Friday, July 7, 2017

Housing: Part 240 - It's great to see some movement in the right direction.

One of my worries is that when my story gets a wider audience, there will be too much defensiveness about the conventional narrative, and my story will just have too many new re-interpretations of the data for many people to accept.

So, it delights me that over the past several months, there seems to have been a lot of positive movement in the direction of YIMBYism, even in California at the state level.  One of the oddities of discourse on this topic is how rent clearly is an important factor in rising Closed Access prices, yet in debates about whether the bubble was caused by credit supply or credit demand, there is rarely any mention of rent at all.  This leaves academics to simply argue about whether it was irrational bankers or irrational borrowers that caused the bubble.

But, among all the factions in post-recession Closed Access cities, there is no debate or question.  Rising rents are the problem.  And, increasingly, the role of supply constrictions is becoming too obvious to deny.  Once that pillar is knocked down, the fa├žade of a credit-fueled bubble destined to collapse crumbles.

Similarly, important people like Narayana Kocherlakota are coming around to key factors in the crisis.  He recently tweeted:
And, the replies, to my mind were weak.  This issue has been astoundingly ignored.  The reason is that we generally came to agreement that the causes of the bubble were almost all forms of American exceptionalism before we fully addressed the empirics.  This tweet is basically the foundational question of an important early chapter in the book.  I'm am very happy that Kocherlakota is already there.  The rest of the story should be more palatable to him now that he's already a few steps in the right direction.


  1. Well, maybe some motion on NIMBYism, but I still think it is "NIMBYism is bad in your neighborhood, but here we have a special situation."

    I can tell you that the right-wing and libertarian blogs and websites have only fleeting interest, if that, in property zoning. Just compare the number of blog-posts about the minimum wage vs. the number on property zoning. I would guess it runs 1000 to one.

    Kocherlokata is a breath of fresh air.

    Still, the chart he runs has another interpretation: All those nations run trade deficits, and the smaller and more exposed the nation, the larger the house price appreciation.

    There is more to the story of course, all the nations on the chart have decent property rights, and relatively good government etc.

    But foreign capital flows have to be considered.

    I posited about 25 years ago that "every nice place to live in the world will become more expensive. Hawaii-ized somewhat, with existing local populations pushed out."

    I wonder about New Zealanders, if that chart is correct. Could the average Kiwi be said to be benefitting from globalism? If they sold a house possibly yes, but if they are renters, probably not.

    The house prices also raise an interesting question: You have posited rents are high in U.S. closed-access cities, justifying house prices.

    Are rents that high in NewZealand? Australia? Great Britain? Canada? If rents are proportional to house prices, how is the middle-class surviving in those nations?

    1. As in the US before the bust, rents seem to have generally risen in line with incomes, and prices have risen more. But, remember, in the US you have to dig into differences between MSAs to see how localized those rent increases are. This appears to be the case in those countries, too, but I haven't been able to do that work. That would be a tough data assignment.

      On causation, I would ask you if the trade deficit caused a price bubble in Atlanta and Houston. If not, then how do you attribute causation to the trade deficit/capital surplus? It could only cause a bubble where supply is constrained. So, if that is the case, why don't we see a bunch of countries with trade deficits who don't have price bubbles, like Houston and Atlanta.

      On the other hand, if the causation goes the other way, countries with cities that have high incomes and constrained housing markets could develop trade deficits even if they have cities which don't have this problem.

  2. Interesting topic.

    In New Zealand we are looking at a four-fold increase in house prices since 2000. So, if some places in NZ are not appreciating, that suggests even bigger increases in, say, Wellington.

    I surmise only a large inflow of foreign capital, in conjunction with property zoning, caused such an explosion of NZ house prices. I mean, this is a heroic moonshot for NZ house prices.

    I do not think NZ exporting industries (and tourism) exploded so much that torrents of money entered the country, and rich Kiwis fought tooth-and-nail for housing, driving a 400% rise in 16 years.

    NZ has become touristy, but if they export much beyond mutton, I would be surprised.

    So foreign capital inflows come to mind, with zoning.

    Of course, the U.S. is a much larger nation and economy, and more diverse, with zoning variations from city to city.

    Interesting to ponder the strength of housing in Detroit, when Detroit was Detroit. I have read that today you can buy the mansion next to the old Ford mansion in Detroit for $25,000. If you do not know how to bargain.

    Maybe there is a larger, generic rule out there:

    "Cities that have money inflows, by exporting, or by foreign investment, but also have restrictive property zoning, will experience house price appreciation."

    The rub, I say, is this: A city that creates money inflows by exporting goods and services is generally funneling that imported money down to the population through wages.

    A city that imports money by selling the limited supply of housing stock is not boosting wages for locals, who are thus relatively impoverished.

    Of course, many cities are a combination. Los Angeles probably exports entertainment, some shipping, some services, and also hosts a huge inflow of foreign capital. It has tight property zoning.

    In some regards, a perfect storm. For example, if L.A. had a declining economy, ala Detroit, perhaps the decline would offset the inflow of foreign capital, and house pieces would be flattish.

    To blabber on a little more, I think cities should be looked at regional economies, into which money flows, whether by net export of goods and services, or by importing capital into real estate. Toss in property zoning, and you have a picture of housing markets.

  3. Okay, I hate to say this but….

    One could even fashion an argument that what US financial regulatory bodies are effectively doing is restricting the ability of Americans to buy housing, so that housing can be sold to foreigners without causing too much house price appreciation.

    After all, if demand for U.S. housing is strong from offshore elements, but U.S. regulators want to tamp down demand for housing, their only option (under U.S. law) is to tamp down domestic demand.

    Other nations, such as Australia and Canada, have fewer qualms about trying to tamp down foreign demand, and slap on taxes or stop giving loans to foreigners.

    Your data showing foreigners replacing natives in Los Angeles is instructive.

    One might say the U.S.--L.A.policy is: "Middle-class Americans, you must move out to make way for upper class foreigners. L.A. will not build more housing, and the US is cutting off access to credit."

    A bit of a vise. no? Or vice?

    1. Great point. I hadn't really thought of it that way.

  4. I think you might find this interesting: