It's also surprising to me how much cost of construction has increased. I look at a new house plan, and I consider our centuries of building experience. Is this really the best value we can provide? After all the advancements in process and technology, and scale of resource farming, we now build houses from wood and plasterboard at 10x the cost of a bricks and mortar home from a few decades ago?
Land is expensive for sure, but why isn't building dirt cheap? You could wax about the market, but does that matter if we as a society are this terrible at building homes for our citizens? There is a perversion of the economics, and society suffers for it, but it is still a social problem to solve. Something we could write policy to fix. But we are slaves to the dollar so we won't do anything until the market breaks entirely.
Construction labor productivity in the US has been _decreasing_ since the 60s (in contrast to pretty much every other sector)[0]; it's crazy and the subject of much conversation. Freakonomics Radio recently did an episode on the subject: https://freakonomics.com/podcast/why-is-it-so-hard-and-expen... .
This isn't an unexpected result of political incentives: Property owners want housing prices to go up, so they want to limit supply. Builders want to make more money, and their two ways to do it are to build more housing or make more money per housing unit.
The thing that satisfies both of them is regulations that increase the cost of construction. The builders get to put the money in their pocket (bill for more hours on the same house) while raising the price and so discouraging more housing from being built (so the landlords get to keep collecting high rents).
I have not listened to the podcast. Do they talk about the value added going down because labor has disappeared into devices and systems?
Like with spray foam insulation. If it is done at the right time, lower skill labor can install that better product a lot faster than carpenters can install batting.
New home construction costs are around 60% for labor + materials, with the rest associated with finishing the lot (17.8%), general overhead (5.1%), sales commission (3.6%), financing costs (1.9%), marketing costs (0.7%), and profit (10.1%).[0]
IIRC construction costs are then split 40-50% labor and 50-60% material. So labor is roughly 24-30% of the overall cost.
Building is cheap. The expensive part is finishes - especially for bathrooms and kitchens. If you go with a barebones finish you could easily build for 50% of the cost, although you may find it hard to sell it in the future.
The other problem is that since land is expensive, you have to build as large as possible to optimize resale value.
This, also, at least when I did my build there was a huge variability of the cost for the same thing (talking about putting up walls etc, not finishing). Some companies would quote 10x the price of others with a straight face...
Well, a brick and mortar home isn't as well insulated. You've also got major appliances that weren't common place a century ago (fridges, washer, dryer, dishwasher, etc), waaaay more lighting, HVAC systems, etc. Basically rising standards for what people want out of a home, rising land costs, + rising labor costs.
Another not insignificant problem that people are aware of is that all the zoning/permitting also adds significant hidden cost to the process because builders have a lot of downtime waiting for that. There's also the hidden cost of improved safety standards & the compliance checks that come with it - 100 years ago you probably didn't have to have someone from the city come out & certify all the work was done to code. Sure the cost of the inspector is a direct cost, but the need for the inspector in the first place adds random delays for the contractor work & they then need to budget cost into their estimate because the person paying is paying a roughly fixed cost for the work to get done.
What's the policy you want to write that would fix things?
Appliances etc are not part of the building cost (at least not here - in Germany you buy a home and then you buy appliances).
The cost of the home without appliances is also much higher. And it’s not just compared to the 50s, it’s also compared to the ‘00s and ‘10s where we had more or less the same appliances we have today.
I don't think the parent meant the cost of the actual appliances, but designing a house to accommodate them - the power, plumbing, ventilation, fire & smoke prevention and detection etc
Outside of new construction where things are bundled, a fridge is not a standard thing to come with a house. Only things that are considered “built in” are legally part of a house sale. Fridges are almost never attached physically, outside of expensive built-in ones. Interestingly enough, this means that sometimes a cooktop/oven is not considered part of this if it’s movable and not bolted to the wall in some way.
Sometimes they are sold with the house as part of a bundle, but that would be called a “conveyance” as it’s not considered “real” property (in the legal sense) and is usually a separate line item or form in a house sale contract.
> What's the policy you want to write that would fix things?
Let's go through them.
> Well, a brick and mortar home isn't as well insulated.
Brick is actually a pretty good insulator. They don't use it because it costs more than what they do use, so that can't be the reason.
> You've also got major appliances that weren't common place a century ago (fridges, washer, dryer, dishwasher, etc), waaaay more lighting, HVAC systems, etc.
Houses literally have had appliances and HVAC systems for a hundred years, and largely modern ones for at least half that long. This doesn't explain why construction costs so much more than it did in the mid-20th century.
> Another not insignificant problem that people are aware of is that all the zoning/permitting also adds significant hidden cost to the process because builders have a lot of downtime waiting for that.
This is where you get into a real issue, but it also has a real solution: Have combined permitting and combined inspections. Don't require separate permits for every part of a new house, have a single permit application for "building a new house" with a single approval.
Also, comb through the regulations and remove the ones that are effectively micromanaging minor trade-offs. Legal prohibitions should be for major safety hazards, not to legally mandate every marginal improvement anybody can come up with for anything which then has to be individually evaluated, inspected and signed off on in every new construction project.
Put all of the marginal improvements into an optional certificate builders can get if buyers demand it -- and if buyers rarely find it to be worth the expense then reevaluate the cost effectiveness of what it takes to get it. The goal is to make sensible trade offs rather than to raise construction costs, right? (Note: The goal may previously have been to intentionally raise construction costs.)
I think you are thinking of classic red bricks, and maybe where you are from they are only typically used for siding. But in countries where brick masonry is the dominant form of construction there are options: double wall with insulation gap, concrete blocks with the gap already incorporated, those big hollow "ceramic" bricks (check out pictures of favela buildings with exposed bricks), those white insulated blocks...
Anyway, I don't think walls are the main cost here, it's probably the frame itself. Where timber framing is not used they build fewer and bigger concrete columns using "formwork". I don't know if it would be cheaper in North America, though.
> double wall with insulation gap, concrete blocks with the gap already incorporated, those big hollow "ceramic" bricks (check out pictures of favela buildings with exposed bricks), those white insulated blocks...
These are methods of reducing heat transfer since neither the brick nor the concrete are good insulators.
> the mullite bricks certainly are good insulators themselves. As for the concrete ones, they're puffed up with air and also ok.
Sure, with some exotic materials and fancy tricks you can get something possibly approaching mediocre with bricks. This is fairly niche and not part of the general calculation. I'm happy to revise my opinion if you show a type of brick that is readily available and commonly used for building that has a useful R-value. As far as I'm aware, that doesn't exist outside a few niche products.
> I don't get how "reducing heat transfer" is not "insulating" though.
I never said that.
> Another plus of bricks I left out is soundproofing.
Sure. There are many advantages. I only and specifically took issue with your claim that brick is a good insulator, because in the general case it is not.
I don’t disagree with the zoning and permitting process needing reforms, but I have a tough time believing that it’s responsible for more than 10-20% of the price. Have you read any analysis anywhere to suggest otherwise?
> Houses literally have had appliances and HVAC systems for a hundred years, and largely modern ones for at least half that long
Just so we’re on the same page 100 years ago is 1923.
The first AC unit was installed in 1914. The first room AC was in 1931 for the “affordable” price of $10k-50k. There was not mass adoption of HVAC systems until much much later and homes weren’t design for central air until like the 50s or maybe even after that.
Same goes for fridges and washing machines. 1950s was when that stuff became a bit more common place. But the first fridges started trickling out in 1913. Freon came in the 1920s and fridges became more common place by the 1930s. Freezers came later in the 1940s but before that it was ice boxes if you were on the wealthier side. Same goes for dishwashers and laundry. It hasn’t been a hundred years yet and those innovations really became commonplace only after WWII because America became super wealthy (only major power not massively impacted by WWII) and was heavily industrialized for the war effort and those factories and manufacturing expertise could be repurposed for non war production making goods like this cheap.
> I don’t disagree with the zoning and permitting process needing reforms, but I have a tough time believing that it’s responsible for more than 10-20% of the price. Have you read any analysis anywhere to suggest otherwise?
Not really, but 10-20% of the price is not small.
> The first AC unit was installed in 1914. The first room AC was in 1931 for the “affordable” price of $10k-50k. There was not mass adoption of HVAC systems until much much later and homes weren’t design for central air until like the 50s or maybe even after that.
The air conditioning part of HVAC isn't a necessary part of housing construction even today. There are plenty of new homes sold in the colder parts of the country without central air.
Some kind of furnace or heating stove has been a common part of home construction since long before 1923.
> Freon came in the 1920s and fridges became more common place by the 1930s.
Does it really matter if it was 1923 or 1933 if the rise in construction costs wasn't until decades later than either of them?
We aren't allowed to start a home build and finish it over time. You aren't allowed to move into an "unfinished" house. You have to get a permit for every tiny thing.
You don't really own your house the way you can own a car or a bicycle: the government treats you as a temporary custodian of its property and you must pay it dearly.
Haw can a government prevent you from starting a build and finishing it over time? I'm genuinely curious. Here in Poland it has been a very popular method of building a home. I myself used it and it took me 7 years from start to finish (ceramic blocks and concrete construction).
Also the same about an unfinished house. How about finishing one "floor", moving in and then finishing the rest?
Every permit has a limited time it can be open. You are not allowed to begin working until you open the permit. Each permit is very, very expensive. Let's say I wanted to remodel my bathroom in two stages: first sink and floor and toilet, next year shower and fan. I would need electrical permits both times (>$500 each with inspections), plumbing permits both times (>$500 both times), mechanical permit (>$200), "remodel permit" at least the second if not both ($300 + 1/3 of "equivalent cost for the full job if a contractor were doing it"). So massive financial penalty to doing it piecemeal.
I wanted to move some non-load-bearing walls. To grant a permit, the city required I provide full blueprints for the entire house including the slab and foundation; documents they themselves didn't have when the house was actually built from the ground in 1950 nor when it gained a new floor in the 1960s.
Every time you open a permit, everything you touch has to be brought up to that year's code. You installed wiring in 2011 under the first permit but by 2020 they have new requirements and so you have to redo it because you want to add one outlet to the end that would have been considered perfectly safe in 2011 (and still is under any reasonable cost-benefit analysis).
Layers and layers of regulatory capture and revenue generation have made it financially infeasible to build houses gradually while compliant with the law. My city has somebody driving around trying to catch you working without a permit.
The only time when I encountered something even remotely similar here was when my parents lived in a big apartment building and they wanted to remodel a 4 bedroom flat into a 5 bedroom flat. We did need to get all kinds of permits, submit various certified drawings (mainly due to planned installation of the extra window on the outside), the permit was for 2 years, but it could be extended. I remember permits weren't expensive, but it took a lot of beaurocracy.
They needed all these permits, because it's an apartment building, also it's owned by a local version of a coop/housing association. It's a peculiar ownership structure I suppose common to ex-communist countries. Each member owns shares in the coop and the coop owns all the land, the buildings etc, it evolved from the communist times. It let people keep their flats without having to buy them fully. My parents couldn't buy more than a 5% stake in the flat and they paid rent for the remaining 95% (in addition to all the maintenance etc).
Many years later when I was building my house. The actual permit to build cost me $30 in fees. Of course I had to hire an architect, a building site manager, a land surveyor which amounted to around $3k if I remember correctly just for them to create all the paperwork, put their stamps on it and certify what I'm about to build is not going to fall on someone's head a decade later. Once I finished the house I had to submit a notice of finishing with 12 pieces of paper if I remember correctly that ranged from my electrician and plumber statements with their respective qualification numbers, to my well water lab analysis results, the ventilation survey, the energy efficiency survey and more. Most of these cost me money paid to individuals that did the checks, but not to the city. The notice was free to submit (well, it's cost was included in the $30 for the permit).
In most of the US (by population density) you are not allowed to do that type of work without a permit and permits would not be allowed to be open for 7 years. You would not be allowed to move into a house of any part of it did not meet current code, so the entire exterior would have to be complete, with insulation and insulation must be covered and every room must have so many outlets and so on that effectively almost everything except baseboards and casing needs to be complete before you could move in even to part of it. Hard to save money if you have to pay for two homes and permit renewals for years.
You would need to get a certificate of occupancy, yes. You would also need permits for some unfinished work, too.
You brought up the exterior needs to be finished. Do you expect to move in with just the frame? It seems fair to me to have requirements of basic livability and safety.
You could move in with things like some of the bathrooms unfinished, a kitchen unfinished if you have a kitchenette elsewhere, extra bedrooms unfinished, etc.
In the man*hours building is cheaper nowadays but the nominal cost of labor is much more thus the total cost is higher. The labor costs raises because supply has constricted. I figure the reason is that many choose degrees in random subject and retail work afterward instead of trades, which is understandable as trades are much harder and the degrees are subsidized.
You need to look up k at the labor cost and time taken to building a brick house in addition to material cost. My GC took a week to get the concrete foundation but did the sub floor and framing in a weeks time. It is incredibly fast to build and very efficient use of labor. The homeowner benefits as the labor cost is lower.
1. Construction is “cheap”
2. It is semi unskilled labor.
3. There is land scarcity
4. There is great arbitrage between purchasing a lot, building and selling.
If you can accomplish a few deals, wind and dine local (and I mean local local) investors and banks - money flows and you have a name for yourself.
At least in Canada, the cost to build a typical home is soaring. A friend in Victoria bought a year ago and wanted another for his parents. An extra 150K for an 800K (originally) home.
I do mostly construction financing for a living and can confirm, housing construction costs in BC are ludicrous. A major factor in the jump is the build code changes and new environmental and safety requirements. All those extra electrical circuits and that extra insulation is making houses significantly more expensive than they used to be.
I understand that, but it means that labour cost has increased faster than we have improved our process of building homes, even though the finished product uses cheaper materials and has worse outcomes. I would like to look into timeframes of home start to completion to know if we are faster at building now, my gut feeling from friends and family is that getting a home built takes as long if not longer, but I can't back that up. Regardless, still a major societal problem to fix. Are wages needing to be higher because housing is more expensive? If we had a cooler housing market, would people be happy being paid less as they could afford the same standard of living with less?
I think it's because house construction techniques haven't improved. Look at cars: back in the old days, cars were hand-built, one at a time, and were horribly expensive. Then Henry Ford utilized the assembly line process and made car assembly much more efficient: instead of laborers sitting around waiting for other workers to get their part done, everything was organized to maximize labor utilization.
Houses aren't like this: they're still made with the same primitive construction processes used centuries ago, by people who are all semi-independent contractors and not an organized labor force.
If houses were made in factories the way cars are, you wouldn't be complaining so much about construction costs. Sears tried addressing this problem over a century ago with their famous kit homes, to an extent (by standardizing and factory-izing much of the carpentry work and then delivering the parts to the site to be assembled more quickly by local labor), but those are gone now for whatever reason and the industry returned to doing all the labor on-site.
That's not surprising. Distributing the cars to the customers from that centralized assembly line is easy.
Houses, not so much. Mobile homes can be built and distributed that way, but that's the hard size limit since you have to transport them via roads.
With mass-produced houses they do put together cookie-cutter sections of walls and roof structures at the assembly line and truck those in to the site where they get assembled together. But you'll always face a hard size limit since no section can be larger than what can be trucked in. Even a tiny house is far larger than what a wide-load truck can take on the road.
The Baumol Effect may be at play. If over time the average worker has become twice as productive (farm combines, computers, factory robots) but construction workers have only become one-and-a-half times as productive, then construction grows more expensive relative to other goods and services.
It's very counter-intuitive, but in essence labor is reallocated to its most productive applications, so if a certain type of labor does not get more productive while others do, labor is moved to other applications (unless you are willing to pay more for less)
One way to think about this is about how the fruits of everyone's labor gets split, much like a tribe deciding who gets what part of the animal after a hunt.
By creating systemic housing shortages that enable rampant speculation and incentivize hoarding and "investment" in non-productive real estate ownership, we are deciding that real estate owners deserve a bigger share of the output of our labor.
When a majority of the voters in a country have most of their wealth in housing assets, this is merely those with the greatest vote deciding to use regulatory capture to enrich themselves, directly at the expense of those who do not own.
> So at what point does anyone get to keep the money?! The only ones that win are the banks.
When they retire and downsize. The housing market is a scheme designed to funnel money from the young to the old. That’s why they keep voting for policies which keep house prices high. It’s not uncommon in many countries for the older generations, who bought their first homes for peanuts, to own multiple homes. They’re doing really well out of this chaos. All while young people are having to delay families because they can’t afford rent, let alone an apartment or home.
The housing crisis of 2008 was probably one of the most economically destructive events in Spain, where I'm from. On the runup to 2008, you would hear stories of people buying a home and it going up 10-20% year over year. You'd literally be an idiot not to buy the most expensive home you could afford as fast as you could (facilitated by 100% mortgages from banks).
The rest is history. People were flipping homes and making bank until the financial sector melted down, and then they couldn't. These days prices still haven't recovered to their peak level. People might not be getting those mind boggling ROI buying homes, but in general is more affordable to do so, and many people seem happy about it.
> You get to keep the money when you move to a less expensive area. Or you retire and downsize.
I live in a satellite township to one of the poorest suburbs in Melbourne, Australia. My house is tiny, too small for the four of us, and has cost us nearly $100k just to make it weather-tight (also with $10k of solar panels). So, in total, we have spent nearly $800k for a small home that is too small for our needs.
If I were to move somewhere less expensive I would not be able to do my job. As it is I have to spend 3 hours a day (minimum, some days it can be up to 5 hours if there are train issues) commuting to my place of work.
Australia is a huge country with a handful of large cities with amenities and only hundreds of small towns which do not. The only places where housing is on par with US towns (i.e. 150k-300k) may be in the middle of the outback, 10 hours drive from the nearest city, and be so ramshackle and run-down as to be unlivable.
It's very, very rare that people move to a less expensive area or downsize. The exception is when you're too old to take of your house.
I talked to a friend of mine and pointed out that if they sold their house in the city they could move to the inexpensive part of the country where I live and basically retire and live off investment returns.
> But what's the point of it being worth $1.5m? Because now if you want to move, the house that you have to buy is worth proportionally more.
But if you move to a cheaper area, say because you now work from home, or for whatever reason you don't need to be in the expensive one anymore, the difference has also proportionately increased.
I also think the situation is crazy (specifically in France, where I live, too). But I don't see an easy way out. Regular people owe way too much to their banks to be able to accept a drastic decline in prices.
WFH won't last and prices won't decrease unless there's pressure to do so (less demand). There isn't going to be less demand unless 1. we're not having children and 2. the country keeps immigrants out. So it's a debatable decision. By moving out of major cities one could gain by not having to breathe the polluted air but then they lose on commuting costs and time wasted commuting, unless they work in agriculture where the pay is usually crap.
You buy a house. It grows in value. You then use that value as a down payment on a bigger better house that you now pay as much as rent for monthly. And you multiplied your wealth and have a wonderful place to live.
When you retire you sell that house, buy your kids a down payment, and yourself a place in a low cost of living area. And now you enjoy the fruits of your life's labor till you die.
But this all relies on population growth and a lack of better housing options. A. K. A. House prices generally always go up.
Now, you just about manage to buy a tiny starter home in your late 30s or 40s. You just about pay it off by the time you retire if you're lucky. You could never afford to get a bigger house.
Or you're in a shared ownership scheme because you could never buy the whole small flat you "purchased"...
this is true. Being 39 I realized I still can't pay down that down payment because I don't have a vast amount of money I was able to save up, being in a HCOL area, and even if I do get a loan, I won't be able to pay it off before I retire (If I live long enough). And every time I save another chunk, the cost goes up so much more that the chunk I saved may as well have been zero, so I need to use that money to live by this point. Not to mention that mortgage gets more and more unaffordable.
It is a horrible spiral, and I have no idea what I can do about it, other than get richer parents.
The solution I found was to move to a lower cost of living area. I also changed to contracting which paid more. The combination let me buy a very small house. I couldn't afford it now though, I'd have to move even further away...
if i lived alone, sure, but moving away from my family, away from my friends, away from my partner's friends, away from my child's friends, basically starting a completely new life... it isn't something we'd be looking for. All while facing the fact that many parts of the country (USA) isn't very friendly for women, or for non-white people, and having to be in a position where I can still find good work.
"Just move" has been a very challenging outlook for me to combat :(
Not everything got more expensive proportionally. Somehow apartments go up much slower, and so do rural home-on-a-hectars.
Many people seem to have invested in leveraged 2-3 urban properties, they don't need to move out from them, they can just reap their 3x growth over 10 years, pay out their loans and retire.
I'd say the whole thing is a failure on legislators' behalf. Capital gains tax discounts (up to 100% if you've lived a year in each of your houses), unquarantined tax deductions for interest and upkeep, low land taxes, probably many more. All that while importing ridiculous quantities of low-pay workers.
You are injecting capital into their economy also, so it isn’t just bidding up the local real estate market. A lot of Southeast Asian locales are also overbuilt on housing, so adding a few expats into a luxury tower isn’t going to influence the housing market for locals very much. Plus, the Philippines has laws against foreigners owning land (they can only buy a condo in a building where 60% of the units are owned by locals).
The biggest problem with retiring abroad is Medicare doesn’t transfer, so you have to fund your own medical care (and family you can’t see as often).
Those costs go to some rich locals, and the wealth divide grows.
I'm not against people moving around, I would love to go live in Portugal eventually, but the Portuguese at the moment are quite angry at the cost of their housing.
I was ready to buy a house last year, but I got cold feet. It seemed like everyone selling was stuck going to where they wanted, depending on a buyer to relieve them of their commitment.
I think we mistake “buying” with “loaning”. I don’t have anywhere near 100% of a home’s cost in cash.
Do I want tax exemption for committing to paying debt for a decade or two? Sure! Do I want to be stuck living somewhere that is either insanely priced and easy to sell, or affordable and hard to sell? Nope!
I’ll buy a property when I’m ready to go Minecraft on the sucker.
What's more insane is that these houses have tiny rooms, poor build quality and lack basic fittings like pull out kitchen storage. You get a giant cardboard box for half a million.
Don't forget the land, you get the land and a spot to live close to everything around it. This is often the true source of increased imbalance between wages and housing costs: increases in land values.
Investors with multiple properties can enter and exit the market as they choose.. buy the lows, sell the highs. But more importantly is a safe haven. When everything else is going to shit there are more people wanting to buy a house in Australia than houses for them to buy(and it’s most concentrated for areas like Sydney, Melbourne).
For those with one house… your point is very valid. A lot of stress for a questionable return.
They go up but it doesn’t matter because you’ve more than made up for it in the higher cost market.
When someone from SF sells their $2.5 million dollar home to retire to Orlando, it doesn’t really matter if Orlando median prices recently doubled from $200k to $400k.
Rich people cashing out of higher value markets and/or investing in lower value markets is what drives the price up though.
Someone in Orlando who bought a house at $200k might feel excited that their house is worth $400k but it’s irrelevant because if they wanted to move house then wherever they might like to move has also increased in price.
So? The discussion is about how you’re better off being in the top end market. The people who spent their life in Orlando or wherever else that had normal housing are at the whims of people coming from crazy housing markets
So you retire to some rural community where there's no services, and the local hospital has either closed or has terrible service because all the competent nurses and doctors have left, right when you're getting old and need a lot more healthcare services.
People very frequently sell out of high real estate markets like the Bay Area and move to places in Arizona and Florida that have much better elderly healthcare.
Because people want to live there while they have a career and raise a family.
Setting that aside, it’s not a Ponzi scheme when anyone can sell their security. You’re probably thinking of the Greater Fool Theory.
Either way, it’s still not correct because making money isn’t the primary reason everyone is buying homes in the Bay Area at least. They need a place to live and don’t want rent to go up in perpetuity.
People that downsize to tiny or old homes win. The only way to win is not play the game and move to somewhere in the Midwest.
> The phrase "Kobayashi Maru" has entered the popular lexicon as a reference to a no-win scenario. The term is also sometimes used to invoke Kirk's decision to "change the conditions of the test."
It's bidding against other people for access to scarce desireable urban housing in presence of cheap credit. I think it's a scam only if you fool yourself into thinking it's an investment rather than consumption with a bit of all-eggs-in-one-basket speculation.
Right! I keep saying I want house prices to fall so I can buy a nicer one!
Apparently human psychology works in such a way that people tend to feel richer if their house goes up in value and they spend more as a consequence. People are weird...
>So at what point does anyone get to keep the money?!
If the rental prices are really low relative to buying the units outright, then you put the proceeds in an investment account, and pay a portion of the returns to rent.
> So at what point does anyone get to keep the money?!
When it's inherited. No doubt inheriting a large sum helps people trade up to a better property, and park a new range rover out front.
> his analysis on the accumulation of capital has never been disputed
Within a Malthusian, i.e. zero or close to zero real growth, economy. And assuming no wealth transfers, e.g. welfare and taxation. Or bankruptcies and recessions, i.e. where accumulated "fake" capital is destroyed. Or limits to economies of scale, i.e. where "the larger capitals beat the smaller" [1], e.g. diminishing marginal returns or even antitrust.
Overaccumulation ("when the rate of profit is greater than the rate of new profitable investment outlets in the economy") is analogous to starvation (population growth > food supply growth).
It turns out we were able to both increase food supply more than Malthus expected and the profitable investment outlets more than Marx expected. (We're also better at moderating population growth and destroying surplus capital than either expected. Both predicted proximate doom where it didn't appear.)
Malthusianism and Marxism are also both discredited (albeit not useless) economic models from empirical and theoretical perspectives.
I'll take that as "nothing." Marx's analysis on the accumulation of capital has nothing to do with Malthus.
You haven't even answered my question. Why would I waste my time?
That said, Marx was a 19th century economist. Just like every other 19th century economist, he did not have a time machine and did not predict neoliberalism or modern financialized economies, which are still in their first test run. Hold your horses, sweetheart.
Having read Marx, it's important to understand that the political economy he discusses although founded on LTV, is substrate independent, ie: it could just as well be affixed on top of marginalism. The reason that no one has done so is that it doesn't matter and wouldn't change anyone's minds.
The interplay between social relations and economic relations are the entire point of the body of work and are entirely separate from any particular conceptualization of economics.
It's a much more mature and honest stance to say, yeah, he was wrong about this minutia, but right on these other things.
> he was wrong about this minutia, but right on these other things
I totally agree. And in a technical sense, his work is correct. If we didn't do wealth transfers or antitrust enforcement and had prolonged low or zero real growth, what he predicts would happen. (Same with Malthus.)
The point is those minutiae matter. Which is why, as a philosophy, Marxism holds its own. As an economic theory, it doesn't. Calling his theories on capital accumulation undisputed is simply wrong.
I guess it depends on what you think he predicts would happen. If it's workers revolting against capitalists, then sure, the trickle of bread works to diffuse this. If it's that economic relations would continue to define class relations, then he was absolutely spot on.
Marx's analysis biggest weakness is actually housing, and it shows. He uses a two-factor model of production, land and capital, and completely ignores land as a factor of production with characteristics quite dissimilar from capital. (At least on the broad economic sense, land is quite different, even if in accounting it is pretty much capital.)
His later parts of Capital Part 3 on the class of landowners was good, but he never finished it. The first directive of the Communicst Manifesto, confiscating and redistributing land rents, was something that would have actually helped capitalism quite a bit to be more productive and improve everyone's life.
A housing situation like the modern US would have been ridiculous for any 19th century European to write about. Having most of a population living in homes occupied by their owners was unheard of and irrelevant at that time and/or place. Popular home ownership comprises a uniquely American political strategy.
Calling this a "weakness" is just laughable. What other 19th century thinkers are you holding to the standards of a God?
Those are both American countries, but that isn't necessarily the point, which is a historical one. Tapping bits of seemingly infinite natural resources to expand land-owning constituencies has played an overwhelming role in the history of the United States and all over the New World.
There are more than two countries on that list. Most aren’t in the Americas.
Laos, Romania, Kazakhstan, Slovakia, Hungary, Croatia, Macedonia, Vietnam, China, Serbia, Lithuania, Russia, Singapore, Poland, India, Myanmar, Nepal, Bulgaria, Indonesia, Taiwan, Latvia, Oman, Estonia, Malta, Norway, Thailand, Czechia, Portugal, Malaysia, Slovenia, Spain, Egypt, Kenya, Italy, Iceland, Greece, Belgium, Luxembourg, the Netherlands, Ireland, the EU as a whole, Cyprus, South Africa, Finland and Australia each have higher homeownership rates than the United States.
Except many European countries have significantly higher home ownership rates than the US.
Belgium for instance which has been one of the most intensively economically developed areas over the last 700 years higher he ownership and interestingly both one of the highest median wealth per capita AND lowest(!) wealth inequality in the developed world.
That’s pretty much the opposite of what you’d expect (of course you won’t reply to this comment now).
In very simple language. You had a loan for just under a million and now when you sell you have an extra $500k equity which you can use as a deposit to secure better terms on the next house, or have the next jump be bigger. In the hypothetical environment where house values did not increase it’s very unlikely you’d be in a position to make a large jump after just a few years because you would have barely made a dent in the loan through your monthly payments.
Because you own the house via loan, house prices going up 20% could easily mean your equity going up 100-200%. That’s the key thing that means you’re in a better position than the static house price environment.
I bought a house at the end of 2020 for $430k with a loan of $337k.
I can't borrow more than that now, my real income hasn't increased, I still have the same sorts of liabilities and expenditures that I had then.
So even though my house is now worth maybe $700k, if I want to move, I have to find a house that I can buy for $700k.
I have paid off something like $20k, so maybe I could find a house for $720k and move into it.
Thus the only way I can move into a bigger/better house is to move somewhere that $720k gets you something bigger/better than in my current location.
But guess what? House prices are up everywhere. You might be able to find some lucky arbitrage opportunity, but you're not going to get any sort of noticeable increase in quality and size.
The advantage of owning a house versus renting is therefore not that you benefit from the rising price of houses, but that your buying power moves with the market and your "rent" is limited to the interest you pay on your loan (because you're paying down the principal as well).
When you're renting, you're flushing your money down the toilet plus trying to save enough for a deposit relative to a market price that accelerates well beyond almost everyone's capacity to save.
> your buying power moves with the market and your "rent" is limited to the interest you pay on your loan (because you're paying down the principal as well).
The "because you're paying down the principal as well" seems like a red herring, no?
If you bought a house for $10.00 and paid $100.00/month, it'd still be worth it even if none of that went to the principal. Heck, even if your house became worthless too, it'd still be worth it!
> When you're renting, you're flushing your money down the toilet plus trying to save enough for a deposit relative to a market price that accelerates well beyond almost everyone's capacity to save.
How do people make such a broad generalization without looking at any numbers? Shouldn't the costs and benefits of this depend on factors like the mortgage/interest rates? Is there a reason to believe that it's a net benefit regardless of the interest rate?
> If you bought a house for $10.00 and paid $100.00/month, it'd still be worth it even if none of that went to the principal. Heck, even if your house became worthless too, it'd still be worth it!
Paying off an interest only loan on a property may well be better than renting but it’s more like renting than paying principal + interest.
When you pay off an interest only loan your “rent” costs are your entire mortgage payment.
When you’re paying principal + interest the “rent” is still only the interest portion of your payment.
In both cases you keep pace with the market better than if you’re renting.
If the only way you could avoid renting were to get an interest only loan then that’s certainly a better option.
> Is there a reason to believe that it's a net benefit regardless of the interest rate?
Yes renting is objectively the worst possible financial situation regardless of interest rate (definitely true in Australia, possibly true elsewhere as well).
Aren't you still assuming that the monthly payment is the same for mortgage vs. rent? When they're the same, obviously buying is better. But the entire point I was making with my example was that those aren't necessarily the same, so you can't just say "renting is worse" without comparing the numbers...
House prices increasing are "good" for homeowners because you can potentially tap into the equity to leverage for another investment. The typical play in modern Australia is to buy an investment property and then use negative gearing to reduce your personal income tax bill.
Continually "upgrading" your primary place of residence is not something that anyone does. Unless you live in the ACT you would be forced to pay stamp duty again too.
Yeah but you can only do that if you can borrow more money. You have to show capacity to pay even if you’re using equity as collateral and expect rental income.
I think maybe the “use equity to buy investment properties” advice was popular when lending was super loose prior to the GFC and maybe some dodgy brothers mortgage brokers are still getting them through but without an increase in income you can’t just ratchet up your leverage (at least not anymore, I know 10-15 years ago everyone said that you could do this but I didn’t own a house at the time so I don’t know if it’s actually true or just hype sold by investment gurus flogging overpriced Gold Coast apartments).
That's true, you're completely correct that income is still a constraint.
However, there are a few other factors that can increase borrowing capacity significantly. First, personal incomes tend to increase over the course of your lifetime as you get promotions. Second, when in a falling interest rate environment your borrowing capacity is increasing at the same time property prices are being pumped up. This is exactly the time when people tap into that equity. Third, you can get a slightly better rate at lower LVRs, which can help a little bit as well. Finally, a lot of the people who use this strategy have very high incomes to begin with and their borrowing is constrained by their available capital, not their incomes. This is why every neurosurgeon has a negatively geared property by the time they reach 30.
The reason this has been a popular strategy for a long time is that interest rates have been falling for the last 30 years. It's not so attractive right now as interest rates are increasing.
The mortgage market must work differently in your country. Where I live, deposit size relative to property value absolutely increases your buying power, they don’t just look at income and outgoings.
What’s the difference? If housing prices all go up at the same pace you’re still pretty much were you started. Yes you can afford an X% higher deposit but prices have also increased by X%.
House prices might increase by 20% but your new deposit compared to the deposit for the initial house you bought could easily go up 100-200% (or more). Your equity has grown disproportionately to house values. That’s the massive difference and what allows people to “climb the ladder”.
Very rarely do house prices go up in a vacuum. Your house went up but so did the one you want to upgrade to. So it's $1m mortgage now for a basic house in a less than desirable suburb, which is very common now for the median home in Sydney.
People seem to think they will downsize and cash out their gains, but very few do. Australian cities are at a minimum 1000km apart, if you actually want a good price differential you are going to Perth, that's over 5000km away (NY to London) so you are a long way away from any friends and family you might have.
And I've always wondered whether it isn't a bit of a scam, really. Not a deliberate scam, just one that we've all fallen in to. [0]
People buy a house for $1m and then they're pleased as punch when a few years later it's 'worth' $1.5m.
But what's the point of it being worth $1.5m? Because now if you want to move, the house that you have to buy is worth proportionally more.
So at what point does anyone get to keep the money?! The only ones that win are the banks.
[0]: Except me, because I never bought a house, and now I'm 46 and I rent. :-/