Home > Critical Thinking, Current Affairs, Dystopia, Musings, Philosophy sans Sophistry, Reason, Secular Religions, Skepticism > How Did the Price of a Median House in North America Exceed 500k?

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

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?

  1. Cheers
    May 17, 2021 at 4:41 am

    The countries that you listed that still have affordable housing have all implemented protectionist laws and/or practices to restrict foreign ownership of property.

    The Anglo countries have no such protections in place. Rich folks across the world own and acquire property within the USA, UK, Australia, etc. Even 30 million acres of U.S. farmland is foreign owned:

    https://www.npr.org/2019/05/27/723501793/american-soil-is-increasingly-foreign-owned

    • bonzo
      May 17, 2021 at 12:01 pm

      There are no ownership restrictions in Japan and Germany. But Germany does make it impossible to earn a profit merely owning land. Probably similar in Japan. Profit goes to those who either farm the land or build on it, not to the passive land owner. This is accomplished by a complex mix of taxes and regulations.

      Texas imposes a 2.5% property tax. Because of the amount of land in Texas, this tax is sufficient to keep housing prices down. But a 10% land value tax and 1% improvements value tax would be much better. Such a tax system would send housings prices crashing in California (and much of Canada, England, etc) as land owners desperately tried to offset high land taxes with more improvements to the land, causing an explosion in supply. But explosion in supply and falling housing prices is exactly what older house owners do not want. Wealth of middle class retirees in the Anglo world is based on high housing prices, so politicians will never do anything to burst the bubble.

      However, I do expect a gradual move towards Texas style high property taxes at some point, as governments eventually face budget problems. But the transition will be smoothed by strong inflation. In other words, rather than housing costs collapsing, they will stagnate as wages and other prices soar. This should play out over next 20 years. Stock prices will also stagnate during this period.

      • Cheers
        May 17, 2021 at 2:11 pm

        “The countries that you listed that still have affordable housing have all implemented protectionist laws and/or practices.
        Read carefully. For example, bank financing in the US for non-U.S. citizens vs. bank financing in Japan for non-Japanese citizens.
        Non-Japanese citizens are unable to obtain financing with exceptions proving the rule here (e.g. celebrities).
        In regards to foreign direct investment (FDI) in Japanese companies? the threshold was just lowered from 10% (1998) down to 1% this month.
        https://www.bloomberg.com/news/articles/2020-05-11/japan-moves-to-limit-foreign-investment-in-half-of-listed-firms
        What’s the FDI limit in the USA? Rhetorical.
        There are similar barriers to obtaining a mortgage in Germany. Though not nearly as severe as Japan (no financing for non-citizens), a larger down payment (40%) is usually required for obvious reasons.
        However in the USA (copy/paste):
        The Federal Housing Administration (FHA) offers home loans to non-U.S. citizens with the same loan terms as it does other buyers.
        The differences could not be starker.

      • bonzo
        May 17, 2021 at 11:04 pm

        Prices are determined by supply and demand, period. Everything you discussed concerns demand, which is pretty much the same everywhere. What matters is supply. When supply is allowed to rise to meet demand, prices stay low. USA, Canada and Australia have far more land supply than Japan, Germany, etc, so natural assumption would be lower prices in these Anglo countries. Opposite is true because of restrictions on building supply. These restrictions exist to please older homeower retirees, who want to see prices constantly rising.

      • Cheers
        May 18, 2021 at 4:39 am

        No mention of price was made. Are you having a conversation with yourself? Talking past folks won’t help you prove any points.
        Active practices within these countries (e.g. Japan – foreigners can now only own up to 1% of half of their listed companies, non-citizens are not able to receive financing) are protectionist and actively discourage/prevent foreign ownership of homes in those countries (e.g. Germany 40% down payment required for non-citizens, non-citizens in the US get the same terms as US citizens via FHA financing).
        Do the above practices encourage or discourage foreign ownership of homes in Japan & Germany?

      • bonzo
        May 18, 2021 at 10:13 am

        > are you having a conversation with yourself?

        Actually yes. Youre something of a moron, so no point talking to you. But AD did bring up an interesting question, and talking to myself to pursue his thinking in an interesting (to me) direction (don’t give a f*ck of its interesting to you). With so much land, why are prices so high in USA, Canada. Australia? As AD has previously discussed, probably related to deep corruption, incompetence leadership and social rot in these countries. Outsourcing too much industry, replacing real industry with make-work jobs, massive debts to the rest of the world to allow continued consumption, real estate bubbles to pander to old people. A house of cards that will eventually collapse.

        As for your stupid questions, please explain how they have anything to do with AD’s original post? Or better yet, don’t explain and save a few bits of storage space on some webserver somewhere that would otherwise be wasted preserving your drivel into eternity.

  2. bonzo
    May 17, 2021 at 12:03 pm

    There are no ownership restrictions in Japan and Germany. But Germany does make it impossible to earn a profit merely owning land. Probably similar in Japan. Profit goes to those who either farm the land or build on it, not to the passive land owner. This is accomplished by a complex mix of taxes and regulations.

    Texas imposes a 2.5% property tax. Because of the amount of land in Texas, this tax is sufficient to keep housing prices down. But a 10% land value tax and 1% improvements value tax would be much better. Such a tax system would send housings prices crashing in California (and much of Canada, England, etc) as land owners desperately tried to offset high land taxes with more improvements to the land, causing an explosion in supply. But explosion in supply and falling housing prices is exactly what older house owners do not want. Wealth of middle class retirees in the Anglo world is based on high housing prices, so politicians will never do anything to burst the bubble.

    However, I do expect a gradual move towards Texas style high property taxes at some point, as governments eventually face budget problems. But the transition will be smoothed by strong inflation. In other words, rather than housing costs collapsing, they will stagnate as wages and other prices soar. This should play out over next 20 years. Stock prices will also stagnate during this period.

  3. President Not Sure
    May 17, 2021 at 12:05 pm

    > 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?

    The prices are propped up by everyone who has a little bit of extra cash and wants to not lose it due to inflation.

    People who earn more than they spend want to save the rest and at least preserve it if not grow it.

    But with the horrendous money printing operation of the Fed in the past decades (regardless of how they obfuscate it and call it QE, interest rates, bla bla bla, it’s still money printing), the people who want to preserve their wealth cannot do it in the currency.

    So they put it in assets which cannot be infinitely printed like stocks and real estate. This creates a severe distortion:

    1. Stocks should be bought for one purpose only: To earn money in the long term. But in this case they’re also bought for a second purpose: To preserve wealth because if you keep wealth in dollars, its value is always diluted by the printer.
    2. Houses should be bought for one purpose only: To live in them. But they’re also bought to preserve wealth.

    And not only are they bought by the middle class who want to preserve their wealth, but also by the big sharks close to the printer, so the effect is double the size.

    Solution: Once bitcoin (or other crypto) takes over the world and becomes the world reserve asset, all the pressure from stocks and real estate will be relieved and their financial value should retrace back to their utility value.

    And for the bitcoin value: There can only be 21 million, cannot be diluted, so get ready to measure your budget in satoshis.

  4. Mike CaCa
    May 17, 2021 at 10:02 pm

  5. Pee Ray
    May 17, 2021 at 10:10 pm

    • doldrom
      May 18, 2021 at 2:39 pm

      I am a member of a council at the University I work, and instead of just hearing a sigh from people at some junctures, people now mutter “We’re all in this together” as they sigh. It has become a running gag about managerial concern and perspicacity.

  6. doldrom
    May 18, 2021 at 2:38 pm

    I am a member of a council at the University I work, and instead of just hearing a sigh from people at some junctures, people now mutter “We’re all in this together” as they sigh. It has become a running gag about managerial concern and perspicacity.

  7. P Spray
    May 19, 2021 at 6:16 pm

    Paging Mike CaCa:

    https://incels.wiki/w/Boomer#:~:text=Boomers%20tend%20to%20be%20very%20problematic%20for%20incels.,hard%20work%2C%20a%20%27firm%20handshake%27%2C%20and%20a%20smile.

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