Housing Costs

[ohio jones]

This simply isn't accurate, though. As I've pointed out over and over, there are no zoning or building restrictions where I live. You can build all the apartments, duplexes, highrises, etc. that you want (although past a certain size you will probably have to comply with state laws about water and sewer, and federal laws about environmental impact).

And state building codes for anything larger than a 3-family dwelling.

[Josh]

This simply isn't accurate, though. As I've pointed out over and over, there are no zoning or building restrictions where I live. You can build all the apartments, duplexes, highrises, etc. that you want (although past a certain size you will probably have to comply with state laws about water and sewer, and federal laws about environmental impact).

And state building codes for anything larger than a 3-family dwelling.

Good point.

But I hope nobody thinks that the reason housing is expensive for young families is because of rather basic and sensible building codes (which, I might add, one can easily ignore and get away with, at least until getting into bigger buildings).

[Ken]

That is the main point I have been making all along. We don't have a free market for housing in this country. We are very very far from it and that is one of the biggest reasons why we have a housing shortage in many parts of they country and why it is so difficult for young people and young families to make a start today.

This simply isn't accurate, though. As I've pointed out over and over, there are no zoning or building restrictions where I live. You can build all the apartments, duplexes, highrises, etc. that you want (although past a certain size you will probably have to comply with state laws about water and sewer, and federal laws about environmental impact). Yet there isn't an appreciable building boom because of that. Virtually every residential building that goes up is a single family home. That seems to be what the "free market" wants.

Like everything else in major metro areas, housing is regulated (just like gas stations, restaurants, and any other kind of market). It's regulated because that's what the democratic process has led to. The people who live in these places don't want a complete "wild west" of a residential market for housing. They want some amount of regulation.

And I can't blame them, either. A lot of people want their neighbourhood to be stable and not suddenly turn into a place full of renters and duplexes or apartment complexes. It's completely valid to want to buy into a neighbourhood you can be reasonably assured will be stable and maintain the same character.

So you live in a place with low demand for housing and therefore it is relatively cheap. It isn't FREE because there are inherent costs associated with building material and labor. But it is relatively inexpensive. And it is probably accurate to say that there isn't a housing shortage in rural Ohio. In your part of the world you will have different economic issues that are at the forefront. Maybe it is access to healthcare. Maybe it is jobs. Maybe it is infrastructure (broadband, roads, bridges). Maybe it is the cost of energy. I have no idea.

[Ken]

Likewise, the apartment style living you claim is so efficient costs an extra $1300 a month in common fees. The taxes are also higher. I didn’t document this, but utility costs (electric, gas, etc) are also higher in Manhattan. Basically everything costs more.

Let's look at taxes and see how they are actually driven by supply and demand and aren't simply fixed.

Say you are the owner of a generic old NYC apartment building. Something like this:



Your taxes are a percentage of the value of the apartment building. Just for the same of making the math easy I'll throw out some random round numbers. Say you bought the building for $10 million which is your appraised value and your mil rate is 10 or 1% of appraised value. That will give you at total tax bill of $100,000.

Now the $10 million value of your building and its sale price is based on the rent that the building throws out. No one buys an apartment without knowing what kind of rent it can generate. What happens if NYC allows a massive new wave of apartment construction which greatly increases the supply of housing? What is that going to do to the value of your building? It will drop. Theoretically if the supply of housing doubles, maybe the rents will be cut in half and suddenly your property isn't worth $10 million anymore. Maybe it is only worth $5 million. Now your taxes drop from $100,000 to $50,000. The money hasn't vanished. It now just stays in the pockets of your renters rather than getting transferred to you. Maybe you keep the apartment and keep renting it out at half the rent previously because it is still profitable. Or maybe you decide to cut your losses and sell the building to someone else at $5 million and that new landlord will have a new cost structure upon which to base rents. AND, the new landlord will have his property taxes cut in half because the building is now worth only half as much.

Now there are all kinds of drags on the real estate market in a big city so all of that isn't going to happen instantly. But it illustrates how inflated taxes in NYC are not simply some isolated factor on their own. They are a consequence of the housing shortage which has driven up the value of existing apartments and their taxes along with it.

[Josh]

So you live in a place with low demand for housing and therefore it is relatively cheap. It isn't FREE because there are inherent costs associated with building material and labor. But it is relatively inexpensive. And it is probably accurate to say that there isn't a housing shortage in rural Ohio. In your part of the world you will have different economic issues that are at the forefront.

I'll repeat myself, since the message isn't getting through.

The "common costs" (those are just "costs", not taxes, not government-imposed fees, etc.) for a 1-bedroom 600 sq ft apartment run around $1,300/mo. This is in a dense apartment building. That gives an idea of how much it costs to upkeep an apartment building in a dense city area like NYC.

Maybe it is access to healthcare.

It's not. The Cleveland Clinic system is considered one of the best in the world (people actually travel from places like NYC to go to the Clinic). As far as "access" goes, for people who can't afford it Ohio has an excellent Medicaid system (which 30% of Ohioans are on) that includes free transportation in case someone doesn't live near a facility or needs to go to a specialist.

Maybe it is jobs.

It's not. Unemployment rate is 3.7% here (allegedly). NYC's is 5.4% (allegedly). (Both figures seasonally adjusted.)

I already quoted median household income, which means there isn't a large gap in pay either.

Maybe it is infrastructure (broadband, roads, bridges).

It's not. There is fiber internet around here just like there is in NYC. The fastest speed is 5 gigabit/second, I'm not sure what anyone needs with that speed, but it's available to residential customers. Before the fiber rollout the fastest speed was 1 gigabit/second from Spectrum which is still pretty fast.

Roads and bridges are in great shape.

Maybe it is the cost of energy. I have no idea.

It's not. Energy costs are lower than in NYC (gasoline, heating oil, natural gas, or electric).

[ken_sylvania]

That is the main point I have been making all along. We don't have a free market for housing in this country. We are very very far from it and that is one of the biggest reasons why we have a housing shortage in many parts of they country and why it is so difficult for young people and young families to make a start today.

This simply isn't accurate, though. As I've pointed out over and over, there are no zoning or building restrictions where I live. You can build all the apartments, duplexes, highrises, etc. that you want (although past a certain size you will probably have to comply with state laws about water and sewer, and federal laws about environmental impact). Yet there isn't an appreciable building boom because of that. Virtually every residential building that goes up is a single family home. That seems to be what the "free market" wants.

Like everything else in major metro areas, housing is regulated (just like gas stations, restaurants, and any other kind of market). It's regulated because that's what the democratic process has led to. The people who live in these places don't want a complete "wild west" of a residential market for housing. They want some amount of regulation.

And I can't blame them, either. A lot of people want their neighbourhood to be stable and not suddenly turn into a place full of renters and duplexes or apartment complexes. It's completely valid to want to buy into a neighbourhood you can be reasonably assured will be stable and maintain the same character.

So you live in a place with low demand for housing and therefore it is relatively cheap. It isn't FREE because there are inherent costs associated with building material and labor. But it is relatively inexpensive. And it is probably accurate to say that there isn't a housing shortage in rural Ohio. In your part of the world you will have different economic issues that are at the forefront. Maybe it is access to healthcare. Maybe it is jobs. Maybe it is infrastructure (broadband, roads, bridges). Maybe it is the cost of energy. I have no idea.

You were just arguing in another thread that price is driven by supply and demand, not by cost of production. Did you forget? If demand is low housing cost shouldn't be affected by production cost!

[Josh]

My argument is that core operating costs / overhead matter, too, and they set an effective "baseline" below which the cost of housing simply cannot get any cheaper. In NYC, you have the absurd spectacle of a $1,300/mo base charge for a 600 sq ft shoebox. That brings into question just what "efficiency" you are getting by being in such a dense area.

[Ken]

This simply isn't accurate, though. As I've pointed out over and over, there are no zoning or building restrictions where I live. You can build all the apartments, duplexes, highrises, etc. that you want (although past a certain size you will probably have to comply with state laws about water and sewer, and federal laws about environmental impact). Yet there isn't an appreciable building boom because of that. Virtually every residential building that goes up is a single family home. That seems to be what the "free market" wants.

Like everything else in major metro areas, housing is regulated (just like gas stations, restaurants, and any other kind of market). It's regulated because that's what the democratic process has led to. The people who live in these places don't want a complete "wild west" of a residential market for housing. They want some amount of regulation.

And I can't blame them, either. A lot of people want their neighbourhood to be stable and not suddenly turn into a place full of renters and duplexes or apartment complexes. It's completely valid to want to buy into a neighbourhood you can be reasonably assured will be stable and maintain the same character.

So you live in a place with low demand for housing and therefore it is relatively cheap. It isn't FREE because there are inherent costs associated with building material and labor. But it is relatively inexpensive. And it is probably accurate to say that there isn't a housing shortage in rural Ohio. In your part of the world you will have different economic issues that are at the forefront. Maybe it is access to healthcare. Maybe it is jobs. Maybe it is infrastructure (broadband, roads, bridges). Maybe it is the cost of energy. I have no idea.

You were just arguing in another thread that price is driven by supply and demand, not by cost of production. Did you forget? If demand is low housing cost shouldn't be affected by production cost!

There are two different markets involved here.

There is the market for housing itself which is driven by supply and demand. If there is abundant housing or high vacancy rates in an area rents and housing prices come down. If there is low supply and high demand, prices go up.

There is also a market for the raw materials and labor involved in housing construction. If the costs of bricks, windows, lumber, sheetrock, and labor goes up then the cost of building a house or apartment goes up. If those costs drop then the cost of building a house goes down. Each one individually may go in opposite directions. The cost of lumber might go up while the cost of labor might go down, or vice versa.

But not all housing is new housing. In fact, most of it is not new. In may cities the housing stock is 100+ years old. And so the cost of materials and labor was long ago spent. Housing is not a consumable product like toilet paper that we buy new every time we use it. Many of us live in houses that were built decades ago and in many communities there are few new houses being built, especially if the community is not growing.

However there is sill always going to be a market for renting and buying those existing homes and apartments even if a single new one isn't being built. In fast growing cities, construction cost is going to have a big impact on housing costs. In slow growing established cities, not so much since most of the housing being sold and rented is old housing not new housing.

[ken_sylvania]

So you live in a place with low demand for housing and therefore it is relatively cheap. It isn't FREE because there are inherent costs associated with building material and labor. But it is relatively inexpensive. And it is probably accurate to say that there isn't a housing shortage in rural Ohio. In your part of the world you will have different economic issues that are at the forefront. Maybe it is access to healthcare. Maybe it is jobs. Maybe it is infrastructure (broadband, roads, bridges). Maybe it is the cost of energy. I have no idea.

You were just arguing in another thread that price is driven by supply and demand, not by cost of production. Did you forget? If demand is low housing cost shouldn't be affected by production cost!

There are two different markets involved here.

There is the market for housing itself which is driven by supply and demand. If there is abundant housing or high vacancy rates in an area rents and housing prices come down. If there is low supply and high demand, prices go up.

There is also a market for the raw materials and labor involved in housing construction. If the costs of bricks, windows, lumber, sheetrock, and labor goes up then the cost of building a house or apartment goes up. If those costs drop then the cost of building a house goes down. Each one individually may go in opposite directions. The cost of lumber might go up while the cost of labor might go down, or vice versa.

But not all housing is new housing. In fact, most of it is not new. In may cities the housing stock is 100+ years old. And so the cost of materials and labor was long ago spent. Housing is not a consumable product like toilet paper that we buy new every time we use it. Many of us live in houses that were built decades ago and in many communities there are few new houses being built, especially if the community is not growing.

However there is sill always going to be a market for renting and buying those existing homes and apartments even if a single new one isn't being built. In fast growing cities, construction cost is going to have a big impact on housing costs. In slow growing established cities, not so much since most of the housing being sold and rented is old housing not new housing.

And in both localities, real estate tax increases will have an effect because they are, if you want to put it that way, a consumable. Gotta pay them every year and will therefore have an impact.

[Ken]

You were just arguing in another thread that price is driven by supply and demand, not by cost of production. Did you forget? If demand is low housing cost shouldn't be affected by production cost!

There are two different markets involved here.

There is the market for housing itself which is driven by supply and demand. If there is abundant housing or high vacancy rates in an area rents and housing prices come down. If there is low supply and high demand, prices go up.

There is also a market for the raw materials and labor involved in housing construction. If the costs of bricks, windows, lumber, sheetrock, and labor goes up then the cost of building a house or apartment goes up. If those costs drop then the cost of building a house goes down. Each one individually may go in opposite directions. The cost of lumber might go up while the cost of labor might go down, or vice versa.

But not all housing is new housing. In fact, most of it is not new. In may cities the housing stock is 100+ years old. And so the cost of materials and labor was long ago spent. Housing is not a consumable product like toilet paper that we buy new every time we use it. Many of us live in houses that were built decades ago and in many communities there are few new houses being built, especially if the community is not growing.

However there is sill always going to be a market for renting and buying those existing homes and apartments even if a single new one isn't being built. In fast growing cities, construction cost is going to have a big impact on housing costs. In slow growing established cities, not so much since most of the housing being sold and rented is old housing not new housing.

And in both localities, real estate tax increases will have an effect because they are, if you want to put it that way, a consumable. Gotta pay them every year and will therefore have an impact.

Yes, but real estate taxes are not fixed. They are a percentage of the value of your house which goes up or down based on the housing market.

Here in SW Washington our housing prices have gone way up in the past 6 years due to supply and demand. Demand for housing in this area is growing faster than supply. So the value of my house has gone up by about 70% and so have my taxes. If this region was keeping pace with demand and building more houses and apartments then the value of my house would not have gone up, or not as much, and my taxes would not have risen as much. My house would be worth less but my taxes would be lower. So mixed blessing I guess.

It is all interconnected. But also ultimately driven by supply and demand. Except where government has intervened to limit supply. Generally government doesn't do much to limit demand since as Americans we are free to move where we want. Although I suppose when the Fed raises interest rates that limits demand since the cost of borrowing goes up. But government can and does very much limit supply through zoning and other regulations.