In https://philip.greenspun.com/blog/2019/04/03/malthus-was-right-but-it-is-real-estate-not-food-that-is-limiting/ we looked at data from cities around the world. “Housing’s hidden crisis: Rural Americans struggle to pay rent” (CBS) says that a lot of Americans can’t afford housing even in thinly populated areas of the U.S.
Since there is plenty of land in rural areas, I’m wondering if high costs can be partly explained by high materials prices due to demand from a growing economy worldwide. The 25th percentile American worker can’t afford cement for a home foundation because a 75th percentile worker in China or Mexico has purchased the cement instead.
Related:
- “Bay Area Housing Struggles Extend To Farm-Rich Salinas”: “Salinas families earn a median income of $69,000, while the region’s 90,000 farmworkers bring in far less. They face a median home price of nearly $550,000 and two-bedroom apartments costing roughly $1,800 a month, according to Zillow.”
Apparently Chinese competition for cement did not affect Stokton. tps://www.trulia.com/CA/Stockton/ . It is even cheaper in the mid-west. Why Maltus? It is so 1970th. Now it is global warming. Or Trump! Maybe Kavanaugh?
AFAIK, cement, gravel, sand, bricks are produced locally because they are really heavy and really cheap. I.e. I bought a bag of gravel at Home Depot – turns out it was produced just 10 miles away from this Home Depot.
Basically, the problem is not with the cost of materials.
http://www.worldstopexports.com/cement-exports-by-country/ has some data on the export market for cement. It does seem small (only about $10 billion of exports compared to $355 billion for worldwide consumption; see https://www.grandviewresearch.com/industry-analysis/cement-market ). But, on the other hand, if there were large price discrepancies then we should expect to see trade to grow, no?
What is exact threshold for Malthus becoming relevant in real estate? Today minimal single home building price of about $90/sq feet (~$140,000 /2,0000 sq ft or so) is 50% greater than nominal $ price of same 20 years ago in old $$. Just few year ago we still had housing downturn and subsidized wood from Canada and someone still could buy new house at price comparable to one 20 year ago. So Trump tax personal cuts, capital repatriating corporate tax cut and push to produce staple but important base items domestically along with incomes rising first time in 9 years and local housing regulations favoring prior home owners who do not want to upgrade trigger Malthus? I thought it was called economic conditions.
How about building low cost housing out of high population density areas and moving the “homeless” there? On the savings, we could provide healthcare and adult education. China’s “zoned cities” are starting to look more and more appealing. Basically, you have to obtain a permit to work in, live in, or even visit the richest parts of Chinese cities. No crime and the riffraff is relegated to the suburbs or the country.
Cities have tried this. They would find some corner of the city in which real estate values were low because it was inconvenient to jobs, etc. Then they would build a huge housing project. Then, since it would be a two-hour round-trip commute every day to a job, nearly all of the residents of the project would rationally decide not to work. So the true cost of the project was the construction cost of the building plus a lifetime of free rent, free food, free health care, and free smartphones for most of the residents, children of the residents, and grandchildren of the residents.
See https://www.nytimes.com/2012/12/04/nyregion/how-new-york-citys-coastline-became-home-to-the-poor.html for one example. It is a permanent beachfront welfare colony. Notice that nobody in http://nymag.com/intelligencer/2017/08/this-nyc-housing-project-works-whats-different-here.html is described as having a W-2 job (“ultimately uplifting attitude that decent housing is a human right and society has a duty to provide it” — but if it is a “human right” why do some people get nice free apartments for 40+ years while others are put on a waiting list for 10 years and get nothing during that time?).
It’s so very frustrating when Person A (probably a politician) says “we don’t have enough land/homes” for immigrants and Person B (probably a comedian/pundit) responds with “what about Detroit/Nevada/etc”. Because entire communities comprised of people with no assets are going to just build thriving cities here out of nothing but dreams. American citizens let Detroit fall apart – how are poor immigrants supposed to rebuild it?
A Bangladeshi Uber driver told me that Bangladeshi immigrants were rolling in the Benjamins from buying up decrepit housing in Buffalo NY and Detroit for close to zero, fixing them up, and then reselling — to other Bangladeshis. He described these cities as Nirvana, said lots of Bangladeshis were moving there, had their own grocery stores and so on. He did not think that the cold weather was a big factor — given the opportunities. His wife was a nurse and he had had some other job but got laid off or something (his English was not that great) but he was very cheerful, happy to be in the land of opportunity.
Jack: I think that your story about Buffalo and Detroit supports the hypothesis of the original post. Americans with low incomes can thrive in places where there is a lot of mostly functional infrastructure that has been abandoned. An Uber driver can afford a 50- or 100-year-old house in Buffalo or Detroit. The Uber driver could not afford to pay the construction cost of a new house or apartment, even if the land underneath were free.
Some shortages, and the resulting higher prices, are natural; some are artificial:
https://philip.greenspun.com/blog/2019/04/16/career-advice-be-a-harbor-pilot/
This analysis applies to health-care and education as well.
There are other artificial factors that raise prices as well, the greatest beyond excessive regulation are excessive subsidies.
We are at the point where government is a net cost. Anarchy would be preferable to this current bureaucratic tyranny.
We are still a democracy last time I checked. Sure, public employees’ unions are some of the biggest lobbies at the state and municipal level, but in the end apathetic voters get what they deserve, ideology over accountability, rent-seeking bureaucrats over results.
FM,
In practical terms, this is no longer a functional democratic republic. You are correct in citing the loss of virtue in the general population as the source of this loss of freedom. Rome was also nominally a republic for over a millennia after Octavius assumed the purple mantle of Emperor.
When was this magical time that people were so virtuous and freedom reigned?
This is what our economy has been streamlined to do: keep wages flat while growing the prices of necessities(housing, healthcare) up to their breaking point so that the very few can benefit at the expense of the many. Seems like all the folks with access to the capital and leverage to get things done always take care of themselves foremost. What company has the mission statement: “building the most affordable housing,” or: “paying our employees as much as we can”? It’s only going to get worse. There’s zero indication or impetus that the trend of wealth inequality will change. Especially now that the propaganda machine is so fine tuned that a solid 40% of our citizens believe in the magic of “job creators” and trickle down economics.
Senor Pablo,
We are in disagreement as to problem. Our disagreement lies in that I find the problem lies in the 60% of the population who think greater government will solve these problems.
Mememe, what do unions and shifting the tax burden upwards have to do with larger government? Tax the few more so you can tax the many less. I don’t know why everyone assumes that liberals want larger government. In fact, I’m all for decreasing military spending. Unions aren’t perfect, but one can’t deny they provide positive outcomes for the middle class. It’s one tool, like taxes, which can be useful for bending the curve of wealth distribution.
Anonymous, are you an anarchist? If not you must read on history of US taxes, let’s say at https://www.investopedia.com/articles/tax/10/history-taxes.asp After over a century of income tax in the US your scenario seems extremely not likely. Actually it is how income tax was sold to general public in the first place, it was very progressive, top tax bracket was 7 times lower tax bracket.
The economy is not what’s causing unaffordable housing or expensive health care. Price signals are just the messenger. Housing prices are caused by land-use restrictions sponsored by NIMBYs, usually self-righteous Baby Boomer hypocrites, to keep their house prices high and poor (and brown) people out.
Ideologically driven urban planners hostile to cars in places like NY or SF make cheap suburbs not an option for most because inefficiently run transit systems are unusable, despite costing 3x more than in every other industrialized economy, and people need a reasonable commute time to work.
As for the health care cost explosion, it is mainly driven by rent-seeking doctors who managed to get their AMA union/guild to manage licensing, a clear conflict of interest if there was ever one. The US started diverging from other industrialized economies around 1980 or so, again the era when Baby Boomers adopted the “greed is good” ethos en masse.
In all cases the culprit is government capture by entrenched special interests, not the markets or even the ultra-rich.
Fazal Majid, this post about cost of building new single family home in exurbs, where regulations are not too expensive. This issue is mostly economical and a little social, as labor is one of the important part of the cost. Google lists average rate $70/hour but it is probably overestimation.. Consistently local qualified labor can be hired under $50/hour in most parts of the country. Not about NY or SF NIMBY.
Doctors have no monopoly on pricing in the US, all practices ins contested by Insurance companies and government (Medicare) and doctors often paid peanuts for qualify work. Medical special interest fixing prices is beyond the point. Other thing is regulation – in NY hospital walking patient can not walk by him/her self, there are special people who move patients with broken pinky finger for several yards from point A to point B, another person to C from B, yet another person from D to C etc… If you think that doctors are too rich, why are they working instead of investing? With IQ required for medical school it is easy beat their yearly salary with initial investment of at most $10,000,000. Which would not buy them a townhouse in Manhattan.
Perplexed, Tell me that you’re smarter than Bill Gates, Warren Buffett, and Ray Dalio on the subject. I think I’ll take their word over yours. They have actual experience becoming billionaires.
Maybe there are just too many people? It seems only economists and politicians didn’t think that adding millions of immigrants per year would push real estate prices beyond affordable for native citizens.
On the other hand (as economists are so fond of saying) the $ from trillion$ trade deficits is now used by foreigners to buy up our real estate, instead of buying our exports as free-trade economists and politicians predicted.
Not yet. In one of the densely populated countries – India – 1000 sq ft house costs equivalent of $15,000. If the issue was globally Malthusian and not socio-economic this could not happen.
Anonymous: Are you sure that the $15/sf construction cost number for India is comparable to U.S. costs? Based on what I saw in India, what they call a “house” is more like what we call a “garage”. How many bathrooms in that 1,000 sf house? What’s the kitchen like? What kind of insulation does it have? Does it have the same number of windows per sf as a U.S. house?
Philg, that’s part of my point – this is social economic. What you describe looks a lot like US 2 – bedroom pre-fabricated frame house and new it costs more than $15,000, around $100,000. We are not in Malthusian territory yet and may never be there. People can get amenities at varying costs. I do not have experience with Indian housing and pick numbers of Google. But 1000 sq ft size is considered a decent place to leave in many developed parts of the world. I used to leave in smaller ~ 600 sq ft apartment but built to much higher standard than typical US construction material and design – wise . The costs for such dwellings are varying based on local markets and varying, usually prices are quite high. I also used to buy Indian floors and decorative materials – they looked very nice but lacked longevity.