Housing Affordability -- Where Everyone Is Wrong
There is one simple answer to why housing costs rise faster than inflation and incomes -- restricted supply mated with subsidized demand. In many locales the supply of housing is restricted by the government (rent control, growth limits, expensive and time-consuming permitting, etc) and in every part of the country housing is subsidized by the government (mortgage loan guarantees, tax deductibility of mortgage interest, section 8 housing vouchers, etc). The net result HAS to be rising rents and home prices.
I bring this up because we are in the insane situation that both the Left and Right are proposing to attack housing affordability by.... subsidizing demand and restricting supply. Trump's idea is to extend government mortgage guarantees to 50-year mortgages. All this is likely to do is increase the prices of houses to absorb the new lending limits. We saw this in another sector -- college tuition -- where there is hugely subsidized demand and increased student loan limits led to almost one for one increases in tuition.
The Left -- from LA to NY -- is advocating for the same thing it always advocates for: rent control. Rent control is a boon for current renters who have their rents locked in at unreasonably low rates but is a disaster for new entrants to the rental market because the construction of new rental properties drops significantly with rent control (actually the supply can go negative as current rentals are converted to owned units). Rental rates are nominally kept in check but homelessness soars. In addition, rent control has the under-appreciated harm of reducing labor mobility, as one cannot afford to move out of a rent-controlled unit to seek better employment.
It's bloody infuriating, especially given that most of the administrators involved should know better.
On a side note, zoning and planning ordinances in the US are borderline insane.
Here in Germany, specifically in Berlin, the crazies have yet another great idea: nationalizing residential real estate companies, with compensation specifically to be below market rates. This crazy proposal already got a majority at the polls. (Cue Mencken's observation about democracy.)
People are utterly bewildered why investment in housing is dropping like a stone.
Rent control is so stupid it's barely worth discussing.
But even modestly intelligent people don't seem to grasp that "... housing is subsidized by the government (mortgage loan guarantees, tax deductibility of mortgage interest ...) is also stupid.
The problem of "growth limits, expensive and time-consuming permitting ..." is a knotty problem but much of it is to do with ordinary politics where my interests clash with yours. It would be cheaper to resolve by duelling.
Every freshman level micro economics textbook and courses show that leftist economic policies hurt the user/consumer and especially the poor, whether it is rent control , minimum wage, monopoly, food stamps, subsidies to buy certain products such as electric vehicles, etc. Its basis supply and demand curves that destroy the feel good compassion of the policies.
In my college days, even the leftist economic professors admitted the problem.
Looks like I got a down vote from a leftist who either flunked his freshman level micro economics course. That or a person who gets his economic lessons from anti-capitalists comments on facebook.