Tobold's Blog
Friday, May 10, 2024
Houses, inflation, and technological change

The determination of the rate of inflation typically has a problem with technological change. If you say that you want to buy a PC with a current generation CPU and current generation mid-range graphics cards, that will probably cost you a good bit more today than it cost a year ago. But part of that is that from year to year the "current generation" part changes. The people calculating inflation instead look how much it would cost to buy a PC this year with last year's specifications, and tell you that computers have gotten cheaper.

I moved into a new house last year, having previously lived for quarter of a century in an apartment that had been built in the early 90's. The apartment wasn't very well insulated. It was on the first floor, and part of it was above the garage and entrance hall of the building, while another part was above another apartment on the ground floor. As a result there was a very noticeable difference in temperature in winter between these rooms, as the rooms above the unheated garage lost a lot of heat through the floor. The house we moved in is a near zero energy house, with walls, floors, and ceilings all very well insulated. We need much less energy to heat now, and the temperature is much more even. We share a wall with the house next door, but that wall is so well insulated that our heating wouldn't change if the neighbors went on a long winter holiday and turned the heat down. (That also has the added advantage of not hearing the neighbors.)

Many economies these days have a housing crisis, with housing having become unaffordable for first-time buyers. So you see all those fancy graphs that show how the average price of a house increased over the past decades, rising faster than inflation. But that compares a typical house of today with a typical house from decades ago, and the specifications have changed. In the USA the average size of a single family home has more than doubled since the 1950's. In Europe, the apartment in which I lived for so long would now be illegal to build, as insulation is (rightfully) one of the key measures with which the EU is trying to reduce greenhouse gas emissions. And size has also gone up, increasing by 50% per inhabitant from the early 90's to today. A range of other specifications, regarding for example electricity or safety, have also gone up over the decades. Yes, a typical house today is much more expensive than a typical house 30 or more years ago, but it is also a very different house.

Konrad Adenauer, the first chancellor of the Federal Republic of Germany, introduced a lot of policies that made it possible for families in the 1950's to buy their own homes. One stated reason why he did that was that he believed that somebody owning real estate was a lot less likely to become communist. Increased home ownership increases social peace. That principle hasn't really changed, although the political orientation of people unhappy with their economic situation has changed. But I do think that it is still very important for modern societies to make it possible for a young family to buy real estate and have an affordable roof over their head. I do think politics has to intervene to increase minimum wages, and to squash zoning laws that prevent affordable housing. But on the other hand we also need to realize that the size and quality of houses built in the 1950's wouldn't cut it today. The free-standing single family house has evolved into a product that it isn't compatible with affordable housing anymore, and isn't sustainable either. Affordable housing is more likely to be an apartment building. And that isn't even a downgrade, because the quality of life in a 2020's apartment is probably higher than in a 1950's single family house.

About the average size of an family housing : when you look like on who is owning big surface per habitant, you see it is mostly people over 60 : they typically bought an house for their familly 30 years ago, - have moved from house to house - and keep their huge house now their children have left. This is both a space and energetical (C02) waste.
On the other hand, first time buyer have a important difficulty on how to find house - that are kept by the elderly until their death- , and live in far tinier surface.

I do not have a simple solution, but it would be a net benefit for both the environement and the society to find way to motivate elder people to move to home more suited for their family size. But as long as youngter does not vote, while elder does, we will not see any legislation to rebalance the generation discrepancies.

For info, I am middle age, with a family and good house , so I am not concerned by either side of the story. ANd I do not want to spoliate people from their house.
It is a trade off, but in Australia, you average service worker would save there entire life to have a deposit on a house at 60.

Ok the doors will last 4 minutes before burning through, the building will be safe in twice as damaging an earthquake and it has much better insulation, my modern apartment I am more likely to hear a tv through open windows then through the building. I can go the almost an entire year without needing a heater or air conditioner.

But given you have to go back 30 years to find a serious enough earthquake to damage a home and the chance of fire is incredibly slim I think most would rather have a home.

The other issue besides homes being in the hands of the boomers, is the high number of vacation homes that tax conditions means its cheaper to keep empty then rent.
In the US it varies state by state but even apartments aren't affordable anymore in many places because builders are often limited in where they can build due to NIMBYs and other local factors so in order to maximize profits most new construction is geared towards high end "luxery" housing. Unless builders are subsidized by state or local government they have almost no incentive not to do this.

Where I live apartments have gone from $650-$750 for a 600-700 sqft 1 bedroom apartment in 2016-2017 to around $1500 during peak Covid prices. They've since dropped to $1200-$1300 in the past year but prices have still effectively doubled in less then 10 years. And I'm not even talking about new construction. The prices I'm citing are for units built in the 70s and 80s.

I really don't know how folks making minimum wage are making it work these days. Obviously the US is a big place and not everywhere is as bad but it really makes me question how housing costs so high are sustainable.

I gross slightly above average for millennial my age and I still have accepted I'll likely never own the "american dream" of a single family home unless I leave my state. My future prospects would likely be some sort of multitenant housing like you suggested.
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