High-income job losses are cooling housing demand
(jbrec.com)289 points by gmays 2 days ago
289 points by gmays 2 days ago
Usually you don’t buy a whole house when you are 25. You start with a small unit. My first condo was 700 sf which I sold for a good profit and use the money to pay for a bigger condo, about double the size. I then combined the profit of the second home with my wife’s profit from her house which was also small and together we got our first nice house just outside the city, about 15 min commute. We paid around 220 $/sf compared to 600 $/sf for a similar home in the city. Our house is 3X the size of the house I grew up in with my parents and 3 siblings, which was standard size for a middle income American family in the 80s. Not to mention the quality and amenities of our house is so much better than a house from the 80s. Yes houses are a lot more expensive today but only if you are buying in busy urban areas. If you dare to look in the suburbs you’ll find great homes which by square footage have not increased that much in the past 30-40 years after adjusting for inflation. In the city you are competing with everyone else wanting to be able to walk to their favorite brunch place. Cities also have crazy regulations that prevent building affordable homes.
> assuming 1/3 going to a mortgage would give you $2.3k a month to work with
That’s the problem right there. Even if you’re locked in on the historically low sub 3% mortgages, there is a chance you’re spending more than 1/3 of your income on housing. People with higher rates and people who are renting, spend a lot more than 1/3 of their income on housing.
I know finance influencers and older generations keep talking about 1/3 income on housing, but that hasn’t been a thing for a while now. Even before the pandemic surge in housing costs, 1/3 on housing was dream in most cities across the country.
> there is a chance you’re spending more than 1/3 of your income on housing. People with higher rates and people who are renting, spend a lot more than 1/3 of their income on housing.
We live in San Francisco and pay rent at about 15% of combined gross income. I think people really underestimate the value of renting.
From a livestyle perspective renting sometimes makes sense. Financially almost never does. There are of course edge cases like very expensive urban areas where there’s no possibility to buy because there are no units on the market and commuting is not possible. But if you work remotely, or suburbs are nearby then owning a place is likely a much better choice than renting particularly if you take advantage of subsidies like state/federal assistance for first time buyers and tax abatements in opportunity zones.
1. Are you under rent control?
2. What is your income and what is your rent?
While I appreciate the anecdotal data point, it’s easy to conflate personal situations to “this is what everyone else can do”. I say this because for a good 5 years I lived with my spouse in a $2k single bedroom apartment in San Francisco that was under rent control when both of us were raking in tech money. It’s doable, but not something that you can extend to everyone in the country.
The abstract math can work out well but the practical reality is that every landlord exists on the slightly-shitty-to-living-slime end of the human continuum. Even if your municipality has "strong" renter protections it is so draining and stressful dealing with them and their weird invasive bullshit and petty malfeasance for decade after decade.
Sure but also I believe that the upper limit for most mortgage servicers is around 41, maybe 43% (one of those two, cannot remember which, or at least it was 4y ago).
There’s no limits per se. 43% is what they “prefer”. More recently with the low demand for mortgages, that number is more flexible. And all of this is on Gross Income and not net. So you could in theory be spending more than 50% of your net income on mortgage alone. If you want to consider “housing” costs, the number would be lot higher.
I bought a year ago and my max lending amounts were around 45-50% of my gross salary.
Internet + Natural Gas + Light + Water + Home Insurance + Auto Insurance + Property Tax + Phone + Home Security + Car Gas + Credit Cards
A $350k mortgage with bills, is expensive. Will eat up a whole check if you don't make more than $140k/year.
[1] tells me a $350k mortgage with a 10% deposit, paid off over 15 years, costs $2,585 per month. That's $31k a year.
That kind of income with that kind of house price should be pretty comfortable, given you don't mention supporting a family. If your non-housing bills are costing $109k a year, there's a good chance you could reign in your lifestyle choices.
Brother lately I’ve only been putting groceries on credit cards and you’re right, they’re not a fixed cost. They’re a variable cost that just keeps going up.
The addition of credit cards to that line does little to spoil the point they were making.
You'll own nothing. And you will be happy (using pills and medicines)
They were quite serious about destroying society as-is. Nobody took them serious
You are getting down voted, but it's true. They (WEF-types during their meetings you can watch on youtube) telegraphed it during/soon after the entire Covid lock downs that they intended to make large structural changes to society and the concept of ownership. They didn't make this secret or anything. Heck some sold books on the subject.
Most of what the WEF discusses is how to gain more technocratic control over democracy. You know, for the benefit of everyone...
A lot of people get help from mom and dad, but if you're already a homeowner, the home youre sitting on has appreciated too, so you can role equity into your next purchase. Not everyone is starting from zero. There are so many homeowners who would not be able to afford the home they're currently in, but are sitting on $500k of equity they can role into their next place.
If you think of it as a homeowner debt subsidy, that forces a higher percentage of the country into recurring-revenue rentals, that provides an adverse incentive against correcting home prices for income. Right now the consumer debt that’s substituting for wage increases hinges on the middle class being able to access lines of credit; one very popular LOC is home mortgages. If home values are allowed to fall to the level predicted by median wages, that could trigger a massive wave of defaults and bankruptcies as existing loans go underwater, homeowners have their lines of credit shorn, and then start missing mortgage payments and file for bankruptcy. U.S. mortgage loans for 1-4 bedroom properties are currently $14.5 trillion USD; for comparison, U.S. GDP is around $31 trillion USD. So if 10% of homeowners default or discharge their mortgage debts due to home prices collapsing to realistic levels, U.S. GDP drops 5% that year (not accounting for the loss of interest the banks would’ve recorded to GDP as production output for up to decades). Median household wages for homeowners is $86k, well below the $120-140k threshold recently discussed, supporting the government estimates that 30% of homeowners have difficulty making payments on their homes. So, if those 30% went bankrupt over a home prices crash, there’s a plausible threat of a 15% collapse in GDP (compared to Covid, which was around 10%).
Relative to that, I don’t think economic policy is likely to prioritize new home ownership, not when a catastrophic reversal of years of GDP gain is a material risk. It would be a different story in a first world country, I expect, but here trying to reset home prices would just result in a massive rent costs spike (the U.S. free market tends not to build median-wages housing if it can avoid it) and a notable fraction of those households becoming homeless, while they watch as other families benefit from the price correction’s devastation by buying up their home at auction. The best that policy can do with the restrictions the U.S. government places on itself is to issue federal funding to regional governments to build median-price housing — and since much of that funding would go to regions explicitly hostile to current U.S. leadership, that is extremely unlikely to be passed by Congress.
While $84k is the average household income in the US, the average among home owners is a bit higher, around $100k-$120k. Also, very high prices really skew averages. Many "starter homes" are closer to $200k. I bought new 3 years ago, and the rent home I lived in prior, which was in an older middle class neighborhood in a Houston suburb, sold for $224k (and this included some basic renovations like new flooring)
Just want to comment, I think if you were to overlay where people work vs live, most people probably do not have reasonable access to housing @ 225k.
Also I think much of this problem is zoning, which coincidentally Houston has none and has some of the lowest housing costs in the nation, especially for a city of its size.
I suspect much of the housing crisis on the west coast is because of poor zoning laws and could be fixed with a stroke of a pen, at the expense of the local housing market value.
On the location vs price front, I think that's a bit of a red herring.
Because people generally want to live close to their jobs.
If cities have a lot of demand, it's partly because they have a lot of jobs, which means that the price of housing in cities relative to income is still an important metric.
Viewed by holding more of those things constant, the urban medianHousePrice : medianIncome is how much of people's lives we're requiring they dedicate in order to have a roof over their heads.
We’re paying Cal FAIR about 10% the value of our house per year, despite having best possible fire safety for come construction and the area surrounding the house.
So, in your example, thats 175/10/12 = 1.5K per month, leaving $200 for the mortgage. So, $175K is unrealistic.
In related news, Cal FAIR is lobbying for a 60% increase in rates this year, because, apparently 16% of rural houses in California burn down each year (it’s either that, or they’re unbelievably corrupt/incompetent, since they’re somehow losing money).
Note that people in flood planes (much of the cities) have similar issues.
The taxes are important though. You'll "pay" for that monthly through your escrow account (or you'll save up for it in a HYSA or something, though personally I'd rather have my lender deal with the city and estimating next year's increases).
With taxes included, that $1800 mortgage can easily become $2600-$2800/month --- $33,600/year --- in a high-property tax state (like many of the states that don't have income tax, which are where many of the cheap homes are). For that to be 30% of your _net_ income, you'll need to clear $112k/year _post-tax_, which is $373k/yr HHI pre-tax assuming 35% of those go to federal, state and FICA.
You'll "only" need $112k/yr HHI if, like lenders, you're assuming that this will be 30% of your gross income. However, if we assume net is 65% of gross, then this mortgage is 46% of your net income. I know that a lot of people carry that risk, but that's a little high for my comfort level.
As for:
> Are people just devoting 50%+ of their income to housing? Everyone buying a house with the help of mom and dad? I just really don't get it.
Like almost everyone else that didn't have Mom and Dad angel investors, we got insanely lucky. I had two really good years financially during which time I was able to save enough to hit our 20% down and then some. We were also lucky with our current situation, as our landlord was willing to extend our lease without increasing the rent and the place we were renting was pretty sweet.
...to stick to the 1/3 rule.
When did that become the rule? Why, back in my day, 25% was the max amount recommended to spend on housing. Though that was also back when no one would even think of taking out a 72 month car loan. Maybe one of those new 60 month loans, if you just don't have the money, otherwise stick to 36 months.
And like you, I just don't get it. 1/3 on the house, whatever percentage comes out for the $40K car @ 72 months (granted, one doesn't need to buy new), where's this money coming from? We live in Redmond (WA), and I'm at a loss as to how there are so many newer Teslas parked in >$1MM houses. C'mon, there's only so many of those $500K total comp jobs to go around.
Before my time but HUD upped the rent cap on affordable/public housing to 30% of income in 1980. Even 1/3rd's a stretch for most folks in most places in the US. A 25% rule of thumb isn't much use if folks can't find housing that meets the bar.
$1700 per month pays off a $350k loan in 17 years, does it not? That's assuming that the household income stays static over that time.
That is very reasonable. In Australia, 35 year mortgages are normal, and 25-30 year mortgages were normal 20 years ago. Why would your household income need to be 1/4 of the cost of the house to make it work?
> $1700 per month pays off a $350k loan in 17 years, does it not?
No, it does not. You forgot the interest. Let's call it 6%, close to the current US average.
The interest by itself comes to more than $1700 a month!
Paying $1700 per month, you'll never pay off $350k, even with a 1000 year mortgage.
To pay in 17 years, you'd need to pay $2741 (plus fees) per month. Most of that will be interest at first, but it tapers down. If you want to start out not paying mostly interest, you'll need to pay at least $3500 (plus fees) per month.
The parent I was replying to stated a $70k deposit on this, meaning it would take about 25 years, so my early morning maths was a bit off. Even so, that doesn't seem unachievable?
The payment is set up such that the interest is amortized over the life of the loan, so your earliest payments are almost all going to interest and the latest payments are mostly the principle.
This looks like a standard 30 year loan. If 100% of the 1700 went to principle and the was no interest then yeah, your 17 years works out, but then the bank makes no money.
> In Australia, 35 year mortgages are normal,
Are they? I was under the impressions that 25-30 was normal now.
> $1700 per month pays off a $350k loan in 17 years, does it not?
Noooo. Have a play with this Australian mortgage calculator - https://www.commbank.com.au/digital/home-buying/calculator/h...
I think you might be in for a shock.
The example rate on the calculator is 5.35, about right when the base rate is 3.6 percent (though you can get lower), using that your $350k mortgage will take 40 years to pay off at $1700 per month. A $300k mortgage would take about 30 years. Or a $230k mortgage could be paid in your 17 years.
None of these loan amounts will get you anywhere close to a house in Australia today. You're looking around $1 million for the average house in most of the capital cities, with very few available under about the $650k mark.
Probably.
I did find it quite tough for a lot of years to treat myself, as I would try to save as much as I can to have a safety net. But even now with a safety net in the bank, I still have in the back of my head if I purchase something that is x mortgage payments, and I could save that instead to have in the bank in case I lose my job.
The average homeowner household makes more than the average. Many people are not homeowners.
For example if you are 22 and just started your first job you are included in the statistics but I think we wouldn’t really expect it to be affordable to become a homeowner (nor would it be desirable from a labor mobility standpoint).
And many people prefer renting somewhere like Manhattan to buying in Topeka. So it doesn’t make sense to assume everyone wants to buy a house. I know several millionaires that rent.
It would be better to compare overall cost of housing to income.
Look up the median age of a home buyer in 2025:
It's 59 years old lol.
Boomers and institutional money are doing the home buying.
https://www.apolloacademy.com/median-age-of-all-us-homebuyer...
In 2009 the same chart shows that the median age was 39.
In the early 80s it was early 30s.
Look at congress, we live in a boomer gerontocracy. Not every boomer is wealthy and powerful, but the majority of people who are wealthy and powerful are either descendants of elites/wealthy, boomers, or a very small fraction of younger tech/finance/business owners.
The good news is - assuming there's not a big change in immigration rates - if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall.
> The good news is - assuming there's not a big change in immigration rates
There has been a big change in projected immigration rates: https://www.cbo.gov/publication/61735
This is all home buyers not first time home buyers. So it’s not clear what we can conclude. It could be that more retirees are buying a house to retire to rather than renting.
I imagine age of first time home buyers has also gone up but there’s no way it’s that high.
First time home buyers is up to 40. Not as bad as 59 but not great either.
https://www.nar.realtor/newsroom/first-time-home-buyer-share...
59 year olds were born in 1966, so the average homebuyer is from Gen X, not a Boomer.
I'm sure Ol' John is no player when we compare how much investment funds have being pushing to buy homes. Around here, you can't even bid for a small apartment. They get sold to the folks before they start. Paying flat taxes on hundreds of properties doesnt make sense. They don't contribute to generate more jobs. They just replace the buyer and charge extra money that could have be reverted to other expenses that would create a healthier economy by diversity.
Well, since 1980, the median age in the population has also increased by about a decade, which is a significant (but not a majority) contributor to this.
>if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall.
You may be missing something - there's so much money flowing upwards in society that the rich/ultra-rich will simply be able to buy ALL of that real estate as it becomes available. If not ALL, then everything that's desirable.
>"if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall"
But that "10-20 years" is your life, and there's no getting it back. Millennials (the largest generation in US history) have entered into our prime family starting age, and the fact that most are priced out of the housing market right now and stuck renting apartments is a complete tragedy. At a 90th percentile income, I can just barely be able to afford a home and provide for a family of 3-4 like our parents and grandparents did on a highschool education with no higher skills.
I doubt your parents instantly bought a house as unskilled workers at age 18. Maybe in a very few ultra cheap housing markets that would have been possible.
For example in 1980 in SF the median home was $130k and the median household income was $16k. Today it’s $1240k and $141k. So yes it’s less affordable but it’s hardly a massive difference as you imply.
This might be a bit of talking past one another. The rent vs buy argument should be comparing similar housing, but your comment bakes in the assumption that renting=apartment. That may be true for your area, just wanted to point out the dissonance.
> most are priced out of the housing market right now and stuck renting apartments is a complete tragedy
It absolutely is, but as one of those myself, I just refuse to even attempt to pay their prices and will make the best of life while renting and doing other things, not having kids, not owning property unless the ratio changes dramatically. Owning at most a tiny condo for half a million where I live, or moving to the boonies to own marginally more for less is simply not appealing to me, it doesn't unlock anything but a vague sense of security and a shit ton of liability. I hope more people choose the same until the working age tranch of purchasing power isn't as available as they'd like and prices have to drop. It's a major issue, but maybe I should be thankful I never adopted the boomer/genx dreams of owning a place and having a family or whatever. It's something I'm morbidly watching from the sidelines for now (in my early-mid thirties), but there are no circumstances except a miracle side hustle that could create the circumstances for me to actually pursue a mortgage on a place in my city.
They're not downsizing. They're buying smaller houses and renting their current ones.
Probably a lot of private equity buying up homes to generate rental income? Usually, I am more pro market, but I think there needs to be some regulations on this. Although if you are an existing homeowner with low interest rate locked in, you probably want more private equity investments to drive up your property value...
"Private equity generating rental income" is a lie fed you by the rich lobby. The real reason (everywhere in US and Europe) is zoning, which is a subsidy to the owners of existing buildings at the cost of everyone else.
No, it isn't.
1/3 of the houses bought in the US are bought by these kinds of organizations. Zoning might matter, but large capital owners are buying up a large fraction of the houses that are for sale and this is obviously driving up prices.
Calling it a "subsidy for existing owners" is a slighty of hand that avoids blaming the literal hordes of useful idiots who are happy to see all manner of asinine provisions written into the zoning code to cater to their interest, whatever that may be. If it were just property owners it wouldn't have gotten done. It's busybodies, environmentalists, moralizing jerks, etc, etc that provide the necessary political will.
> The real reason (everywhere in US and Europe) is zoning
This is a lie fed to you by the rich lobby. Destroying zoning would launch the value of the land current owners have into the stratosphere.
This myth needs to die. PE does not own that many homes. There was a small period in early COVID where interest rates were lower than cap rates. During this time PE, along with the investment market in general, invested in real estate including SFRs. That is no longer the case. It's a great boogeyman but trust me, having worked in the industry, institutional investors own less than 5% of SFRs.
Real estate investing in general went bananas during COVID (plenty of non-PE buyers as well) because it's one of the only ways the average citizen can access that amount of leverage.
They might not own that many, but in 2025 it was 1/3 of the sold residencies.
You only need a little bit of extra demand to have an enormous effect on prices.
There's something fundamentally strange about how prices have spiked and inventory has tightened since Covid. Where I live in rural New England, prices are up 50–100% in five years. And this is on pretty poor quality homes. Yes, low interest rates led to a surge in buying and bidding wars that spiked the baseline, but when people say "the real problem is there isn't enough housing" that feels incomplete to me. Of course supply has been an issue for a while, but home prices nearly doubling in five years doesn't look like a normal supply story -- it's not as if we suddenly created 20-50% more qualified buyers in that time. I guess the lack of churn, with people hanging onto those sweet 3% mortgages much longer than usual, is probably part of it. But I really don't have an answer for the current state of home buying. I make great money but if I was to buy a house the quality of the house I got in 2018 with the same % down payment I would be looking at over 40% of my take home going to a mortgage, PMI and taxes.
> it's not as if we suddenly created 20-50% more qualified buyers in that time.
We don't create buyers quickly, but mobility means that a large number of buyers can show up in one concentrated area much more quickly than housing can adapt.
One piece of the US real estate puzzle is that automation and outsourced killed agriculture and manufacturing jobs. Those are the kinds of jobs that have some natural incentive to be spread across the US. Ag, because farms literally take up a lot of space and are spread out, and manufacturing because factories tend to be close to raw materials, ports, or other local resources.
When you get rid of those jobs and replace them with information work, you create a feedback loop with no dampening in it. People want to go where the most jobs are, so they move to the cities. Businesses want to open where the most workers are, so they start companies in cities.
The next thing you know, all the small towns are filled with dirt cheap empty houses because there are no jobs. Meanwhile, every metro area is bursting at the seams.
Prices spiked in large part because the government printed an enormous number of dollars since 2020, thus triggering asset price inflation.
Can confirm via my own experiences. Had a job in a SV firm, and paid just barely enough to try and get on the housing ladder. Four years and a 40-60% price increase later, and I got laid off without managing to successfully buy a home.
Since the layoffs, I’ve taken a sizable paycut (~$75k TC) to make ends meet with whatever I could find, but kept a pulse on the market in case things turned around. Locally, rents have gone down by ~$100-$500 a month (depending on when you renew) with one to two months free rent, while home prices have finally stopped rising. Homes are staying on markets longer, and bidding wars have dried up. I get about one to three price cut messages a day from Redfin, though nothing in my area or price range post salary cut.
Unfortunately, I don’t expect this trend to continue. My landlord just introduced a new RealPage-alike to keep rents high, local developers have put a hold on new housing construction as resources get consumed for AI datacenters, and the same old red tape blocks meaningful progress in addressing availability gaps. The only real bright spot is that renters are pushing for statewide rent caps and controls with better progress than ever before, so there might be some relief in sight next election.
It’s bad out there, ya’ll.
Rent control is not a great solution long term since it reduces the incentive to build more housing which is the only real fix. It ends up making the problem worse. I could see in times of economic downturns, a temporary rent control that automatically expires to help people figure out their situation short term (moving is expensive).
If house prices and rent being this much higher than they were in, say, 2000, relative to wages, wasn’t enough to trigger an enormous housing construction boom, I don’t think further-increasing rent or house prices are likely to do much good. Something about that “signal” is already badly malfunctioning.
The pricing signal malfunctions when homeowners and landowners control land use to such a degree that regulatory constriction stops housing. Usually this is zoning as the primary blocker, but there can be other blockers too.
One of the problems with rent control is that it pushes the class politics so that renters with housing act more like landowners than they do new tenants, and they conspire to also block housing. People are change averse, even if they don't mind the change after they see it; before the change it's a big threat. This hurts any tenant that needs to move due to things such as becoming an adult, finding a new job, starting a family, getting a divorce or ending a relationship, etc.
Rent control is great as a tenant protection to prevent evictions via rent increases, but it is only a short term protection for tenants otherwise, and can hurt tenants greatly if there's not enough building.
There's good evidence it's mostly zoning and permitting. You might be shocked if you look at the SFH zoning in your city when you realize how much the municipal gov has just banned denser housing development.
Look what happened in Austin, TX, which has much less housing regulation tamping down construction than CA (despite a good deal of local NIMBYism).
Prices spiked during the pandemic, and in response a shit ton of housing was built, much of it multifamily residential. Rents went down significantly and home prices are down 20% since the peak.
The lack of construction is mostly to do with most major US cities just not allowing enough construction. You can see the contrast with the handful of places like Austin that do allow construction, where rents have consistently dropped year-to-year even though the population has increased significantly.
This is the economist theoretical consensus justification though in real life tbh I dunno if I've noticed any real difference when looking at housing development patterns across Canada where there are many jurisdictions with rent control, many without, and many with some sort of blend (ie. no rent control on new builds).
If there is some incentive toward development in non-rent control jurisdictions I suspect it's strongly dominated by other factors.
(ie. Montreal probably has the most restrictive rent control in Canada but it's also seeing the strongest apartment development growth)
Canada is a basket case for housing development but the only bright spots for outpacing demand with housing are Albertan cities with no rent control like Calgary and Edmonton.
Edmonton recently outpaced Toronto in housing development on an absolute basis with much lower housing prices and less than 1/5th the population!
People are able to move around, to some degree, so housing prices are a function of supply across most of the nation. Or at least the desirable portions.
Rent control on the other hand has mostly local effects.
Which means, rent control can push prices down and keep them down. There is indeed a supply reduction, and prices on average will go up—but not in the rent controlled area.
It’s still a poor idea, but it requires centralised planning to avoid.
> Montreal probably has the most restrictive rent control in Canada but it's also seeing the strongest apartment development growth
A wonderful city like Montreal can drive enough demand for housing to overcome red tape, and still be building far far less than what would satisfy demand. A less attribute city with lower demand for housing may build less due to lower demand, despite having less red tape.
Trust the economists on this one.
I lived in downtown Montreal and it could just be me but the housing stock was not of the highest quality compared to most other places in Canada. Montreal as a whole feels rundown (I say this as a former Montrealer who’s lived in many places since). Cheap rent though.
I used to agree with this, but nowadays it seems that the factors constricting housing supply are in many places related to zoning and regulation, not the ability for developers to make a profit, so rent control might have much less downside than economists have conventionally assumed.
EDIT: I am seeing a nephew comment that says rent control could make NIMBY politics even worse because it makes renters' interests more like homeowners'. Hadn't thought of that.
I cringe every time some youngster suggests we go down the socialist/communist path because none of them have any real-life experience with how bad Eastern Europe was! Here's a hint: It's was fucking beyond belief horrible--everyone was poor, there was nothing to buy in the stores, and people spent most of their free time drinking themselves to death.
I find that rent control is a good idea in theory, but leads to a lot of deadweight loss. As a former renter, what I really wanted was a predictable cap on rent increases. For folks who are long-term renters, without controls and predictability, their only option would be to move every few years, which is incredibly disruptive.
From my understanding, European countries tend to have restrictions on what lease renewals can look like and with declining home ownership (and ownership being priced out for many), I think we should look at European models for real solutions to our housing crisis.
Rent control is not good in theory, it's the most universally hated policy among economists because it has so many horrible unintended effects on housing development and maintenance.
rent control (which realistically for all but the most idealist is some sort of capped rent increase policy) can only work if its done and owned by the state/nation. It can't work for private sector as the ROI will be relatively poorer on doing that vs many other investments so it'll actively disincentivise investment into more rental housing long term & in short/medium term disincentivise all but necessary capital/maintenance investment as it'll quickly erode whatever small return they're making on their rental investment.
State/National government are far more likely to stomach lower ROI than the private sector because they can arguably have a more holistic view of what their investment is. However, to be able tod that you also need robust finances in government which has certainly not been the case in most developed western economies since the 80s
This is an important distinction. Most "rent control" laws are intended to be "rent stabilization" not outright price fixing. Their goal is to prevent insane swings in rent happening too quickly, which disrupts families and local economies (and even infrastructure development).
But the worst/most aggressively laws are always used as the examples, skewing the conversation to edge cases and ignoring the fact that these laws can and do take hundreds of different forms.
RealPage is gaming rents against tenants. It’s artificial rent inflation by algorithms. I agree on rent control. But unless realpage is controlled and regulated rent control is the only option.
> Rent control is not a great solution long term since it reduces the incentive to build more housing which is the only real fix.
In California (and SF in particular) rent control applies to housing older than 15 years and owned by corporate entities.
How does rent control applied as it is in California disincentivize building? I would think that building would be incentivized by rent control because newer housing stock would be exempt from rent control.
> Long term they wouldn't be, and hence lower ROI and therefore disincentivized
While the ROI would be lower compared to allowing rent to increase uncontrolled, in a rent control zone there is more incentive to build (and renovate) to take advantage of market rate leases for (in California's case) 15 years.
Does the argument that rent control (as in California) disincentives building reduce to the argument that uncontrolled rent yields a higher ROI than rent control?
Such an argument is a refusal to allow public good for the benefit of landlords.
So you may mean well but a comment repeating the (debatable) negative impacts of rent control really comes off as silly in a thread about the realpage cartel (price fixing is worse than rent control in every way) and hopes of home ownership (demand for primary i.e. non-investment homes is unaffected or increased by rent control).
Rental income should not be the primary reason for housing to be built in the first place, so I don't buy that argument. The primary reason to build housing should be demand for home ownership. The volume of housing that ends up on the rental market should only be a small fraction of the total volume.
Instead of rent control, I propose a forced buy-out model: if the current tenant can manage to buy the home they're currently living in, the landlord is not allowed to refuse the sale. And banks are not allowed to deny such a mortgage if the monthly installments amount to less than the current rent.
Again, you are just discouraging people from building more homes. People like to create financial Rube Goldberg machines to address high housing prices, but the solution is simple: Add supply.
Now adding more supply is not trivial in many cases, but at least people can work on the correct problem to solve once it's identified.
> should only be a small fraction of the total volume
Which is? Lot's of people are happy to rent, want to rent, will never want to own a home, want mobility, etc. I rented for nearly 20 years and only past few years went into situation where I want to buy a house. Should I be denied renting?
There's obviously premium to be paid while renting too. There should never be a situation where rent is cheaper than mortgage.
Populist rent control is an excellent motivator to get counter-parties to the table to discuss productive alternatives in a market where no outside pressure currently exists.
There is no silver bullet solution. Rent control can be a big part of that solution, but what’s ultimately needed are a combination of policies that disincentivize the hoarding of housing as an asset class, promote home ownership itself for stability and community rather than fiscal nest egg, mandate denser housing in areas served by mass transit, tax land properly by removing caps on yearly increases, protect renters from unnecessary evictions (lack of renewals, no-fault evictions, etc), removing zoning laws on residential and commercial space (essentially reducing zoning laws to industrial vs non-industrial) to speed up approvals for construction, and get the government more active in meeting the needs of its populace through public housing programs (like Singapore does).
It’s highly complex and nuanced. I’ve long since stopped entertaining smug clapbacks from armchair economists who aren’t involved in the boots-on-the-ground issues at hand, and you shouldn’t parrot them around for them.
> Populist rent control is an excellent motivator to get counter-parties to the table to discuss productive alternatives in a market where no outside pressure currently exists.
This makes no sense, the battle is ultimately between renters and owners of low density housing. Those owners don't care about rent control, they only care about zoning disallowing construction of new rentals. If anything, they're probably happy to see rent control if it means the pressure on cities to upzone is removed.
Why do you say rent control reduces the incentive to build more housing?
To me it seems the opposite: Rent control means supply goes down, so available building & land prices go up. These prices going up means an opportunity for builders who are good businessmen because they are going to make a margin on their investment, the bigger the investment the bigger upside.
Another intuition is with rent control it's hard to extract new value from an old building, so that also incentivizes tearing it down and squeezing more units into the land.
In SF, rent control exists on all buildings built before 1979. It appears to me that people who prioritize new builds pay a huge premium for them. I think this particular rule also incentivizes tearing pre 1979 structures down, vs the no rent control newer buildings can continue to have growth in the value extracted from them.
It reduces the incentive to build because it reduces the ROI on a new build and reduces the control the owner has over the property (places with rent control are notoriously tenant-friendly, meaning the risk of taking 12+ months to evict a tenant has to be priced into the project as well).
The cost of building housing is generally labor + materials + land, of which the first 2 are generally don't have runaway costs as they are not an investment category.
Land is something the government can help with if they choose to do so.
The rent is tied to the price of the apt, and since housing has become and investment category, has increased exponentially.
By controlling rent, you control real estate prices as well, as investors will find it a less attractive asset.
In a free market economy, the cost of things should be controlled by a market equilibrium, so building shouldn't cost more to buy than it is profitable to build tem.
But supply is often restricted by artificial means, meaning prices go up, that's where rent control comes in.
Two wrongs don't make a right, but saying not having rent control while clamping down on construction isn't true to the spirit of the free market.
Rent control will reduce supply even more. It’s piling on another wrong.
In SF rent control only applies to buildings that are like 40-50+ years old. Yet people still complain as if it stops new housing. If you combine this with the idea that rent control raises prices for everyone else, you'd think people would be knocking down the doors to build: artificially high rents for decades.
Rent control absolutely causes a reduction in supply: there's a reason rent controlled buildings have apartments in poor condition that owners do not renovate (so a reduction in quality supplied) and many are held off market or converted to owner occupancy through condos and TICs (so a reduction in quantity supplied). Not to mention the units underused by long term tenants who maintain them as secondary residences.
Rent control also switches the class politics, as people who are paying far below market rate for housing become like landlords and homeowners: getting free imputed rent.
People have been knocking down doors to build in SF for decades, but do not because regulatory capture by homeowners, landlords, and those with below-market rents are happy to keep out new people.
Where and when housing gets built in the US is not merely a market driven decision: you also need to get local permission to build.
And for some hard data, here's a meta-study on the subject: https://www.sciencedirect.com/science/article/pii/S105113772...
> [A]ccording to the studies examined here, as a rule, rent control leads to higher rents for uncontrolled dwellings. The imposition of rent ceilings amplifies the shortage of housing. Therefore, the waiting queues become longer and would-be tenants must spend more time looking for a dwelling. If they are impatient or have no place to stay (e.g., in the houses of their friends or relatives) while looking for their own dwelling, they turn to the segment that is not subject to regulations. The demand for unregulated housing increases and so do the rents.
The talking point of "Rent control = bad" has always been disingenuous because it's parroted most often by the people who will be hurt from it the most (landlords). Home supply is already artificially constrained, regardless of rent control. Mostly because wealthy landlords form cartels to prevent new housing in major metro areas.
Rent control is just one tool that can be used to regulate housing, and it works in conjunction with other tools (e.g. rent control exceptions for new construction).
The U.S. already has an excessively de-regulated housing market, and it clearly has not worked for most people. Anyone that says regulation is bad here is almost certainly protecting their self interests.
Rent control is fundamentally unfair and socially undesirable. We should encourage labor mobility, not discourage it.
CA has a similar issue with prop 13 for housing which I also oppose.
Also it’s silly to say the US housings market doesn’t work for “most people” considering the home ownership rate is above 60%
Personally, I believe that housing security should be a right, and it’s just not possible to have that when your rent can spike arbitrarily in the future for reasons outside your control. Young people with no local connections and limited belongings might be able to move every few years, but it’s downright traumatic for older people. Based on my lived experience, I will always vote for rent control while simultaneously pushing for more housing. The economic arguments against it are almost irrelevant.
I'm a renter and a parent in NYC, and I totally get where you're coming from. On a personal level, I'd love rent control that would freeze my rent and give me some stability. I'd also love it if NYC would build millions of new housing units, but that doesn't seem to be forthcoming.
That said, I also think that city policymakers have a responsibility that extends beyond just what will make life better for the current residents of their city. I wish rent control had better data supporting it, but everything I've seen suggests that while it might make things better in the short-term for some, it makes things worse in the long-term for everyone.
> Rent control is not a great solution long term since it reduces the incentive to build more
It is exceptionally rare for new construction to be subject to rent control laws, unless they utilize special tax breaks or government subsidies. It does nothing more than slightly inconvenience the investor class, who usually aren't thinking past 15-20 years anyway, when rent control laws might theoretically impact their investment.
If the price without collusion is $X and the monopoly pricing behavior raises it to $(X+1), you can cap it at $X without causing any problems.
You say rents are going down... but you want rent control? That's one way to ensure rents will never, ever go down. Every landlord will charge the statutory maximum.
Vancouver has rent control and rents are going down.
Though I think the likely dynamic that you're seeing here is rent growth of new build apartments is stalling and reversing, and on renewal with new tenants rents are being revised downward as there is more competition.
https://www.ctvnews.ca/vancouver/article/rent-prices-falling...
I expect that amongst apartments with long term tenants rents are still creeping upward. But that's fine. The point of rent control is to smooth out volatility. Rents can still go up, but the goal is to avoid sudden 150% increases etc.
> The point of rent control is to smooth out volatility. Rents can still go up, but the goal is to avoid sudden 150% increases etc.
Is it? I mostly see rent control maximum increases below the inflation rate, suggesting a different goal (appealing to voters?). If it were just to eliminate extreme volatility I think we'd see more 5/10/20% increases and less 1/2/3% increases.
> Hopefully the case the DOJ brought against them is progressing well
They reached a settlement with the DOJ last week [0].
0: https://www.realpage.com/news/realpage-reaches-settlement-wi...
The case concluded with a settlement that RealPage would no longer share data between competitive landlords.
https://www.justice.gov/opa/pr/justice-department-requires-r...
As opposed to the status quo where rents never ever go down and landlords charge the literal maximum?
I'm not advocating for gutting renter's rights, but anecdotally having lived in 6 states, and adjusting for general costs of living it was easier to rent, and rents were cheaper in states that were less renter friendly than states that were very renter friendly. As a renter in the central time zone, first months rent, a month's rent security deposit and a credit check and i was handed the keys vs. renting in NYC you'd think i was buying the home with level of financial scrutiny.
I suppose this is just a long winded way of saying that there appears to be a ton of friction and cost by renter friendly polices that are ultimately passed on to renters rather than owners.
As an aside I'd also say that renter friendly policies were also highly correlated with higher regulations around zoning/building so this may account for a meaningful portion of the above.
I said this elsewhere, but I would anecdotally agree as a landlord.
Everyone is paying for the costs to evict a non-paying tenant in jurisdictions where it can take 12+ months to regain control of a unit.
More friction = more costs, and more regulation = more friction.
I'm not advocating for gutting renter's rights either, but it's not a coincidence that the places with the highest rents also have the most protections for renters.
> My landlord just introduced a new RealPage-alike to keep rents high
You should get in touch with your state AG, and point to the precedent for this being considered illegal.
If you're currently renting, and expect to keep renting for a long time, state-wide control does seem in your interests?
It might ultimately depress new construction and certainly isn't good for landlords, but makes sense to me a renter would want rent control.
Unless you expect to be renting in literally the same physical house, state-wide rent control isn't in your interests.
I've had a high-income job (career?) for two decades... and while I'd love a house, the realized demand is zero. The thumb remains. Case in point, the RTO fad. No certainty. I know at least three executives who were forced to move after building new homes.
Executives forced to move after building a house. That really shows how desperate companies are to keep the lights on. Nobody pisses off the execs... unless the companies have ceased to operate normally as businesses, and are now hollow shells propping up an illusory stock market.
Desperate for lights, petty punishment, hard to tell. Point being... keeping options open has rarely done poorly. Doesn't feel like the time to commit. Not convinced it ever will.
edit: I hear someone now, "If that happens to you, sell the house!"... I'd like to stick with one career, thanks.
I did it the other direction -- I bought a relatively cheap house, and if the winds of change come, I would rather get a different career than location! Two different equally valid perspectives IMO, as long as you're not dependent on having a particular career in order to make your house payments.
Good point, not good to be so dependent on a career. I'm almost there; useless without a computer involved. Eager to change the location one more time to somewhere affordable. The city is wasted on me.
A career change may be earlier than expected with the LLM craze.
> Nobody pisses off the execs...
This is pretty laughably false. Sure, the CEO has a lot of power and I've certainly seen companies relocate so they are basically within walking distance from the CEO's house.
But "execs" covers a lot of people, and nobody gives a shit where the CIO or VP of engineering lives. If anything, these folks are more career driven and are expected to up and move at the drop of a hat if business conditions warrant.
The bigger concern is that we've steadily been going from a circa 4:1 ratio of worker to non-worker to closer to 2:1 ratio. For an economic system based on workers paying the way for non-workers that is toxic. We've royally screwed up immigration, which could have helped, so all we have left is hoping for a hail mary huge productive boost or might as well shut up shop and figure out a new model
Welcome to Europe. As an example, in Spain, there are 500K more people living off the government than working in the private sector: https://theobjective.com/economia/macroeconomia/2024-09-16/a...
Healthcare employment’s guaranteed to keep rising until they’ve soaked up all the would-be inheritance from the Boomers.
Millennials are a large cohort, too, so it may stay steadily high for a good long while after that, after perhaps a small dip for X. Depends how much money they have for the healthcare sector to scoop up. Savings-at-same-age has been really bad for them relative to boomers, so we’ll see. May see healthcare employment shrink even as need (sans the dollars to back it up) grows, next time a demographic “lump” gets old.
The general trend of government employment hasn't been all that exciting: https://www.pewresearch.org/short-reads/2025/01/07/what-the-...
But, yes, the plan does seem to be that we all go broke attempting to get health care.
The current housing costs (price + interest rate) just seem so out of line with the average household income it boggles my mind it hasn't cooled alot more already.
At $84k average household income, assuming 1/3 going to a mortgage would give you $2.3k a month to work with. At 6% interest rate, assuming 20% down payment of $70k, you can just manage a $350k home and that is ignoring taxes, not adding other closing costs, not considering utilities, assuming an interest rate on the lower side and assuming a 20% deposit.
Add tax and that gives you around $1.7k to work with. Assume only putting down 10% and adding in $400 a month to cover utilities then you can manage around $175k home. That rules out buying a house in alot of the US.
And yes, households in more expensive areas make more but if you are buying the average house, that costs $410k you need to be making like double the national average income to stick to the 1/3 rule. How many households are earning $170k where houses are $410k?
Are people just devoting 50%+ of their income to housing? Everyone buying a house with the help of mom and dad? I just really don't get it.