leaning toward buying in the next few years. In my case, though, both me and my wife plan to keep working for decades (forever?) past the time we could retire, since we both love our work.

MountainTown

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Re: Notes on a permanent housing shortage
« Reply #15 on: July 30, 2017, 11:48:19 PM »
Calmseas. For what it's worth your cons were more persuasive and lengthy than your pros. When I write lists like that...I wish someone with candor would slap that in my face.

The fact that you want to work for a long time and be there for a long time...less convincing also. That isn't always in your control.

I would be more persuaded by what you want in life(mobility/freedom/less responsibility or stability/rootedness/ownership). Hard to figure out I know. Sometimes I am confused about whether I want to take on the burden of home ownership or not. It is daunting when it's the bulk of your net worth.

CalmSeas

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Re: Notes on a permanent housing shortage
« Reply #16 on: July 31, 2017, 08:14:36 AM »
Very true MountainTown, when I posted a thread about this topic a while back renting seemed to be the consensus. I think it makes good financial sense, especially because right now I rent a 2 BR at $4.2k, making the buy comparison even less favorable. It's still hard to get over that fear of missing out though!

I have also considered renting until there is a recession, then doing a cash savings dash to a minimal downpayment so that I don't have to sell many newly reduced-price investments, presuming I still want to buy.


ShoulderThingThatGoesUp

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Re: Notes on a permanent housing shortage
« Reply #17 on: July 31, 2017, 10:52:04 AM »
My solution to this is remote work. I make just under six figures and my house cost $175k, is nicely appointed, in a good school district, and has room for my family of 5. We max out our tax-advantaged accounts including HSA and generally have some extra for the taxable account.

seathink

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Re: Notes on a permanent housing shortage
« Reply #18 on: July 31, 2017, 12:34:04 PM »
Quote from: lost_in_the_endless_aisle

[url=https://www.greaterauckland.org.nz/2017/07/16/sunday-reading-16-july-2017/
Here[/url] is a possible reason why all of the condos going up in LA are expensive/luxury units:

"For all buildings in an R4 zone (AKA condos and rental units with more than 3 units) each unit is required to have 1 full size dedicated parking space. Compact spaces are not allowed, nor tandem spaces. In making our assessments as to required space for parking, the typical calculation is that each full parking stall will require 375sf of space (after considering not just the space itself but also the required drive aisle, egress, out of the structure, etc. So that 800sf apartment is actually 1175 sf to build.

...

Unlike most major urban cities such as New York or Chicago, Los Angeles has a requirement for each unit to have at minimum 100sf of planted open space on site. At least 50% of that open space must be “common open space”. What that means in real terms is that you are required, by code, to have a rooftop or podium garden on your building. As a developer you want as many balconies as possible, since you can charge more for a balcony and typically not so much for a nice communal garden / roofdeck. But even if you give every single unit a balcony, you STILL are required to have that stupid garden to a size of 50sf per unit. At least 25% of that garden must be planted with heavy plants / planter boxes that jack up your dead load and thus jack up the cost of the building’s structure.

So now that 800sf apartment you are building is actually a 1275sf apartment, with a garden and a large parking space.

...

This is why you will never again see a new skyscraper in Los Angeles with condos selling for the lower middle class. They literally can’t build a legal building to code and charge acceptably without destroying their own business."

Yup, our zoning sucks. And the higher the buildings go, the deeper the parking does, which is super expensive. :/
“Keep what is of no use at the moment, and later you will find what you need, one of her grandmothers had told her, the water in which you soak them will also serve to cook them, and whatever remains from the cooking will cease to be water, but will have become broth. It is not only in nature that from time to time not everything is lost and something is gained.” ― José Saramago, Blindness

The stockmarket is the worst place you grow your money passively except for every other alternative.

MountainTown

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Re: Notes on a permanent housing shortage
« Reply #19 on: July 31, 2017, 09:52:35 PM »
I hear you on the 'fear of missing out.' I struggled with it all the time...and yet I think the truth is if it weren't for that fear I wouldn't feel a great pressure to buy. Honestly I am not attracted to the idea of managing a major asset. I think I have put a lot of pressure on myself to buy over the last couple years because I am afraid of a.) Rising interest rates and b.) rising house prices in my area.

I had convinced myself before that if interest rates rise, house prices will inevitably fall. While I still think this logic makes sense...I have grown more uncomfortable with these rationales. Market fluctuations change. Every recession is different. For example if there does continue to be a major housing shortage, maybe prices will climb in spite of interest rates. I don't know? And they also don't have to tank. Maybe what we see is more a plateau of stagnation. Not exactly "on sale" but at least we wouldn't have to worry about "missing out" quite so much

Fuzz

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Re: Notes on a permanent housing shortage
« Reply #20 on: August 01, 2017, 07:14:50 PM »
Mostly I agree with W, but love to play devil's advocate. My counterpoints below his arguments.

Sooner or later:
-Boomers will downsize and put their houses on the market.

Maybe. But that's possibly 20 years out, assuming no progress in medicine. If you're 35 now with 65 yo parents, do you want to wait 20 years for them to go to the old folks home? Waiting around to inherit in your 50s is miserable. Also, millennials now outnumber baby boomers (76M to 73M, if I recall).

-Hipsters will realize that there are a lot of cool places not located on the coasts.

False. Unless they are Midwest hipsters, a less upwardly mobile variant. But is the rate of hipsters being disillusioned with cities and moving to Boise going exceed the rate of hipsters leaving Boise for SF? TBD.

-Jobs will be super duper mobile and you can work from Pie Town NM (real place) for Google.

Yeah. That may just mean SF is still expensive, and the one hipster in Pie Town NM buys a ranch.

-Restrictive zoning laws will get changed/abolished and the Bay Area/Seattle/Denver will build upwards.

Nah. It's an insiders v outsiders problem. The people that already own in the Bay Area are insiders that are sitting on a gold mine. They won't enact changes whose benefit will mainly accrue to the people that either recently moved to the Bay Area or have yet to move to the Bay Area. Small YIMBY successes will happen, but will be over-celebrated and won't really move the needle.
 
-Earthquake/rising sea levels/other disaster will make coastal real estate less desirable.
 
Idk. SF and Seattle don't have a ton of affected real estate on the water (hills) relative to a place like Miami (limestone formation, flat). Doesn't make a difference on our timescale. Sure, the deus ex machina of an earthquake wipes the board in the Northwest. So what. Not a possibility that non-actuaries will do much with.

-etc, etc. RE won't outpace inflation forever, because that would make no sense unless we saw crazy population growth. Which we won't in the US (or anywhere else in the developed world).

Real estate is a positional and luxury good in coastal markets--and not tied to fundamentals like wages or population growth. There is only one neighborhood in SF where Full House was filmed!! The price of houses in that neighborhood are more correlated to the market for Picassos or tech stocks than anything else. The point of buying that house is to spend more than your neighbor, thereby showcasing your culture, taste and good fortune.

There are a sufficient number of multi-millionaires or plain old insiders (bought a long time ago; some non-economic connection to the real estate), that the regular millionaires will slowly lose ground in coastal markets. Put another way the top .05% can hog the desirable real estate to the exclusion of the top 5 percent. Or whatever the percentages are.
« Last Edit: August 01, 2017, 07:23:36 PM by Fuzz »

waltworks

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Re: Notes on a permanent housing shortage
« Reply #21 on: August 01, 2017, 08:35:30 PM »
TL;DR - this time it's different?

Where have I heard that before?

Only time will tell. We have a lot of RE history to look back at that says prices don't stay sky-high forever (80's Tokyo, anyone?) but you never know, maybe this time really is different.

I wouldn't live in San Fran if you paid me, so it's not relevant to me. But it would certainly suck to be in love with the city and trying to buy a house right now.

-W

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #22 on: August 02, 2017, 04:06:02 AM »


Meanwhile, the working class is moving out http://www.latimes.com/business/la-fi-california-migration-20150101-story.html, and even the City of LA can't build its Affordable Housing for LAUSD teachers in Los Angeles. Teachers can rent apartments in Gardena, Compton-adjacent, 15 miles south of the and commute less. https://home.lausd.net/apps/news/article/380816

https://sf.curbed.com/2017/7/10/15949710/atherton-police-chief-house-home-silicon-valley

Note also that California mortgages are typically non-recourse, which gives you the option to give your home back to the bank to cancel out your debt.  If a 50% drop occurred immediately after buying, or California sinks into the pacific and you miraculously survive, you would still give up your 20% down payment, but downside is basically capped at equity. 
« Last Edit: August 02, 2017, 04:09:25 AM by dragoncar »

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #23 on: August 02, 2017, 04:22:37 AM »


I had convinced myself before that if interest rates rise, house prices will inevitably fall. While I still think this logic makes sense...I have grown more uncomfortable with these rationales. Market fluctuations change. Every recession is different. For example if there does continue to be a major housing shortage, maybe prices will climb in spite of interest rates. I don't know? And they also don't have to tank. Maybe what we see is more a plateau of stagnation. Not exactly "on sale" but at least we wouldn't have to worry about "missing out" quite so much

I've seen some convincing argument that interest rates rise in response to rising inflation, which inevitably means more expensive property.  I don't recall, however, if this was backed up by some pretty graphs of the 70's.

seathink

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Re: Notes on a permanent housing shortage
« Reply #24 on: August 02, 2017, 02:37:36 PM »

https://sf.curbed.com/2017/7/10/15949710/atherton-police-chief-house-home-silicon-valley


Oh dragoncar, that's sad. And yet, I'd love to option that guy's story for a sitcom where he rents from a mafia guy or something...
“Keep what is of no use at the moment, and later you will find what you need, one of her grandmothers had told her, the water in which you soak them will also serve to cook them, and whatever remains from the cooking will cease to be water, but will have become broth. It is not only in nature that from time to time not everything is lost and something is gained.” ― José Saramago, Blindness

The stockmarket is the worst place you grow your money passively except for every other alternative.

Check2400

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Re: Notes on a permanent housing shortage
« Reply #25 on: August 02, 2017, 04:11:29 PM »
I hate to break it to you about Austin, but that 5-10 year window closed about 5 years ago.  Housing prices may be lower than SF, but so are incomes.  Austin is taking on 8 Californians a day, and they helped drive up home prices due to the 'discount' prices compared to SF et al.  Which is fine (welcome y'all!), but also realize Austin has a property tax of 2.38% a year, so that half million dollar condo is costing you almost a grand a month in taxes, forever.

My take is to worry less about what is the most affordable place to live, and instead figure out where you want to live, and make it work.  Where do you want your kids to attend school?  How close do you want to be to family casually?  For emergencies?  For end of life care? How well do you adapt and create new social circles, especially as an adult?

It seems foolish to me to move halfway across the country to an unknown-to-you location that isn't measurably better than your current COL situation simply based on a belief about home prices.  Life is more than COL. 

Or, I'm just like every other Austin person trying to keep more people from moving here :)

JLee

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Re: Notes on a permanent housing shortage
« Reply #26 on: August 02, 2017, 04:19:03 PM »
I'm right outside of NYC.

I will never buy a house here. I'm planning on renting until I can find an equivalent or better salary in a LCOL city (or remote). Basically, I'm just here for the money and resume...then I'm going to gtfo.

schneider

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Re: Notes on a permanent housing shortage
« Reply #27 on: August 03, 2017, 05:05:43 AM »
I hate to break it to you about Austin, but that 5-10 year window closed about 5 years ago.

Ha, the choice of Austin was intentionally provocative, and I'm glad someone reacted to it. Your depiction certainly matches my understanding of the place from the few times I've been there.

Life is certainly more than COL, but in my case I'm already in a place I'm not from where the quality of life is good but not perfect, so it's a question of trying to put down roots vs trying someplace else. COL is just one factor in that. I assume there's a reason MMM moved to Longmont (back when it was cheap) and not $(name a place you dislike — I don't want to hurt anyone's feelings).

Real estate is a positional and luxury good in coastal markets--and not tied to fundamentals like wages or population growth. There is only one neighborhood in SF where Full House was filmed!! The price of houses in that neighborhood are more correlated to the market for Picassos or tech stocks than anything else. The point of buying that house is to spend more than your neighbor, thereby showcasing your culture, taste and good fortune.

This is basically what I'm thinking. The aftermath of 2008 went pretty differently in Stockton than it did in San Francisco. The problem, for me, is that a short commute is one of the few things most of us here are willing to pay a lot for and a lot of the jobs are clustered in a few specific cities and even a few specific neighborhoods or suburbs in those cities.

So that's my advice: look for an unsexy neighborhood, and be prepared to buy an unsexy place. We don't really see our condo as an investment; more a way to optimize our housing needs.

I think this is an excellent idea if your goal is to stay forever and if such neighborhoods aren't prohibitively far from work. In NYC or LA, I could see this working. In the Bay Area or Boston the slope of the price/commute-time curve seems awfully shallow.

My solution to this is remote work. I make just under six figures and my house cost $175k, is nicely appointed, in a good school district, and has room for my family of 5. We max out our tax-advantaged accounts including HSA and generally have some extra for the taxable account.

I have friends who do this and it's working out sufficiently well for them that I'm very tempted to try it myself. They do worry about finding their next job when they need one though.

It seems like, in just about every HCOL area right now, if you aren't willing to buy with the assumption that you'll stay forever, renting makes more sense just because it's cheaper than buying and you can invest the difference (or if it's the same price every month, that leaves a few hundred thousand dollars you don't have to shove into a leveraged investment that you then get to worry about — but my impression is that in all the expensive cities renting is just plain cheaper).

Lmoot

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Re: Notes on a permanent housing shortage
« Reply #28 on: August 06, 2017, 04:30:52 AM »
Thank goodness I live in a LCOL area; buying/renting is rarely a financial conundrum. It's almost always cheaper to buy here, and many places in FL. And with a high rental market (students, snowbirds, and year rounds), rents can easily surpass mortgage plus carrying costs in many neighborhooods....good for those investing in rentals.

In my case I bought my house at age 25, 8 years ago, in 2009. It was too good a deal and market to pass up. I am close with my family and was't making plans to move out of FL anytime soon. I lived in it about 4 years and have been renting it for 4 years. I have had no issues with long term travel, and moving to a different city for work. You can choose to buy in a place that can easily rent out/sold if mobility is a major concern. I don't buy the "house as an anchor ball" argument to be as widespread an issue as it always seems to be presented. Obviously the recession broke a lot of molds.

Also, I tend to plan for the long term (aka more than 2-3 years out). I know change is not always in one's control, but I would live in constant anxiety if I operated under the assumption that my life could change drastically every few years. And if it did, my choice of living situation would likely be the least of my worries. This is why I keep an emergency fund. Moving because of job loss does not appeal to me. Also, moving in general is expensive....let's not write off the costs of moving for renters, or ignore the idea that renters tend to move more frequently, and sometimes for minimal, non financial reasons...like a change of scenery, or change of management, or their friends moved to a different area and they want to follow.

 I understand everyone situation is different, but I don't feel the least bit tied down by my decision to buy. When I wanted to take a hiatus from work some years ago, I rented my house out moved in with family to save extra money, and left the country for a couple months. If I was in the middle of a lease, I would have to pay through the nose to break it, even if I was allowed to.
« Last Edit: August 06, 2017, 04:55:31 AM by Lmoot »

englishteacheralex

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Re: Notes on a permanent housing shortage
« Reply #29 on: August 06, 2017, 09:30:01 AM »
^Applause!
I journal at https://forum.mrmoneymustache.com/journals/the-aloha-journal/msg1267277/#msg1267277

Tales of a haole teacher whose futon washed up on Oahu over a decade ago.

alexpkeaton

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Re: Notes on a permanent housing shortage
« Reply #30 on: August 07, 2017, 10:24:41 AM »
I live in Manhattan and bought a small apartment about a year and a half ago. The top end of the market has peaked for now I think (apartments > $3 million or so). There's been large increase of supply with a lot currently under construction and waiting to come online. Nothing is being built at a the low end of the market and the market there is still tight. The low end is the only segment where someone who has a high income but isn't already pretty wealthy can afford, like myself.

We used the rent vs. buy calculator the NYTimes created a few years back. It's pretty close to to break even for us when you include the tax benefits. And the principle portion of the mortgage payment is liked a forced savings account. In terms of cashflow, buying is certainly worse, but overall we expect it to be worthwhile. We can afford the cashflow pinch.

We also intend to stay in NYC basically forever. If we were looking to GTFO we'd probably have been less inclined to buy. I can't as easily do my current job remotely. And I make enough more here than I would elsewhere in the country that it actually does make the high cost of living worthwhile.

Jrr85

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Re: Notes on a permanent housing shortage
« Reply #31 on: August 07, 2017, 11:47:50 AM »
Or: what if the bubble never bursts?


For the bubble, you have to realize that housing can go up faster than wages for a long, long time because people are basically willing to spend any disposable income they have on getting a nicer house.

If you take a household making $100k, traditionally they would be told they can afford a mortgage of up to 2.5 times their salary (this seems insane to me, but I don't think the initial factor you chooses matters).  For somebody making $100k, it's safe to assume that pretty much any real growth in salary can be devoted to housing as they already have more than enough to cover their non-housing expenses.  So if that couple experiences two percent real wage growth per year, and dedicates just half of that to housing expenses (to account for taxes and some slight lifestyle inflation), the size mortgage they can afford (assuming a 80%ltv and 30 year term at 4%) grows at well over 2% a year.  I have only done it for 10 years, but under the listed assumption, the size of teh mortgage they can afford goes from $200k to $391,128.51, corresponding from the total house price going from $250k to $488,910.64. 

That's somewhere around 6.9% annual growth compounding over a ten year period where wages are only increasing 2% per year.  In reality, requiring a down payment should put some constraint on that growth, but with all the 3.5% down options, that limits any restraining influence the downpayment would require. 

On the flip side, the risk to buying real estate in these high demand markets is that most of them come with a lot of uncertainty regarding government debt and underfunded pensions.  At some point, places like California and Chicago are going to have to face reality regarding their pensions.  When that happens, it seems likely to me that real estate owners are going to take a disproportionate share of the pain, as they are the least able to pick up and move.  If you have devastating taxes levied on your property, then that value is lost essentially instantaneously; too late to do anything to avoid it.   A lot harder to do things like tax income when people or companies can move to avoid getting hit year after year. 

California will be interesting because of its voter initiative process.  Will real estate owners be a big enough voting block to protect itself?     


dragoncar

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Re: Notes on a permanent housing shortage
« Reply #32 on: August 07, 2017, 12:28:57 PM »
I live in Manhattan and bought a small apartment about a year and a half ago. The top end of the market has peaked for now I think (apartments > $3 million or so). There's been large increase of supply with a lot currently under construction and waiting to come online. Nothing is being built at a the low end of the market and the market there is still tight. The low end is the only segment where someone who has a high income but isn't already pretty wealthy can afford, like myself.

We used the rent vs. buy calculator the NYTimes created a few years back. It's pretty close to to break even for us when you include the tax benefits. And the principle portion of the mortgage payment is liked a forced savings account. In terms of cashflow, buying is certainly worse, but overall we expect it to be worthwhile. We can afford the cashflow pinch.

We also intend to stay in NYC basically forever. If we were looking to GTFO we'd probably have been less inclined to buy. I can't as easily do my current job remotely. And I make enough more here than I would elsewhere in the country that it actually does make the high cost of living worthwhile.

There's a similar issue in sf with building only "luxury" units.  I totally get why developers do this, and say build all the luxury units you want.  I really do believe in trickle down housing.  If you flood the market with fancy apartments, last year's models will be cheaper.  People will finally move out of heir 30 year old condos and those will be available to lower income folk.  But for this to work, we have to increase the total supply by increasing density, not just replacing old units with the same number of newer units.

That being said, don't increase density in my neighborhood!

sokoloff

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Re: Notes on a permanent housing shortage
« Reply #33 on: August 07, 2017, 03:27:40 PM »
That being said, don't increase density in my neighborhood!
I suspect that was tongue-in-cheek, but if not, it represents substantially the crux of the problem.

Everyone wants progress; no one wants to change.

alexpkeaton

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Re: Notes on a permanent housing shortage
« Reply #34 on: August 07, 2017, 08:54:16 PM »
That being said, don't increase density in my neighborhood!

Yup. Even though I'm a total YIMBY, now that I own I'm obligated to be a NIMBY. :D Same with the mortgage interest deduction: Yeah, it's bad policy, but since I'm a huge beneficiary you can take it from my cold dead hands.

I do live in a largely protected neighborhood though, so not much is being built regardless. Some buildings go up on the avenues, but the brownstone-lined streets are untouchable.

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #35 on: August 08, 2017, 02:43:21 AM »
I live in Manhattan and bought a small apartment about a year and a half ago. The top end of the market has peaked for now I think (apartments > $3 million or so). There's been large increase of supply with a lot currently under construction and waiting to come online. Nothing is being built at a the low end of the market and the market there is still tight. The low end is the only segment where someone who has a high income but isn't already pretty wealthy can afford, like myself.

We used the rent vs. buy calculator the NYTimes created a few years back. It's pretty close to to break even for us when you include the tax benefits. And the principle portion of the mortgage payment is liked a forced savings account. In terms of cashflow, buying is certainly worse, but overall we expect it to be worthwhile. We can afford the cashflow pinch.

We also intend to stay in NYC basically forever. If we were looking to GTFO we'd probably have been less inclined to buy. I can't as easily do my current job remotely. And I make enough more here than I would elsewhere in the country that it actually does make the high cost of living worthwhile.

There's a similar issue in sf with building only "luxury" units.  I totally get why developers do this, and say build all the luxury units you want.  I really do believe in trickle down housing. If you flood the market with fancy apartments, last year's models will be cheaper.  People will finally move out of heir 30 year old condos and those will be available to lower income folk.  But for this to work, we have to increase the total supply by increasing density, not just replacing old units with the same number of newer units.

That being said, don't increase density in my neighborhood!
Down here in LA/OC what's happening is that they are razing the less expensive old condo complexes and rebuilding new expensive luxury ones - or at the very least rehabbing/gentrifying them with upscale amenities so that they can sell them.at higher prices.

Yeah, as I mentioned in the next sentence, it only works if supply actually goes up.  In some places, it's even the opposite:   Tear down 100 older units, build 50 luxury units.  IMO that's going the wrong direction. 

It just boggles my mind when I see what people are paying for rent/homes in this area, how far some have to come from the exurbs.  It's not just going to get better.

My NIMBY comment was tongue in cheek, but there's some underlying truth to it.  I live near one of the Bay Area's many protected open spaces with semi-rural neighbors (farms and horses).  I don't think we are well served by building more low density homes in suburbs and exurbs.  I do think we should increase density near city centers and transit.   In some places, infill makes sense, but I'd much rather live in a region that has high rises downtown surrounded by protected wilderness vs. medium density sprawl as far as the eye can see.

waltworks

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Re: Notes on a permanent housing shortage
« Reply #36 on: August 08, 2017, 11:26:39 AM »
Remember that if you look back 50 years or so in the Census data (Maizeman did this at one point in another thread) something like 40% of the largest metro areas back then *lost population* through today. Thriving cities can become shrinking backwaters in your lifetime.

Really, all this "this time it's different", "permanent housing shortage" talk makes me think of 2006 or so, when the exact same ideas were trotted out. 

My last rental property hits the market next month!

-W

matchewed

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Re: Notes on a permanent housing shortage
« Reply #37 on: August 08, 2017, 11:55:16 AM »
Put a roof over your head in the most cost effective manner for right now. Use the savings to invest for whatever future life you want.

Missy B

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Re: Notes on a permanent housing shortage
« Reply #38 on: August 08, 2017, 04:41:12 PM »

[/quote]

My NIMBY comment was tongue in cheek, but there's some underlying truth to it.  I live near one of the Bay Area's many protected open spaces with semi-rural neighbors (farms and horses).  I don't think we are well served by building more low density homes in suburbs and exurbs.  I do think we should increase density near city centers and transit.   In some places, infill makes sense, but I'd much rather live in a region that has high rises downtown surrounded by protected wilderness vs. medium density sprawl as far as the eye can see.
[/quote]

Agree. I have that where I live - Vancouver, BC. Density downtown, with the older stock being medium and low rise buildings, with a protected park and seawall that is walking distance from the downtown core.
We have a lot of infill too, unfortunately, which is helping no one have better quality of life.

ShoulderThingThatGoesUp

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Re: Notes on a permanent housing shortage
« Reply #39 on: August 09, 2017, 03:02:37 PM »
There's some risk my job will go away and I won't be able to get as high-paying a position, but I'll have all my savings from the high-salary, low-cost years growing and Ill certainly be able to support my family on what so could easily find a way to make.

daverobev

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Re: Notes on a permanent housing shortage
« Reply #40 on: August 09, 2017, 03:22:41 PM »
Agree. I have that where I live - Vancouver, BC. Density downtown, with the older stock being medium and low rise buildings, with a protected park and seawall that is walking distance from the downtown core.
We have a lot of infill too, unfortunately, which is helping no one have better quality of life.

Which leads to people leaving, which ends up moderating/stabilising the problem.

People are so focussed on the recent. Big Stuff like this takes a while to change. But when the trend changes it can be pretty sudden.

Remember, vs a hundred years ago, there are often two salaries.

Remember, 30-ish years ago, Thatcher and Reagan changed policy... and London began a meteoric rise in terms of house prices.

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.

I'd bet we'll see some change within our lifetimes... that mean Toronto (yikes, I mean, really, why is Toronto SO expensive? I can see it for some of the other big cities... I guess the thing with TO is that travel is so bad it's like an artificial land restriction), Vancouver, LA and so on will become more affordable, except that at that point all the people who are CURRENTLY clamouring to buy will not (they are, in fact, both the problem and the solution - a whole load of people turn up, want to buy, and drive up prices... then complain that prices are high).

Check out reddit's personalfinancecanada or even worse, RedFlagDeals' housing subforum, if you want to read endless real estate discussions on Toronto in particular.

FOMO is strong. And it's all good... right up until the point when it isn't.
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dragoncar

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Re: Notes on a permanent housing shortage
« Reply #41 on: August 09, 2017, 06:32:36 PM »
Agree. I have that where I live - Vancouver, BC. Density downtown, with the older stock being medium and low rise buildings, with a protected park and seawall that is walking distance from the downtown core.
We have a lot of infill too, unfortunately, which is helping no one have better quality of life.

Which leads to people leaving, which ends up moderating/stabilising the problem.

People are so focussed on the recent. Big Stuff like this takes a while to change. But when the trend changes it can be pretty sudden.

Remember, vs a hundred years ago, there are often two salaries.

Remember, 30-ish years ago, Thatcher and Reagan changed policy... and London began a meteoric rise in terms of house prices.

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.

I'd bet we'll see some change within our lifetimes... that mean Toronto (yikes, I mean, really, why is Toronto SO expensive? I can see it for some of the other big cities... I guess the thing with TO is that travel is so bad it's like an artificial land restriction), Vancouver, LA and so on will become more affordable, except that at that point all the people who are CURRENTLY clamouring to buy will not (they are, in fact, both the problem and the solution - a whole load of people turn up, want to buy, and drive up prices... then complain that prices are high).

Check out reddit's personalfinancecanada or even worse, RedFlagDeals' housing subforum, if you want to read endless real estate discussions on Toronto in particular.

FOMO is strong. And it's all good... right up until the point when it isn't.

I wouldn't say it's indivisible

daverobev

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Re: Notes on a permanent housing shortage
« Reply #42 on: August 09, 2017, 06:57:43 PM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.
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dragoncar

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Re: Notes on a permanent housing shortage
« Reply #43 on: August 09, 2017, 08:31:56 PM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

JLee

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Re: Notes on a permanent housing shortage
« Reply #44 on: August 09, 2017, 09:48:15 PM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

That looks like a nightmare.

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #45 on: August 10, 2017, 01:10:19 AM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

That looks like a nightmare.

It's basically a DIY condo, but yeah some people think condos are a nightmare

Jrr85

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Re: Notes on a permanent housing shortage
« Reply #46 on: August 10, 2017, 09:46:00 AM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

That looks like a nightmare.

It's basically a DIY condo, but yeah some people think condos are a nightmare

Unless TICs are different in San Fran, it's hugely different from a condo because you're not going to get a loan on a portion of a tenancy in common; it's either going to be the whole house or none, which means if your fellow tenants in common can't pay their portion of any mortgage, you still have to pay it. 

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #47 on: August 10, 2017, 05:11:31 PM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

That looks like a nightmare.

It's basically a DIY condo, but yeah some people think condos are a nightmare

Unless TICs are different in San Fran, it's hugely different from a condo because you're not going to get a loan on a portion of a tenancy in common; it's either going to be the whole house or none, which means if your fellow tenants in common can't pay their portion of any mortgage, you still have to pay it.

Fractional financing is becoming very common, with only a minor interest rate penalty

Jrr85

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Re: Notes on a permanent housing shortage
« Reply #48 on: August 11, 2017, 09:14:29 AM »

But at the end of the day, a house is a SINGLE, IMMOVABLE, ILLIQUID, INDIVISIBLE asset; in other words, a very risky one to pin a very large percentage of your net worth on.


I wouldn't say it's indivisible

Ok. Generally speaking it is considerably more expensive, where possible, to sell off a portion of a real estate asset, vs selling some shares, ETFs, bonds, gold coins... than pretty much any other investment an individual or family might expect to own, excepting a business I suppose.

I'm probably biased by being in the SF area, where TICs are common

That looks like a nightmare.

It's basically a DIY condo, but yeah some people think condos are a nightmare

Unless TICs are different in San Fran, it's hugely different from a condo because you're not going to get a loan on a portion of a tenancy in common; it's either going to be the whole house or none, which means if your fellow tenants in common can't pay their portion of any mortgage, you still have to pay it.

Fractional financing is becoming very common, with only a minor interest rate penalty

That is shocking to me.  How do you repossess and market a tenancy in common?  Who is going to buy a tenancy in common with somebody they don't have a relationship with? 

dragoncar

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Re: Notes on a permanent housing shortage
« Reply #49 on: August 11, 2017, 11:45:00 AM »
Like I said it's a diy condo.  When you buy a condo you also buy shares in the HOA.  When you buy a co-op (common in NYC and other places), you buy shares in a corporation with a right to use a specific apartment.  In both cases you are essentially going into business with a bunch of people you don't know.  Same thing for TIC

I'm not sure about TIC foreclosure, it's an interesting question.  I'd guess it's not as complicated as you think- your ownership of the unit is already contractually based, so maybe your home loan is also based on a contract that gives the lender the right to possession with a lease to you or something like that.  On the their hand, there could be legislation simplifying the process.  I've never owned one so I don't know