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How Did the Price of a Median House in North America Exceed 500k?

May 16, 2021 13 comments

While browsing through cable channels when bored, I often stumble upon shows and channels which would have otherwise escaped my attention. One of them is HGTV. Most of you might know what I am talking about, but in case you don’t- it is a channel almost totally devoted to buying, selling and renovating houses or condos (mostly in North America). While occasionally watching shows on that channel, I started to notice some rather peculiar things about housing in North America. One of them was especially peculiar.. see, with exception of cities in Texas, Nevada and some states in South-Eastern USA, the median house appears to cost over 500k and median condo is over 300k. Initially I thought that this was due to the selection of houses and condos depicted on that channel, however a little bit of online research revealed that the houses depicted in many HGTV shows were (at most) just a little bit more expensive than the median half-decent house (or condo) in those cities- especially if they were also located in the ‘right’ neighborhood or school district.

And this got me thinking.. how did we reach the point where a median house in most cities and metro areas cost over 500k? Also, how did the median 2-bedroom condo start costing over 300k in those same areas? This is not a trivial question because we have been through a housing bubble between 2002-2008, which burst in 2009, causing a few million people to lose their houses and leaving many more owing more to banks than those houses were worth. To make things even more mysterious, the people who should be buying houses (those between late 40s-late 20s) have huge student loans to repay, insecure and poorly paying jobs and a much smaller percentage of national wealth than their parent’s generation. In other words, the generations who should be buying all those houses are too indebted, plain broke, unmarried and childless to buy up all those older houses from their current owners- let alone pay for newer and often more expensive houses and condos. So what is going on?

But you know what makes this even more bizarre.. rents in most North American cities are also rather high. Which brings me to a series of interesting comparisons with housing in other parts of the world. Let us start with Japan and South Korea. As most of you know- both have lots of people (~ 126 M, ~ 52 M) even though they don’t have much land, especially of the type suitable for building cities. And yet.. the median person or family in those countries can easily afford to buy or rent the median dwelling. Now some of you might say- the apartments in Japan and South Korea are very small compared to their equivalents in USA and Canada. Well, as it turns out.. the median apartments in those countries are only about 20% smaller than their equivalents in equivalent North American cities. Just because young white English-language tutors cannot afford normal apartments in those countries when they first move there doesn’t mean that everybody there live in shoeboxes.

What makes this comparison even more interesting is that the average person in their mid-20s with an entry-level job in both countries can afford to rent a nice 1-bedroom apartment, pay for everything from food and utilities to medical insurance and still manage to save 15-20% of their paycheck (after all the normal deductions). Curiously, doing the above for possible for the equivalent person in almost every single city in USA and Canada (possible exception of NYC and LA) until about twenty years ago. Something pretty fundamental has changed in North America (and UK + a couple of West European countries) during past two decades. Some of you might think that affordable and decent quality housing is an East-Asian thing- but I will provide more examples to show you that this is not the case.

Let us now move on to Germany. Once again, we see a fairly dense developed country where rents (and prices) for housing are still affordable for the median person. Yes.. I am aware that certain parts of a couple of German cities (Frankfurt, Munich) can be quite pricey, but the comparison between affordability of housing in German and American cities still strands. Did I mention that the unemployment rate is lower in that country than USA or Canada? The same holds for many West-European countries such as France, Italy and Spain. Even traditionally expensive countries in that region such as Switzerland, Netherlands and Sweden are not especially unaffordable if you have a median job in those countries. My point is that rent and mortgage costs for housing in most metros in North America (other than certain parts of USA) consume a far higher percentage of the median post-deduction paycheck than almost any other developed country- and it often does that by a pretty large margin.

To make matters worse, most young people in this county have many other non-optional and recurring expenses such as student loan repayments, private medical insurance, automobile loan repayments etc which are either non-existent or avoidable in other developed countries. All of which brings me to the central question of this post- who or what is propping up the exorbitant prices (and rents) of houses and condos in most metro areas of North America? While this observation is most applicable to USA, many metros in Canada (such as Greater Toronto Area, Greater Vancouver, Calgary and Edmonton) also display the same disconnect of housing prices and rents to median income of their residents. I find the Canadian numbers especially odd as most cities there have shittier weather than equivalent American cities.

What do you think? Comments?