Casaubon's Book

How to Think About Housing

Super-quickie from me today – officially I’m in transit, but while my visiting my MIL and miraculously having time to read the entire New York Times before breakfast (admittedly the skinny Wednesday edition, but hey, I’ll take it), I wanted to draw your attention to this article by David Leonhardt about how to think about housing.

Read the whole article – it is a good, basic overview of how economists generally view housing. What I’d like to write about it, but don’t have time for right now (we hit the road shortly) is the way in which I think both of these viewpoints are inadequate to the realities of both our present housing situation and our future one. I think that the problem with these two choices is that neither one really explains how housing is likely to work in the longer term. But that’s a longer discussion than I can manage on Erev Rosh Hashanah.

I do plan to do a piece discussing this when I get back, but in the meantime, think of this as homework ;-). Have a great week, and L’Shana Tova!

Sharon

Comments

  1. #1 Dunc
    September 8, 2010

    Sometime soon, prices should begin rising again. They may not quite keep up with incomes, but they will probably outpace the price of food and clothing.

    I’m expecting the price of food and clothing to outpace income growth. Where the hell does that put me?

  2. #2 Eric Lund
    September 8, 2010

    Whether housing prices follow inflation or income is going to depend on location. Neighborhoods close to job centers are going to rise faster/fall more slowly than outlying areas simply because proximity to work will be increasingly important. We’re already seeing this here in New Hampshire: house prices are only down 10-15% in my town, which is a job center town, but other towns have seen drops of as much as 40%.

    Boston’s relative land scarcity (unlike that of coastal California, which has restrictive topography) is somewhat artificial. Many towns in New England imposed two acre minimum lot sizes for a variety of reasons, some good (e.g., you can’t support densities much higher than that without investing in a municipal water supply system) and some not so good (e.g., you don’t have to invest in a municipal water supply system). Such minimum lot sizes apply even in towns like Weston, which is about ten miles from downtown Boston. The result is that East Coast metro areas, whose outer suburbs can blend smoothly into the countryside, actually end up with a lower average density than urban areas in most of the West, where factors like water availability and topography force population densities to drop abruptly to near zero at the edge of suburbia.

  3. #3 darwinsdog
    September 8, 2010

    I almost didn’t read the Leonhardt article to the end. A bunch of irrelevant economic gobbledygook, I was thinking. But then, near the article’s end, he said something that made sense:

    The best advice for homeowners and would-be buyers may be to think of a house not as an investment, first and foremost, but as a place to live.

    I agree, and this is why I could care less if my property increases or decreases in market value. Despite recurring dreams of moving somewhere where it rains more, I don’t intend to sell it. The property supplies me with fuelwood & garden space. I can have chickens here (not legally but no one has said anything about them over the course of several years), I can pee outdoors, and there’s lots of wildlife (too much, from the perspective of poultry predation). I don’t particularly like the town I live in but I like my property. It’s secluded from the rest of town yet has municipal utilities plus senior water rights. I would be glad for the property to loose market value if this meant a reduction in property taxes altho I don’t expect this to ever happen. The county is revenue strapped so taxes will probably go up regardless of which way market values go.

  4. #4 Orchid
    September 8, 2010

    Before you discuss Leonhardt’s article, consider reading Dean Baker’s comment on it in “Beat the Press.” http://www.cepr.net/index.php/blogs/beat-the-press/house-prices-and-income Baker is one of the few people in economics who loudly prophesied the housing bubble many years before it burst.

    Baker writes,
    ” If the price of a house of the same quality rises in step with income, and the share of income devoted to housing remains constant, then this logically implies (i.e. there is no way around the conclusion), that the quality of housing has not increased over this period.

    This would mean that the homes that people are buying today are no bigger or better than the homes that people bought 80 years ago. This contradicts an enormous amount of data and common sense. It is unlikely that anyone would seriously argue this case. Therefore, we can conclude that house prices have not kept pace with income growth. ”

    I read Baker’s work so as not to become overwhelmed by traditional economists who seem unable to think past growth, more growth, and lowering entitlements for the poor while raising them for the wealthy.

    Orchid

  5. #5 Don
    September 8, 2010

    Neither choice factors in the question of energy cost and availability and their relationship to housing prices. Interesting that these economists aren’t considering energy as a factor.

    Since transportation is a typical household’s largest single consumer of energy, my guess is that, as peak oil’s influence on energy price and availability grows, this will have a direct impact on housing values. Homes located within easy access to public transportation or where carpooling is easy to arrange will be more likely to maintain more value, regardless of which position turns out right. The homes in the exurbs whose occupants are almost totally dependent on individual vehicle ownership will see their home values slip (in relation to these other factors).

    Other energy factors may come into play as well–availability of natural gas or fuel oil for heating, electricity, and even how energy-efficient the house is to begin with (or whether it can easily be made more efficient).

  6. #6 Mike B
    September 9, 2010

    The assumption is there in the final paragraph. Incomes will be rising again soon – even if you’re fairly pessimistic about the economy at present.

    The idea that there could be fundamental problems with our economies is unthinkable in the worldview of this columnist.