As a lifelong Californian I’ve seen homelessness expand from “expected” places like skid row into suburbs in (north) Orange County.
I’ve long felt that California was a harbinger for the rest of the nation and if they wanted they could choose to avoid the policy mistakes (e.g. SFH zoning, nimby-ism, prop 13, etc).
I’m not convinced that they have because the truth is the current status quo materially benefits a coalition of interest groups including current homeowners and property developers.
If we want to tackle this we need a national coordinated strategy. A piece meal approach at the city level is just playing whack a mole.
Some states (montana Minnisota although the later is less likely to succeed imo) have started doing this at a state wide level, I think Cali has a particularly uphill battle since the housing situation is already bad and the headwind that we really will never be able to change: prop-13. (I think all the other things that are preventing new housing CEQA, SFZ poor public infrastructure can all be changed if we do it right but I don't see prop-13 ever changing even if we get these taken care of)
The malign thing about prop 13 is is basically means that for muni's property tax doesn't cover required services. It also distorts prices driving them higher.
They invested a lot of money which is good and all of the programs they put it into seem like they will help, but I think their zoning reforms wern't strong enough to truely increase supply enough
There's some of that for sure, but real estate is a good inflation hedge. So if you print like we have been and new supply doesn't jack up, then here we are.
That's just a natural economic thing; not a political system at play, other than a byproduct of massive printing which has been out of control for some time.
I mean, we had interest rates jack up (for the US in modern times at least lol) and prices didn't drop as much as they should (and many that lost in bidding wars in the frothy market went to the sidelines)
When the Fed goes the other way because they have no real choice, prices are going even higher.
Real estate prices is propped up with credit. Credit can be created at ever increasing numbers until there is a collapse in the credit markets or the monetary system. When loans become unpayable, defaults occur. If credit markets collapse, then housing prices go down.
Real estate has value & a premium associated with the credit markets & revenue generated by the property (e.g. rentals).
> Real estate has value & a premium associated with the credit markets & revenue generated by the property (e.g. rentals).
Yes for commercial - usually cap rate based which is related to return and risk, replacement cost valuation, or revenue multiplier.
With regard to residential - prices are going to go up when fed goes the other way. They have NOT been propped up with credit or favorable interest rates. Those factors have gotten worse but prices have held strong.
They have been propped up because supply is still low and new construction is expensive. Those things aren't likely to change anytime soon. Not to mention US RE is still a good place to park foreign cash in relative terms and is a good inflation hedge.
Rents will go up. Home prices will go up.
Commercial hasn't fallen out yet though. Office space should be converted to multi family residential or mixed use.
Commercial collapse is likely though which I think you are referring to.
But to the article at hand - could be a way to monetize a sharp drop in revenue due to WFH and the hike in interest rates - convert to affordable housing and offset any investment to cities (ie taxpayers) to address the homeless and affordability crisis.
> They have NOT been propped up with credit or favorable interest rates.
We really can't tell yet. Since interest rates have gone up, lots of people don't want to move (to upgrade or downgrade) because you can't just transfer your current loan to another house. That has led to very tight inventory problems, which makes the market even crazier.
We can tell that despite less favorable lending, there are still multiple bids on homes in many top markets.
If the lock in is a large factor, then inventory will shoot up as rates come back down. But then so will home prices as monthly payments come down and those dejected from losing bids before re-enter the market.
Is the market going to be flooded with new housing? No. Is the market going to be flooded with people downgrading and moving into rentals? Prob not. For every old couple downgrading there's a younger couple needing to upgrade for more space due to WFH and/or kids or a first time homebuyer ready on the wing. Or an investment group ready to buy and rent.
So basically - if rates go higher - many people are further locked in. Enjoy the favorable loan and inflation protection in RE. Inventory stays low.
If rates go lower - more buyers. Maybe some upgrade/downgrade inventory.
But there will be no magical new housing starts. Construction costs (labor/materials) unlikely to drop meaningfully.
Home prices remain stable in most places and going up with inflation and time.
And when the Fed reverses course - prices will jump.
I don't see how prices drop as some might hope (first time homebuyers) in the near future.
> We can tell that despite less favorable lending, there are still multiple bids on homes in many top markets.
But supply and sales are still down, because inventory is really tight. Less supply can affect prices just like less demand can.
> Is the market going to be flooded with people downgrading and moving into rentals? Prob not. For every old couple downgrading there's a younger couple needing to upgrade for more space due to WFH and/or kids or a first time homebuyer ready on the wing.
But that's just it. Those old people aren't downgrading because it doesn't make sense for them to downgrade. They would only be paying more for less, so why bother? That younger couple that needs to upgrade for more space is even more screwed in this kind of market.
> But there will be no magical new housing starts. Construction costs (labor/materials) unlikely to drop meaningfully.
Yes, but that isn't really the point right now. There are still plenty of ongoing projects in my neighborhood that were started before rates shot up. That is significant amounts of new supply, but it is balanced by much fewer second hand homes on the market.
> And when the Fed reverses course - prices will jump.
The economy is whacked by inflation right now, you better believe that the Fed has gotten religion in considering housing costs as part of their inflation measure. So...as long as housing costs keep rising, interest rates are going to stay high anyways. Given how many people are now asset heavy, with speculation and everything, don't count out some kind of political solution to get out of the hole.
> I don't see how prices drop as some might hope (first time homebuyers) in the near future.
I agree, but that doesn't mean the market is stable.
> The economy is whacked by inflation right now, you better believe that the Fed has gotten religion in considering housing costs as part of their inflation measure. So...as long as housing costs keep rising, interest rates are going to stay high anyways
The Fed is completely incompetent. "Inflation is transitory" over and over. And interest rates cannot stay high. At 32T in debt and rates, we'll eventually have to pay 1.6T in just interest annually. In the last quarter of 2022, we paid $213B in interest alone.
The longer interest rates are this high, the more pain on the entire world, as there are ~20T in USD denominated debt in addition to the 32T in US debt. And about 190T in unfunded liabilities in the US! Already insolvent. The only solution is to print.
The US and the world cannot sustain higher interest rates as the world reserve currency and the high debt load. But the Fed has to do something to at least appear like they are in control and competent. And to tame inflation to avoid civil unrest and political backlash. Most people have seen inflation outpace their wage growth.
I bring this up because the ones in charge are the ones with assets. And those with assets don't really care about inflation.
That's a large part of my thesis. And I'll be holding tangible assets like real estate when the printer goes back in overdrive because there is no other choice.
> That's a large part of my thesis. And I'll be holding tangible assets like real estate when the printer goes back in overdrive because there is no other choice.
You and everyone else, which is part of the run up on real estate prices right now. There is no such thing as a sure bet, especially when almost everyone is taking the same bet.
Don't know where you get "everyone else". I'm not talking about primaries and those with primaries aren't just "holding"... they need a place to live. Most people do not have real estate investments.
Investors are not in RE as a pure buy and hold. Maybe a few foreign entities parking cash in the US. But outside of that, no they don't. They live in them. Or they rent them for a profit or near break even. Rents have/can/will go up even more.
There aren't many properties that were purchased at elevated levels that have no economic prospect to them and could thus flood the market like you insinuate - ie an airbnb bought for 800k that now can't service the debt because short term revenue dropped and long term local rental revenue is too low. Even then, those that bought aren't looking to take a major hit and didn't buy with lax lending like 08, so the prices are what they are. You need foreclosures and short sales to make meaningful drops nationwide.
My properties cash flowed before the pandemic. During. And after. I honestly don't care about values, I'll buy more if they plummet but values have never been a bet in my plan. I care about cash flow and risk in an economic downturn but I'll take the inflation hedge too. You make money when you buy. There are still places you can buy now and make money. I look at a lot of things but always at replacement cost and cash flow.
The thesis is that there is no escaping the debt load. About the only sure bet IS that the money printer will return in overdrive. There is NO choice. And I don't care if it's this year or next year, but it will return soon.
You need assets before and when that happens. Not cash on the sidelines waiting for a dip that probably won't happen.
Whatever asset though - IMO, it should be cash flowing and be able to weather an uncertain economic and financial climate.
You seem to think Fed is going to fight inflation and bring down housing prices and save everything and also create this buy opportunity in various assets. Perhaps they keep hiking and we finally get a commercial RE crash and the Fed member's banks and associates can have a feast. Sure. I'm surprised that didn't occur a long time ago. But we're not talking about commercial RE.
How does the US escape the debt load and maintain these interest rates and higher and get to 2% target inflation?
Every solution involves printing. And how do you print a shit ton and keep inflation at 2%? You can't. You have to inflate something.
Best to have that something than cash or a non inflation hedging asset.
Even without the politics/nimbyism I am trying to imaging a realistic scenario where housing prices go down and stay down in California, but I just can't.
It seems that the price of housing is directly related to how much people can afford to pay, meaning that increases in wages won't remediate housing cost increases, but contribute to them directly and indirectly.
Japan. For an island with limited space they treat their real estate market very differently. The land itself has value, but structures depreciate to zero.
Housing prices in Japan have been going up for years. They had the implosion after the superbubble in the 1990s (prices got so ridiculous, that the land beneath the emperor's palace was worth more than all the land in California)
But other than this extreme, the trend has very definitely been up and to the right, year after year after year. Even as the population declines.
Wages have gone up significantly recently: when wages go up - house prices (and the price of everything else) go up. Raising wages doesn't magic up more houses.
"Since President Biden took office in January 2021, the increase in prices due to inflation is over 14%, resulting in a loss in real wages of nearly 4%"
it makes sense though as this is how the middle class sees a lot of their wealth passed through death and marriage, its houses for the middle class. its just that the middle class is shrinking and so now the same houses are owned by fewer families. for everyone else there is renting and homelessness.
In SF/Bay Area there is definitely a separate issue besides just the shrinking middle class. SWEs that by all other metrics would be solidly middle class if not upper middle are having a hard time finding affordable homes there. The only people I know who've entertained ownership in the area are DINK, and I know many people in their late 20s and early 30s who have been consistently earning over 6 figures since the day they left college.
That said, I can understand arguments for protecting existing middle class homeowners. I think a huge chunk of the problem could be resolved by having policies that treat property like any other speculative investment while having some sort of exceptions for primary family homes that are actively being lived in by the owners. I'm guessing if that were the only class protected by the SF property tax laws only a small minority of the current places would remain with locked-in rates.
I think you could ban investment properties entirely and we would still have the same problems, it would barely be a blip I bet. There just isn't enough housing and there isn't likely to be anytime soon.
Tackling the issue nationally is key because a significant portion of homeless in the cities is from poverty / drug addiction in rural areas that results in folks showing up in cities desperate for help (it is estimated that 75% of SF’s homeless are from outside of the city).
It is not just a city problem. That is just where the problems end up because it is the only place with any infrastructure to handle it.
> "it is estimated that 75% of SF’s homeless are from outside of the city" --
Where are you getting that 75% number from? The latest survey I'm familiar with showed nearly exactly the opposite (71% of homeless in SF had a prior place of residence in SF). See https://sfstandard.com/2023/05/22/san-francisco-homeless-peo...
If thats the case then its really a form of additional wealth transfer from the blue states to the red states. They save money on taxes by not tackling this problem/creating it in the first place and then dump the externalities onto blue state taxpayers.
California has lots and lots of small local governments which makes it structurally harder in California than states where there aren't as many governments. The state government is trying to use RHNA allocations right now to force local governments to get in line but there's no substitute for a single governing body.
Prop 13 is a uniquely Californian problem, and yet homelessness is exploding all over the country.
The problem isn't Prop 13. The problem isn't entirely nimby-ism, either. The problem is that for a variety of structural reasons, housing costs too much, mental healthcare is not available, and there's no pathway for treating drug problems. This causes sick, addicted, or simply poor people who are living on the margins to slide into homelessness, with no way to climb back up the slide.
Well, California's housing crisis is uniquely intense by almost any measure (affordability, relative/absolute homeless population, median family wealth).
Prop 13 is a unique and meaningful contributor to a glacial housing market -- if moving homes (to an equally-expensive home!) would quadruple your property tax, you're probably not gonna sell. And slow/frozen markets result in increased prices.
Housing costs are high because it's hard to build a house. It's a dangerous task requiring a lot of logistics and coordination. There are toxic chemicals, dangerous heights, sharp objects, and requires being in unhealthy poses and breathing in fumes during the construction. Then there's the financial risks, with people not paying as promised, or withholding some pay due to work quality. At the end of the day, people are not willing to sacrifice their health as cheaply, and there isn't a new influx of cheap migrant labor, so the costs will remain high in the future.
Are those absolute numbers or per capita numbers? If the former, are there population trends which would affect the graph?
What happened between 2018 and 2023? Why is the Biden story missing?
Were there methodology changes anywhere in here? Are the methodologies the same between states? If they are the same, is it possible that funding issues affect how accurate the numbers are?
1. The silent majority of homeless people that are suffering and with the proper services could get back on their feet, but they are not actually having a day to day impact on the general population. Cutting helpful services for these people is terrible, and the longer someone goes homeless the more issue they may have getting out later. Housing prices also have more impact in creating this type of homelessness.
2. The loud minority of homeless people, often in need of serious mental help that they very well may refuse, who have a negative impact on the community - disruption in the libraries, needles on the street, etc. There are places where the prevailing sentiment is refusing to remove these people when they are disturbing important community spaces or to arrest them for crimes like openly using hard drugs and peeing in the public fountain. This sort of tolerance shouldn't be conflated with robust access to resources, but unfortunately it does seem to be by policy makers.
So yeah, many homeless people go to cities where they will have access to services, and that is more relevant to statistics. Some homeless people go to cities where they know they will more easily be able to obtain and use drugs, steal, etc. Those people are a tiny fraction of the total population, but it doesn't take many of them to start to have a noticeable impact on a local area. This is where we see the more visceral negative reaction to homelessness in west coast cities coming from.
Though I'm sure there are people from other areas of the country amplifying this problem for their own political agenda rather than care for the community or the homeless, it's definitely a real feeling amongst residents in certain areas of SF too, and it doesn't come out of nowhere.
I’ve long felt that California was a harbinger for the rest of the nation and if they wanted they could choose to avoid the policy mistakes (e.g. SFH zoning, nimby-ism, prop 13, etc).
I’m not convinced that they have because the truth is the current status quo materially benefits a coalition of interest groups including current homeowners and property developers.
If we want to tackle this we need a national coordinated strategy. A piece meal approach at the city level is just playing whack a mole.