Economist explains why you can't afford a house anymore
Money & Macro・17 minutes read
House prices are surging in countries like Canada, the United States, and Australia, making housing increasingly unaffordable, with various explanations including immigration, urbanization, and speculation. Economists have conflicting views on housing affordability, with some arguing it has improved due to historically low mortgage rates, while theories like construction failure, excessive speculation, and financialization of housing can explain global housing crises and the unique role of houses as consumption and investment goods.
Insights
- Economists have conflicting views on housing affordability, with some claiming it has improved due to historically low mortgage rates, while others point to factors like increased immigration, urbanization, expensive building materials, and outdated zoning laws as contributing to the surge in house prices, making it difficult for people to afford housing in rich countries like Canada, the United States, and Australia.
- Three theories - construction failure, excessive speculation, and financialization of housing - can explain housing crises globally, affecting house prices differently in various countries. The unique nature of the housing market, serving as both consumption and investment goods, coupled with factors like NIMBYs blocking new housing developments, speculative housing booms, and historical reforms in different economies, further complicate the issue, requiring tailored solutions such as upzoning and expanding cities to address housing affordability challenges.
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Recent questions
Why have house prices surged in rich countries?
House prices have surged in rich countries like Canada, the United States, and Australia due to various factors such as increased immigration, urbanization, expensive building materials, outdated zoning laws, and speculation. These elements have created a demand-supply imbalance, driving prices up and making housing less affordable for many individuals.
What are the theories explaining global housing crises?
Three theories - construction failure, excessive speculation, and financialization of housing - can explain housing crises globally. These theories shed light on why house prices have risen in rich countries while falling in Japan, Korea, and Germany, providing insights into the complex dynamics of the housing market.
How do low mortgage rates impact housing affordability?
Economists have conflicting views on housing affordability, with some claiming it has improved due to historically low mortgage rates. Lower interest rates significantly impact monthly mortgage payments, making houses more affordable even with higher prices, as illustrated by a comparison between rates in the 1980s and today.
What role do NIMBYs play in exacerbating housing shortages?
NIMBYs (Not In My Backyard) blocking new housing developments exacerbate housing shortages by hindering the construction of new housing units. This opposition to development in certain areas contributes to the housing supply constraints, further driving up prices and making housing less accessible for many individuals.
How have different countries tackled housing affordability?
Different countries require tailored solutions to address housing affordability issues, such as upzoning in low-density areas or expanding cities in European countries. By implementing specific strategies that address their unique challenges, countries can work towards making housing more accessible and affordable for their populations.
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Summary
00:00
Global Housing Affordability Crisis: Causes and Solutions
- House prices have surged in rich countries like Canada, the United States, and Australia, outpacing other prices and average incomes.
- This surge has made it increasingly difficult for people to afford housing in these countries.
- Economists have conflicting views on housing affordability, with some claiming it has improved due to historically low mortgage rates.
- Various explanations for expensive housing include increased immigration, urbanization, expensive building materials, outdated zoning laws, and speculation.
- Three theories - construction failure, excessive speculation, and financialization of housing - can explain housing crises globally.
- These theories account for why house prices rose in rich countries but fell in Japan, Korea, and Germany.
- The housing market is unique as houses serve as both consumption and investment goods.
- Construction failing to keep up with housing demand has contributed to rising prices.
- NIMBYs (Not In My Backyard) blocking new housing developments exacerbates housing shortages.
- Speculative housing booms, fueled by cheap mortgages, have led to unaffordable housing in many countries.
14:57
Global House Price Trends and Affordability Factors
- Anglo economies like Australia, Canada, the UK, and the US were the first to implement reforms leading to excessive house price increases, while economies like Korea and Germany initially saw falling house prices.
- Household debt in countries like the Netherlands and the United States has stopped rising and started to fall after the 2007 crisis, with house prices rising again, suggesting factors beyond the mortgage explosion may be at play.
- Economists from the IMF and Bank for International Settlements found that houses have become more affordable since the 1980s due to lower interest rates, despite rising prices.
- Lower interest rates significantly impact monthly mortgage payments, making houses more affordable, even with higher prices, as illustrated by a comparison between rates in the 1980s and today.
- The affordability of houses is influenced by various factors, including mortgage rates, housing supply constraints, and economic theories like NIMBYs, with different countries requiring tailored solutions such as upzoning in low-density areas or expanding cities in European countries.
