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PaperclipPerfector  1mo ago (text post)   27008 thread views

Culture War Roundup for the week of February 2, 2026

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I almost didn't write this, because from my perspective, "In a world where most people don't have coherent thoughts on Topic X, here's a politician who also doesn't have coherent thoughts on Topic X," may be a bit boring. I decided to write it anyway, because it gives a quick hook to the root of the issue, and I might as well lay it out in detail somewhere.

So, Trump speaks on the price of housing. For some societal context, there has been a bit of a movement toward trying to lower the cost of housing. YIMBY is oriented somewhat in this direction; I've even heard the phrase "Housing Theory of Everything" describing the perspective the high housing costs have a variety of other knock-on effects, and so it would be desirable to lower the cost of housing.

Trump highlights the core of the problem. He doesn't want to lower the value of "existing" housing. "People who own their home" should be kept wealthy with high house prices. But the kicker is that there's no way to economically separate the value of "existing" housing and the "people who own their homes" from, uh, "non-existing" housing? As sure as the day is long, if you have a stock of houses, each worth $1M, and then conjure out of thin air a plentiful amount of previously "non-existing homes" that only cost $500k to buy but are otherwise just as desirable, what's going to happen when an existing homeowner decides to sell their house? They'll list it for $1M, but all the potential buyers will look at that, look over at the same deal for only $500k, look back and think, "WTF? Why would I spend that much?" They're going to buy the cheap one. And so, if the existing homeowner wants to successfully sell his home, he will have to lower the price.

...but since everyone already knows that he would have to lower the price (since the price of whatever magical disconnected-from-existing-housing has been lowered), then everyone already knows that the "value" of that existing home is, uh, lower. These things are obviously connected; you can't just hold one constant and tweak the other.

I continue to maintain that the vast majority of folks out there simply do not have a coherent view on the simple question, "Should the cost of housing be higher or lower (or, I guess, the same)?" They want to magically keep the value just exactly as high or higher for existing homeowners, but somehow magically make housing otherwise generally cheap.

You can try (and oh boy does the government try) to come up with ways to just throw cash at the problem, but these efforts generally run into two major types of problems. First, that cash has to come from somewhere. Almost always, that's taxes. Who do you think is paying those taxes? This one we might file under the "obfuscation theory of government". If you hide it well enough that people don't realize that the cash being thrown at the problem to make it look like their right pocket is just as wealthy as it ever was is in fact coming out of their left pocket, they just might not realize?

Second, most schemes end up having to play endless whack-a-mole for the follow-on effects if they want to maintain general cheap housing while keeping house prices high. For example, all the business about throwing cash at first-time home buyers. Some of that reduces the cost to folks who don't own a house, and some of that increases the price of the houses (going to the sellers), and that seems like it could just solve the problem, right?

Well, consider a renter. They're not getting the bag of cash thrown their way. But the price of the houses that they'd like to rent are going up. So their rent is going up. So the cost of "housing" isn't going down for them. Are you going to play whack-a-mole and start subsidizing rent, too? This way Venezuela lies. What if you just jack up the FTHB cash-throw? Just accept that renting is going to be basically infeasible, because getting into the home-borrowership (to use a phrase from Arnold Kling) carousel is now too economically attractive in comparison. Sure, you'll end up with fake and gay high house prices, but everyone "gets in", right? But even then, your 'wealth' is fake and gay. Suppose you want to sell your house and reap the sweet sweet value that you have. Well, where are you going to live? Renting is infeasible (by design). Are you going to buy a different house that also has a fake and gay high price? Suddenly, your gainz disappear. All the while you're paying more interest, more property tax, and more transactions costs (that realtor still costs 3% of a fake and gay high price).

Someone will surely try to come up with this scheme and that scheme to whack this mole or that mole, but I press X to doubt that you can technocrat your way to a solution, especially one that doesn't cost gigantic bags of cash coming out of the general treasury (and ultimately, taxpayers' pockets).

The fundamental question, "Should the cost of housing be higher or lower (or, I guess, the same)?" confuses a lot of people and is probably one of the core problems of our time that produces a multitude of political dysfunction.

Trump highlights the core of the problem.

I do not see the problem, literally. Housing as an investment is merely a curiosity, if the prices of houses crash, that will not affect the people living in their houses (unless they got terrible mortgage terms, in which case you can legislate to make them unenforceable).

I might as well argue that a breathable atmosphere will permanently ruin the market for bottled air, or that eradicating smallpox permanently reduced the demand for medical treatments.

Good things are good. Anyone arguing that actually fifth order effects actually dominate and make things net negative is, on priors, very likely full of shit.

Of course, a well-meant intervention like a rent cap will unleash the terrifying and incomprehensible alien deity that is kept barely contained by a complicated and humanly meaningless ritual, which only cares about prices being the supply-demand equilibrator. But this does not mean that high housing prices are moral, just that we must pay respect to the alien god and not mess with housing prices directly.

Establishing a land value tax is a good way to fix housing costs. Land has a supply elasticity of just about zero, high land prices serve no practical benefits. Tax it so much that owners will become indifferent towards owning land.

Of course, this will fuck over people who invested their pension fund in real estate. Great, I don't care. Investing in a supply-limited good of which people need a certain amount to survive is not an ethical activity. I am sure that when the French revolution came around, quite a lot of people went bankrupt from deals and marriages which they had been sure would be highly profitable. And when methamphetamine became prohibited, that likely also destroyed some people's life savings. Just be glad if there will not be beheadings, this time. (If you want to ethically invest in a product with a limited supply, buy bitcoin instead. People can live while using zero BTC. They can not live while using zero square meters.)

Well, where are you going to live? Renting is infeasible (by design). Are you going to buy a different house that also has a fake and gay high price?

For many boomers, the answer to that question is "an assisted living facility/a retirement home". This facility then will charge both rent and service fees that are so absurdly fake and gay high, that it will be able to transfer the entire value of the sold house into the hands of private equity firms and the medical industry in just a few years. Just in time before anybody can inherit anything.

It's almost as if they designed the entire system in a way that explicitly allows private equity to drain trillions of dollars from the middle class.

It's almost as if they designed the entire system in a way that explicitly allows private equity to drain trillions of dollars from the middle class.

Almost -- probably good to keep in mind that for children that would rather inherit, the option does exist to not do this. You can certainly move your elderly parents in with you and bear that burden, people do -- it is very difficult, but that just means that the money siphoned off is in a sense payment for services rendered by the MedIC to the heirs.

I mean it does but also the progress of modern medicine and availability of ways to glean out extra lifeyears means that it's harder for a family to provide adequate senescence care.

I do have personal experience in this area -- granted that was a while ago, but if it's become harder that's an argument that it's worth more money than it was, yeah?

I think you're both bringing up good points, and I'd say that the conversation points towards the ultimate speciousness of elderly care being explicitly designed to be a wealth transfer, POASIWID notwithstanding. I also have painful personal experience in this area and quite current as well, and as a result I have another half-formed effortpost on this subject which this margin is too small to contain, but factor in the pieces that have been brought up, throw in how much more difficult it is to have someone home round-the-clock to watch grandma/grandpa in this age of both spouses working being the norm, as well as how expensive round-the-clock care typically is in general, and add in a side of all of the family dysfunction typically coming out to play and that'll do for the general outline of said post, with a conclusion of eldercare being classically and necessarily a wicked problem, especially given that healthcare in the US is, in and of itself, another wicked problem.

Also family sizes being smaller makes it trickier. I've got a 100+ year old great grandma in law who had 12 kids, most of whom stayed fairly local and produced their own numerous progeny.

It's considerably more practical to care for her being split between like 5 different households versus if it were a succession of nuclear families

There's literally no way to solve the housing crisis because it's just the age old classic struggle of "buyer wants to buy low, seller wants to sell high." You either say more people should be able to have homes or you say that the old boomers who bought their homes decades ago deserve expensive home valuations. Government subsidies for buying, aka government splitting the bill, can kinda work but they're limited in usefulness just because it raises the prices to match instead like subsidies tend to do. If a buyer is willing put 500k to a house and the government gives them 200k to spend on top, then the buyer is just willing to spend 700k now.

Correct option to me is to tell old people to get bent for once in their life, tax them more on their property value while lowering income tax and sales tax and stop giving them thousands and thousands of dollars for free each month on top of being the wealthiest generation. Squatting on a bunch of productive in demand land cause you bought it 40 years ago should cost you. But that will never happen, we live in a gerontocracy and the old rule the world all around.

Correct option to me is to tell old people to get bent for once in their life, tax them more on their property value while lowering income tax and sales tax and stop giving them thousands and thousands of dollars for free each month on top of being the wealthiest generation.

Well, shit, grandpa. We know you've been paying high sales, income, and property taxes your whole life. We know you worked your ass off to get that house. But the fact is, we want a house a lot and because you and your cohort aren't dead yet, and also we've been agitating against "sprawl" our entire lives, supply is low and prices are high, so we'll reduce the taxes on things which affect us (like income) and increase the taxes on property lived in by old people, and we'll just take that house you've been "squatting" in. After all, just because you bought a place doesn't mean you should get to use it, when "needier" people like us want it. Aren't we the best grandkids?

Well, you can try, but the "best" outcome such serpent-toothed grandchildren are going to get is raising property taxes WITHOUT a concomitant reduction in other taxes. And guess who will be better situated to weather that than the grandchildren? Why, that "wealthiest generation". Worst comes to worst they'll reverse-mortgage the house to pay the taxes and when they do die their children and grandchildren will get their just desert -- nothing.

Wake up babe new conspiracy theory: the unhealthiness of the standard American diet and the issues with the American healthcare system as a measure against the longevity of the average American and its effect on real estate pricing...

I'd buy it if inheritance taxes were higher.

When you consider the importance of borrowing costs in home ownership, the government policies that would simultaneously support home prices and affordability start to become clear. In short, the government should avoid inflationary policies such as high or broad tariffs and excessive stimulus spending so that we can have lower interest rates. Mostly, the answer is to do the opposite of Trump's second term.

Steadily decreasing price in housing would be awesome. And I say that as a homeowner.

I own at least two large depreciating assets called "cars". When I need to buy a new one or have mine fixed, it's better if everything around the asset is less expensive.

No I'm not going to be able to sell it and make a profit. Oh well, I'm getting use out of it.

Did some googling. Cars used to be about 80% of yearly income in the 1960s. And houses were about 2x yearly income.

In 2010 cars are about 40% of yearly income and houses are 5x yearly income.

Imagine if theyd followed the same trend of halving in relative price. You'd only need a year of income to afford a house rather than 5 years.

I paid 500k for my home. Whenever we sell it I'm sure I'll make a nice profit. But Id rather skip the profit and only have paid 100k. Since 100k was our down payment I could have outright bought the house without a loan. Markets are more consistent and I'd have far more comfortable margins for living expenses and worrying about work.

Steadily decreasing price in housing would be awesome. And I say that as a homeowner.

As a homeowner, I agree, but it doesn't seem like there's any viable way to achieve this through public policy. The housing that is ridiculously expensive got that way because of the underlying land. And land near desirable locations is very scarce. >

But Id rather skip the profit and only have paid 100k.

There are a lot of houses in that price range for sale in the US. But none of them are convenient to areas that are economically/culturally important.

Generally, though, houses last longer than cars, and the land they're on is worth a bundle as well (and that lasts forever).

The usual way to solve a problem of "let's make something cheaper while not pissing off existing owners by reducing the value of their product" is market segmentation. Want to make a new $500 phone that doesn't annoy the people who just bought your $1000 flagship? Make sure it's worse in some obvious way. This sort of thing has resulting in lots of amusing things like IBMs computer with the jumper that could be cut to make it faster, but with homes it's pretty easy -- you make new housing that's smaller, of poorer construction, and further away from where people want to be.

Except, well, enter government. Building codes keep you from (legally) making houses of much poorer construction. Occupancy codes keep your houses from being too much smaller. And anti-sprawl rules mean you can't build them much further away.

A trailer park. What you're describing is a trailer park, and they're still cheap and generally available.

Incidentally, federal regulation has also made trailer homes more expensive, uglier, and less safe. https://www.minneapolisfed.org/article/2025/learning-from-the-first-and-only-manufactured-housing-boom

Trailer parks are different because the trailer owner is renting the land (unless there's co-op/condo trailer parks, I haven't really looked into it). Also, they're not cheap and generally available in many places where housing prices are expensive.

Trailers remain cheap, in general- much cheaper than houses or equivalent apartments. There may be some metros where they aren’t available- I have no doubt that in the NY metro area, you aren’t going to find a trailer park- but they’re far more available than starter homes in most of the country.

Simple solution -- elect a leader who has been a globalist neo-con since before it was cool, and coincidentally owns a podbuilding company; et voila:

https://www.pm.gc.ca/en/news/news-releases/2025/09/14/prime-minister-carney-launches-build-canada-homes

Non-pod based houses can remain as a Veblen item, and the useless eaters can be happy in their pods; what could go wrong?

Doesn't work in the US. I don't know if Trump ever built houses, but if he did I'm sure they would be McMansions, not pods.

Lennar, one of the biggest homebuilding companies in the US, caught some attention a few years ago for building and selling a bunch of minuscule 350-ft2 houses (visible on Google Maps here). So it isn't totally outside the realm of possibility.

These are literally the shotgun houses of old, aren't they?

Basically, yes, if you look at the floor plans… except Internet Archive unfortunately failed to capture Lennar's original JavaScript-infested webpages properly, but luckily I downloaded the floor plan for the 660-ft2 Henley version back when the original webpages were still up.

Interesting, thanks. I expected them to have a backdoor, but I guess backyard access is a needless luxury.

Shame you didn't get the Cooley version as well.

Didn't you look at my Google Maps link? These houses barely have backyards in the first place.

Not as important now. Lennar home prices have collapsed. I think I’ve even seen $173/ft now on new construction. Here is a chart of their home selling prices.

https://wolfstreet.com/2025/12/17/lennar-further-cuts-average-sales-price-of-new-homes-to-lowest-since-2017-25-from-peak-thats-what-this-housing-market-needs/

It’s $365k now. People probably aren’t buying tiny homes now when the standard product is down to this.

Doesn't work in the US.

It's a startup, so I'm not exactly holding my breath, but The American Housing Corporation was recently making the news planning to build manufactured rowhouses.

American problems need American solutions, certainly; Trump is not the man for this job, I propose Larry Fink.

Larry Fink

I think you mean Steve Schwarzman. Blackstone, not BlackRock (which is no longer a subsidiary).

Neither Blackstone or BlackRock would return my calls, so I hired a similar sounding company called Blackwater for us instead. I couldn’t find their ESG score on Bloomberg, but they assured me their solution for lowering housing prices would be swift and humane, thus we should be in good hands.

It’s not called that anymore.

I know. I chose to deadname it to make the joke work and because the old name’s more badass, so it’ll always be Blackwater in my heart.

Perhaps -- "President Fink" is a little too good to pass up though.

The value of a house is that you have a place to live. A house is not an “investment”. It has no cash flow. It does not generate wealth. A house becomes less useful with time due to entropy (albeit more slowly than most other physical assets). One would expect the real value of the average house to go down with time.

I feel bad for the people who got duped, but this really should have been obvious. Artificial scarcity is not wealth. Abundance is wealth.

A house is not an “investment”. It has no cash flow.

Well it has an imputed cash flow if you choose to live there yourself, and a real cash flow if you rent it out. Which makes it different from other non-investment investments, e.g. gold bullion.

By analogy, imagine investors in Walmart had a choice between (1) receiving cash dividends; or (2) receiving an equivalent amount of free product from the shelf at the local Walmart store. Whichever you choose, it's still an investment that generates returns.

One would expect the real value of the average house to go down with time.

I agree -- if you separate the value of the house structure from the value of the underlying land. On human timescales, the land isn't going to depreciate due to entropy. And if the land is convenient to a significant economic or cultural center, it may very well appreciate.

I feel bad for the people who got duped, but this really should have been obvious.

Well, at least for now you don't need to feel bad for me. I made the calculation that (1) it was roughly the same cost to make mortgage, tax and maintenance payments for 20 or 30 years, followed by maintenance and tax only, than to pay rent for the same time period; (2) buying would hedge against the risk of serious inflation in housing prices, which is a real risk; and (3) buying would spare me the headache of dealing with a landlord cuts corners on maintenance and repairs. The fact that I now own a house which would go for a lot more than what I paid is a nice bonus, but it's not something I was counting on.

Artificial scarcity is not wealth.

What about natural scarcity? There is a natural limit to the number of houses with private yards which can be built such that they are convenient to one of the big 3 cities in the US.

Abundance is wealth.

Well that's one of the big questions posed by modern technological advancement. In the West, there is now what amounts to an unlimited food supply. So wealthy people eat steak at Michelin-starred restaurants while poor people eat hamburgers at MacDonald's. Poor people may become obese, but I doubt they feel wealthy.

In the US, the poorest people can easily afford a wristwatch which is more accurate and reliable than a Rolex or a Patek-Phillipe. And yet rich people spend tens of thousands of dollars on fancy watches while poor people (I assume) don't feel particularly wealthy wearing $15 drug store watches.

So it seems that perhaps wealth and scarcity are inextricably intertwined. That even in a state of abundance, people find ways to distinguish the wealthy from the non-wealthy. So I wouldn't be so quick to dismiss real estate as an investment, either in the cash flow sense or in the speculative sense.

receiving an equivalent amount of free product from the shelf at the local Walmart store

This was the original dividend in 1610. The Dutch East India Company gave a a quantity of spice to every shareholder who personally showed up at a building to get a scoop. They were spice-rich so as a treat shareholders get a sample.

A house is an investment! In a combination of the location being one that will be even more valuable than it already is in the future as the economy grows and people agglomerate, and the taxi medallion of already existing in a world of many different land use restrictions.

One would expect the real value of the average house to go down with time.

As a specific example, my understanding is that the Japanese housing market does work this way, largely because there is a strong cultural demand for new houses, to the extent of replacing usable existing structures being common.

A house is not only an investment, houses have cash flows so large it burns the Treasury's butt that they can't tax them. Second largest "tax expenditure" after medical premiums and just before 401Ks is "Exclusion of net imputed rental income". Of course, you might object that these aren't real cash flows (which they aren't, hence "imputed")... but they are spending avoided. They also provide a one-time inflow when sold, of course.

A house becomes less useful with time due to entropy (albeit more slowly than most other physical assets). One would expect the real value of the average house to go down with time.

But in fact houses generally gain real value with time. I expect this to change in 10-15 years, but for now, they gain, not because any intrinsic properties but because of good old supply and demand. Well, that, and the fact that people do tend to fight entropy by doing maintenance and sometimes upgrades, which you need to account for.

intrinsic properties

Im gonna be pedantic and state the obvious. Most homes are geographically fixed, which is what causes the supply imbalance in areas that are desirable for whatever reason. This is a fairly unique property that introduces a lot of inelasticity that other markets in the consumer sector don't share.

Even if you could teleport houses into LA you still wouldnt fix house prices there because you'd have to find land to put them on, and thats before we even look at other factors that keep the housing market on a death march upwards such as inflation.

I imagine at some point urban population density will have a ceiling on how desirable it is to live in megacity block 13-A (formerly west village) but even the US's most dense cities like NYC are too nimby-ed up to actually let the market build the amount of vertical living space that the city currently could handle, let alone a scifi amount that plateaus the housing prices.

It’s actually very easy to create more land. Tokyo keeps growing and being desirable and housing costs haven’t exploded. The big thing that makes land for housing desirable are the public services. If you make it safe and provide transportation options you can just create more land.

Chicago for example has a neighborhood with all the characteristics of places with expensive housing. The University of Chicago is surrounded by very cheap land. At one point in history this was a very desirable neighborhood. It’s cheap because they shoot people next door. If you made it safer and improved public transportation then it would literally be building new land in Chicago that is highly desirable.

I think this is the most extreme version in America but I think every major city has some form of these issues that would unlock a large amount of land if you just fixed the provision on public goods. Extending subways in NYC would unlock a lot of land.

Some of these issues come down to not being allowed to do explicit segregation. People don’t want to build better trains because then the wrong people would enter the neighborhood.

It has no cash flow.

For the first couple of years after I bought my house, I let out a room to a friend who was in grad school. It wasn't a ton of money, but it was positive cash flow. Doing that with a rental would be a lot more problematic.

In practice it probably wouldn’t, I’ll wager thé majority of people doing this are renters.

Could you expand on that? Maybe it’s just the bubble I live in but that’s hard for me to imagine

Illegal sublets are incredibly common in both apartments and rented houses. It's pretty normal for apartments to only have one roommate's name on the lease(usually the guy with the better credit score). Lots of people do it- half a two bedroom apartment is much cheaper than one one bedroom apartment. And rented houses do the same thing all the time, only with more roommates. You can go on craigslist in your city and see examples, price range, etc, although it will also include owned homes, grouphouses, flophouses, etc.

Exactly- since rooming houses were banned almost everywhere, the default entry-level housing option is a bedroom in a HMO (House in Multiple Occupancy). To change this you both need to ban HMOs and spam sufficient purpose-built studio flats to make them affordable (many non-elite US cities have done this - it isn't that hard). If you only ban HMOs without spamming studios, then the entry-level housing option is a bedroom in an illegal HMO.

In 90% of illegal HMOs and about 50% of legal ones only 1-2 of the roommates are named on the lease and the others are cash-in-hand lodgers. (In legal HMOs it is more common to rent a bedroom directly from the landlord).

There’s plenty of illegal flophouses in US cities, where you pay cash to a landlord directly- and he in turn did not tell either the city, or his financial agency, that he intends to rent individual bedrooms out of the house.

Thank you both, that makes sense. My mistake was in assuming that laws around this sort of thing would stop it, as it stopped me when I was younger and poorer, but of course it does not.

I don't see how the US will ever be a manufacturing country when a house for an engineer in a city is a million dollars, medical insurance for a family is 2000+ dollars a month and an engineering degree starts at 100k dollars. Being a country built on assets being inflated to the moon is incompatible with manufacturing.

China wanted its bubble to pop because BYD's engineers can rent condos for far less per square meter than what GM engineers can.

Further more the US birthrate is 1.6 children per woman. That is an almost 25% drop in population over the course of one generation. This is while the construction industry continues to pump out housing. This is pretty much a commitment to continued mass immigration.

medical insurance for a family is 2000+ dollars a month

I'm pretty sure the engineer in your example isn’t paying nearly that much.

The engineer isn't paying that much directly but his employer is paying most of it on his behalf; it's part of his compensation. For tax reasons everyone (except the government) is better off this way.

There are economists who argue that employer health insurance tax exclusion pushes up overall costs. The ACA's cadillac tax was repealed before it came into effect, so we'll never know.

It almost certainly does, but the "cadillac tax" was a half measure which would have resulted in the worst of both worlds -- everyone would get the mediocre offerings, but pay a very high price for it.

I think the only viable option here, which maybe is the needle Trump is trying to thread, is to stagnate housing prices while everything else inflates around them. A sudden drop in asset price is bad (underwater mortgages), but a slow loss in relative value --- in your example, house still $1M, but so is starting salary --- could at least be palatable to existing homeowners and approve relative affordability.

But the only thing voters hate more than the price of their home decreasing is high inflation.

That could work, but with how sticky wages have been relative to inflation it's a risky move.

China wanted its bubble to pop because BYD's engineers can rent condos for far less per square meter than what GM engineers can.

China didn’t want its bubble to pop and the state took extreme action to (1) prevent the housing bubble from popping and (2) once it partially did, prevent on-paper values from collapsing to prevent extreme public anger. To illustrate, while data is scarce, since the bubble burst in 2022/3 Chinese house prices have fallen by about 2.5% per year. The worst affected cities maybe 5%.

By contrast, after the US housing bubble burst in 2007, property prices in the worst affected cities (like Phoenix) fell by over 50%.

People who own houses often have it as their primary asset. Reducing the value of real estate is, in a very real sense, making them poorer. And people who own homes vote.

The American Dream is basically 'what if everyone was part of the land-owning class?' and then people are surprised that as a newly endowed member of that class, they are opposed to the renting class and new buyers. Well, no shit! You've spent a great amount of government subsidy to align their interests in that way.

Trump is just being honest in that he is siding with the landowners. Anyone who is an advocate for reducing the price of housing but isn't for building new construction is a liar who is a part of the problem. Their best ideas for reducing the price are to subsidize the demand and this is why structural reform is impossible.

No it is literally not making them poorer unless their income is housing speculation.

If you make $10k per month and have a $3k/month mortgage you consumption basket does not change if the value of the house is $1 or $10 million. Either way you have $7k/m for other consumption.

You are confusing the derivative of wealth with wealth itself.

There is a lot of human intuition for why these two quantities should be linked, but everyone else in this thread is assuming they are distinct quantities. That is why there is a disagreement.

Actually agree a lot. Wealth of nations and realistically for individuals is how much stuff you can buy. Things getting cheaper make you wealthier.

But we are past for the most part material wealth and people care a lot about status. Owning $10m home that’s 2k sq feet feels wealthier when everyone else you know lives in a 500 sq ft studio than having a 10k sq ft home but everyone has as a 10k sq home.

Status of course does matter. Girls will sleep with you because you are richer than others. And that makes people feel richer than if the can increase consumption 10x but others have more.

What I am teasing out by being autistic is status wealth versus material wealth. Most people if they had to choose between $50m in their background in today’s world versus being bottom quintile number in back account but they can afford anything they can dream of would choose the former.

What I am teasing out by being autistic is status wealth versus material wealth. Most people if they had to choose between $50m in their background in today’s world versus being bottom quintile number in back account but they can afford anything they can dream of would choose the former.

I basically agree with a caveat -- I would take the future world if "anything they can dream of" includes health care so good that it allows you to live for thousands of years, the same way that -- in theory -- a car can be maintained indefinitely.

But anyway, as I suggested in another post, it seems that wealth might be inextricably linked to scarcity. For example, when it comes to food, the US in an age of abundance -- it's literally given away for free. So wealthy people eat steak in Michelin-starred restaurants while poor people eat MacDonald's hamburgers. I doubt that those poor people feel wealthy.

What's even more striking to me is that anyone in the United States can easily afford a drug store digital watch which is more accurate than a Rolex. But it's the same thing -- wealthy people wear fancy watches and non-wealthy people don't feel wealthy.

So yeah, I'm not optimistic about future abundance making everyone wealthy. In fact, I worry that we will end up with a kind of permanent aristocracy sort of like what existed in the Middle Ages. From what I understand, at that time, most of Europe's wealth was in the form of land which was passed down from generation to generation. From what I understand, there was a surplus of human labor so that it was very difficult to become wealthy by working. I worry that in a post-AGI world, something similar could happen.

Poverty is not just a matter of monthly expenses, but of how much or how little leeway you have in case of an emergency - of how financially secure you are. If my house is worth $10 million, I know that worst comes to worst (say, if I get into a terrible accident and become permanently disabled), I could always sell the house, move someplace much smaller, and eke out a living for a good long while. This knowledge is a balm for the soul in moments of anxiety and I'm going to be very upset if you drastically shrink my safety net out from under me.

But in this scenario there are homeowners who are losers here - people with houses that are in the bottom 10% of price due to location and size. Their home "values" increased over the last decade, but they are unable to leverage that money towards liquid cash as easily.

If the value of your house is literally one dollar and you have a 3k mortgage, you walk away from it and the bank can have your worthless house. This happened a lot in the 2008 crash. They call it being underwater in a mortgage. Obviously the value of your house is very important!

You're being a bit silly, aren't you? Do you use this logic for cars? Would you be okay me taking a sledgehammer to your vehicle's body work? Maybe I could go to your house and shit in the chimney. You wouldn't feel poorer, would you? You still have 7k a month to spend!

In this case you are actually losing real consumption. You are destroying my consumption good.

As far as being “underwater” on the mortgage your monthly payment doesn’t change. You can still have the same consumption basketball whether your house is worth $1 or $10 million. And of course you are wealthier if a new house costs $1. You could keep your current house and buy a vacation home because houses are cheap.

That is not how wealth works.

If only we had infinite inflation. Then I can be a wealthy trillionaire.

Do you see the problem with your logic here?

The problem isn't with my logic, it's with your lack of math. If you make $10k per month and have a $3k mortgage, and inflation results in everything going up evenly by 10x, you will be making $100k per month... and still have a $3k mortgage, for a gain of $2700 for other consumption (in old dollars). Inflation straightforwardly helps those with dollar-denominated debt. But that's cash flow, not wealth.

Inflation also builds wealth for people with leveraged real assets (like mortgaged homeowners) because the price of the house increases and the mortgage balance doesn't. The resulting equity is real wealth that people can cash out or borrow against. This is how the "housing ladder" worked - in an era where the need for a downpayment was the binding constraint on how big a house you could buy, the easiest way to save a downpayment on a large house was the inflation-and-leverage-driven capital gain on a small house.

How are you getting poorer if you make the same income but we invented some housing tech where housing has a lower asset value? Now you have an existing mortgage. Your job is very secure. You love your job. You love your community an never plan to leave.

Literally nothing changes in your consumption before or after we invented this new tech that causes massive asset value deflation in housing. It’s just that the new person buying a house pays less. You can actually not increase your consumption basket and buy a second home because they are much cheaper.

This happened with televisions. I am watching television right now on a 15 year old tv. It was expensive then. Now I could buy a 3x larger tv at 20% of the price. I still enjoy watching television on my old tv that is now cheap.

I am obviously wealthier today because we invented cheap tv technology. In my Milton Friedman permanent income hypothesis I likely thought I would spend $10k during the rest of my life on televisions. Now I expect to spend maybe $3k.

How are you getting poorer if you make the same income but we invented some housing tech where housing has a lower asset value? Now you have an existing mortgage. Your job is very secure. You love your job. You love your community an never plan to leave.

That you have to put those conditions on it demonstrates I am getting poorer in fact.

Suppose I just bought a $1M house and have an $800,000 mortgage on it (I'm in a recourse state). Housing value drops to $400,000 thanks to your new magic. Now I want to move to another similar house in another area for some reason. OK, that house is $400,000... but I need to somehow come up with $100,000 just to get out of my current mortgage, as well as the down payment for the new house. Whereas if nothing had changed I'd have just had to sell the old house and buy the new (aside from transaction fees).

Cash flow is not wealth.

And yes, the same is true with TVs. If you buy a TV for $10,000 and the price drops to $2,000 the next day, your wealth has dropped -- not by $8,000, because no one's buying even a one-day-used TV for new TV prices, but by something. We just don't notice because we don't track the asset value of things like TVs, because we don't expect to resell them.

Assume your debt is like credit card debt and transferable. You would still have zero loss and be richer in terms of what you can buy.

More comments

I don't think I've ever had a job where my wages have actually increased with anything close to the level of inflation. I usually have to get a promotion (or job hop) to make that back.

It's a toy example, obviously. Nevertheless, median wages and median disposable (after tax) personal income have typically grown faster than inflation. Lately they've dropped to about par, but that's because we're in this almost-recession.

Anyone who is an advocate for reducing the price of housing but isn't for building new construction is a liar who is a part of the problem.

The thing is though, if you are for building new construction, possibly in connection to wanting to reduce the price of housing, the predictable surety is the value of houses currently owned by people will go down.

Trump is just being honest in that he is siding with the landowners.

I should have spent more time trying to find the rest of the context of that clip. I debated it, but was lazy. There is a clue in that he briefly says, "We're going to make it easier to buy." A longer clip is here. He talks about this repeatedly. Making it "easier" for people who don't own houses to buy houses. The repeated message of the Secretary of HUD is about how they're making it so that millions more people "can afford" to buy houses. How is it "easier"? How is that they "can afford"? The major talking point is interest rates. ...as if lowering interest rates has no effect on the sale prices of houses. Lowering monthly mortgage amounts, offering lower down payment options like FHA loans or whatever, sure, these things get people into home borrowership, but they have other effects, too. Do people already forget the impacts of the drive to push more and more people into home borrowership twenty years ago, even resulting in significant impacts to government coffers as they were left picking up the pieces.1 These things are the sorts of ridiculous tinkers one comes up with to try to look like one is solving the problem when one hasn't grasped the reality of the core tension.

Trump is honest in that he's saying that he's siding with landowners, and he wants you to believe it. He's honest in that he's saying he's siding with people who want to buy houses, and he wants you to believe it. So we'll keep pushing the same flawed fake solutions, try to play whack-a-mole in the process, and never accept the limit of technocratic solutions.

1 - I've been lucky in that I decided a few years ago to start listening to the entire back catalog of EconTalk. It started in 2006, and I'm around 2011 now. There are plenty of episodes that aren't housing-related, but there is an incredible breadth and regular stream of folks grappling with and trying to understand the housing crisis, the crash, and the process of recovery. I guess I've been stewing in it enough that it's clear what people thought they were trying to do, how it sounded nice, how it all went wrong, and now we're basically repeating the same tune, just a different key.

1 - I've been lucky in that I decided a few years ago to start listening to the entire back catalog of EconTalk. It started in 2006, and I'm around 2011 now. There are plenty of episodes that aren't housing-related, but there is an incredible breadth and regular stream of folks grappling with and trying to understand the housing crisis, the crash, and the process of recovery. I guess I've been stewing in it enough that it's clear what people thought they were trying to do, how it sounded nice, how it all went wrong, and now we're basically repeating the same tune, just a different key.

This sounds fascinating. Any way you could distill what you observed from those 5 years of podcasts?

I've been thinking about this, and I'm not sure I can. There's a lot of little things that stick out. Little nuggets here and there that I remember. If there's anything big picture, it's that most people don't think much about economics or complex systems. Sometimes, the downside to something that sounds good can be right in front of their face, and they won't get it (the price gouging for ice after a hurricane story is legendary). Other times, the dispersed nature of information, thinking, and actions masks implications for how tweaking one thing can change other things. He's very Hayekian in that. It's been kind of a long absorption process, hearing how One Neat Trick failed and Another Neat Trick failed and Another Neat Trick failed that you don't just become skeptical of One Neat Tricks, but you start to gain an intuition for how the next One Neat Trick is likely to fail.

Do people already forget the impacts of the drive to push more and more people into home borrowership twenty years ago, even resulting in significant impacts to government coffers as they were left picking up the pieces.

You don't even have to go back that far. The most recent appreciation in housing prices from the COVID era and renewed discussions on affordability directly stem from the wave of home purchases from the era of rock-bottom interest rates. It's basic supply in demand. Sale prices of homes are more reflective of mortgage payments than they are of the sticker price; it makes more sense to talk about a $1500/month house than a $250,000 house. This difference is especially clear in the Pittsburgh area, where houses just outside of Allegheny County command a price premium due to lower property taxes. If there's a class of people who couldn't afford a particular house at 7% but now can at 3.5%, the house is going to cost more.

The American Dream is basically 'what if everyone was part of the land-owning class?' and then people are surprised that as a newly endowed member of that class, they are opposed to rentiers and new buyers.

I think you mean "renters". A "rentier" is a landlord, one who lives off income from properties.

Ah, whoops! My bad.

There’s a lot of people who are basically lifestyle debtors, their lives are based around moving debt around to cover their high consumption habits. Taking away those people’s toys is probably unpopular, even if probably necessary, and very high home values are the main toy of the more sympathetic bunch of them.

As somebody who has a mortgage and is considering moving, I think about housing prices a lot. The conventional wisdom seems to be that high home prices are a good thing for homeowners, but I can't entirely figure out why that's true in the general case.

If your home is "worth" 10x your purchase price, you can only use that by selling it or using it as collateral for debt.

If you're selling it, you're either moving into a new purchased property or a rental. If you're moving into a new property, it's likely just as inflated as your current home unless you're engaging in geographic abitrage by moving from Martha's Vineyard to Monkey's Eyebrow, Kentucky. If you're moving into a rental - well, any rational landlord is going to set rates at the absolute highest point the market can handle, and that's informed by home prices. If every housing market in the country took a 50% pounding, I'd likely be better off in terms of relocating than I am now.

I can understand the collateral for debt argument, but I don't know how common that is, as I am a peasant who avoids debt whenever I can. Maybe somebody else here can fill in the gaps on this one.

Given all that, what exactly am I missing here? Why are high home valuations for homeowners considered to be such an unalloyed good?

As somebody who has a mortgage and is considering moving, I think about housing prices a lot. The conventional wisdom seems to be that high home prices are a good thing for homeowners, but I can't entirely figure out why that's true in the general case.

In a world where most buyers are downpayment-limited (which was the case when the conventional wisdom became conventional), your current home going up by x and your dream home going up by 2x still makes the move-up more affordable (because your available downpayment went up by x but the required downpayment with an 80% mortgage only went up by 2x/5). In a world where most buyers are income-limited (which is the world we are mostly in today) it makes the move-up less affordable (because the additional borrowing needed goes up by x).

For most people, wealth is only useful for retirement. The model is: you save and invest and develop wealth so that eventually you can stop working and live off that wealth until you die.

Two common ways to do that now are down-sizing from a large home where you raised a family to a smaller home/condo/retirement community (what my parents did) or a reverse mortgage if you don't have kids to pass assets on to. In both cases an inflated housing market gives you more cash.

I would guess it's rare to use leverage on your home to enter the capitalist class, but that's also a possibility. For instance, my first home has risen in value >$100K and I can potentially access that equity to help fund my new business.

If your home is "worth" 10x your purchase price, you can only use that by selling it or using it as collateral for debt.

Leverage. Suppose you bought your house for $100,000 and still owe $70,000 on your mortgage. If it's still worth $100,000, you have $30,000 in equity. If it's worth $1,000,000 you don't have $300,000 but rather $970,000 in equity. Even if all the other houses have gone up as much, you've won.

Right, but that equity is only useful if you're going to sell it, or you need to borrow money and can afford to make the payments. If I were to buy a $100,000 house tomorrow, and I make the kind of money for which the loan is comfortably affordable but not so much that I could comforably afford a house worth much more than that, being able to borrow $900,000 isn't much of an advantage. Maybe if circumstances change such that I need to borrow money and I can get a better interest rate on a HELOC than I would on a personal loan, but even then the origination fees combined with the fact that the bank now has a lien on your house makes it a questionable decision unless the circumstances call for it.

Right, but that equity is only useful if you're going to sell it

Yes! If you had to sell your house at the original price, you would get 30k back. If you had to sell it at the new price, you would get 930k back.

If you did this to move into a house that was twice as cheap as your first one, you would be 20k in debt in the first case and would have 430k left in the second. That's a massive cash injection for an empty nester.

Incidentally, this is one of the reasons why houses have been growing bigger and bigger in the US. If it's your biggest and safest and most appreciating investment, it makes sense to buy not the smallest house you need, but the biggest house you can afford.

Right, but that equity is only useful if you're going to sell it, or you need to borrow money and can afford to make the payments.

It's not very liquid but it is wealth and it is useful. If the 10X increase is straight inflation, you've gained $67,000 in the same currency as you bought the house in.

It's not very liquid but it is wealth and it is useful.

Yes, I agree. I was in that situation when my business took a big hit due to Corona. Fortunately my house had gone up a lot in value so I was able to have fat HELOC based on the difference between the mortgage balance and the potential sale price.

Of course this is all semantics -- how to define the word "wealth" -- but I think it's most appropriate to think of home equity as wealth which is not very liquid but still wealth, as you put it.

You need a place to live. If your house goes up in value, and you are living in it, your imputed rent goes up, and you are using the more valuable house to pay for the more expensive imputed rent, which leaves you with no gain. If you sell it, you'd have to find some similar place to live and that place's cost also went up. So you don't gain unless you are an investor and you aren't using the house to live in.

If your house goes up in value, and you are living in it, your imputed rent goes up, and you are using the more valuable house to pay for the more expensive imputed rent, which leaves you with no gain.

What you say is correct if

1) There's no mortgage and either
2a) The increase is entirely inflation or
2b) You can only use housing wealth for housing.

Since 2b isn't true, you can make use of wealth from your primary residence. Suppose housing doubled in value compared to general inflation since I bought my house for $400,000. I move from my house to a house costing 3/4 as much (formerly $300,000, now $600,000). The 1/4 I get out is twice that ($200,000 rather than $100,000) if housing remained the same.

Yes, and if you take into account empty nesters, it's not that atypical for older people to move from a house sized for a family with 2+ kids to a smaller house, to a condo or an apartment that requires less upkeep work and, as a result of the downsizing you mentionned, frees up money for retirement.

If you move to a cheaper house, the cheaper house is less valuable, and also has less imputed rent. You are essentially "making money" by reducing your expenses, even though your budget doesn't have line items "reduction in imputed rent" and "equivalent reduction in the ability of house to pay the imputed rent".

The point is that the real money I obtain by doing that goes up with the real value of the house. If the house value stays the same, then by pulling 1/4 of the value of the house out I obtain $100,000. If the house value doubles, I obtain $200,000. This is a clear win, and demonstrates I'm made wealthier by real housing values going up.

I think the geographic arbitrage you mention is pretty common. My mother and step-father were, at one point, considering moving to a pretty rural area of Kentucky since they could get a lot of land quite cheap. Additionally there's a size/quality arbitrage that occurs. When you're younger, have kids and a growing family, you probably want a larger house than when you're older and retired. So even if you stay in the same geographic area there's an arbitrage to a relatively less desirable house that may be better suited to your needs.

My impression is many homeowners also perceive their house and its equity as a retirement investment. In many (most?) places around the country your home is likely to be the most valuable asset you own. Even if one doesn't intend to cash out that asset themselves, it is something very valuable to leave to one's progeny. Either in the form of cash from a sale or as a place to live.

I think the geographic arbitrage you mention is pretty common.

Agreed, I live in a suburb in the Northeastern US and it's pretty common for people to sell; move to places like Georgia or the Carolinas; and end up with a much nicer house (fully paid off); and a bunch of extra money to boot.

Even among people who don't end up doing it, just knowing that it's a potential option provides peace of mind and a safety net for taking financial risks such as quitting one's job and starting a business; taking an early retirement plan that's 90% likely to succeed, etc.

I can understand the collateral for debt argument, but I don't know how common that is, as I am a peasant who avoids debt whenever I can. Maybe somebody else here can fill in the gaps on this one.

If I was in DINK couple, or an irresponsible parent, a reverse mortgage would be very tempting; after all, if I don't have anyone I want to leave my wealth to, what do I care if the bank takes it after I die?

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