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David Kirtley's avatar

I think that this housing issue is due less directly to monetary issues and more due to other issues.

Existing house sales were driven by people (some institutional, some individuals) wanting higher returns than they could get with the returns of other traditional investments. With interest rates so artificially low, they jumped into real estate as a means to preserve wealth and generate income. Instead of being purchased by what would have normally been first time home buyers, they were bought up by people who were not going to live in them. Some were purchased by people intending to flip them. A huge number were bought by people that were going to rent them out to generate income both as monthly and air-bnb type short term rentals. Instead of getting $2000 a year on each $100000 deposited at 2% interest, you could generate much more in rental income and still have the property itself appreciating. If you didn't want to deal with it on a daily basis, just pay a management company to handle it and you were still way ahead.

Additional pressure was coming from the other direction as well. New house sales were overbuilt to generate higher returns for the builders. Add a few square feet and a few higher end finishes and you can build a $400K house instead of a $200K for a marginally higher cost on the same piece of property. Why on earth would they build a cheaper house?

There has also been a big increase in cost brought about by environmental issues in both the flips and the new construction, they are putting in more efficient and expensive appliances, better insulation, better windows and doors, tighter construction, higher load capacity electrical services to accommodate charging electric cars, and not inconsequentially, higher planning costs for environmental impact studies and the like.

Additionally, in a lot of areas, the whole idea of a young couple buying a fixer-upper and putting in sweat equity is dead. City planning has made it all but impossible to get permits to DIY construction and repair.

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