I agree that exact elasticity numbers are meaningless but it's hard to deny that cities without zoning rules, with large unincorporated areas within urban area, easy county permits and low state regulation, keep long term housing prices not only lower but also less volatile (not without volatility because most volatility is driven by demand side - easy credit). Elasticity is not a silver ballet to stop volatility or high prices but the very idea in peoples heads that if they need or want they can build a house nearby helps to some degree to reduce FOMO which is one of main drivers of boom bust cycles (in addition to easy credit which is an enabling factor).
But I'm a little confused as to your position on the relative scale of the savings and loan cycle.
Price doubled in the six years to 1982 according to that linked data. But the shortest recent period that saw a doubling was about 9 years (2013-2022).
Yes, I suppose it makes sense why young people would feel overwhelmed by it. That said, like you say, it's they way the land market operates and has done since private land sales, banks, and money supply were a thing. Simply, because of the nature of land -- limited supply and price competition upward rather than down.
I am also a young, non-home owner, but it's more comforting to me to know the truth, even if it means being at odds with others.
I agree with your point on price controlled public housing -- a way to opt out of the market conditions. It's probably a bit more publically tenable than a 100% land tax. As much as I wish the latter could be implemented and think it makes sense for land to be a public asset.
Anyway, thanks for your hard work! And I'll continue to share it around, as I have been doing.
So if I understand correctly, comparing change in stock elasticity over two medium-long periods are a way of identifying the part of the cycle in which an area is in. This is because during booms, the change in the rate of house building increases substantially. I assume this would also line up pretty well with private debt to GDP ratio growth?
By the way, I recently finished undergrad economics at UQ. I can't imagine there are too many young non-home owners that agree with your analysis of housing generally, or take it seriously. Maybe you have had a different experience, but I have found the prevailing rehtoric (through media etc.) is too strong to be able to explain this stuff to them such that they engage with it in a critical way.
Your second point about young people engaging and the power of the prevailing rhetoric is a good observation.
I was in the same position 20 years ago during the last boom from 2001-2006. Prices doubled in Brisbane then. Rents started rising. And I myself thought the housing market was broken.
I was studying at QUT and had a casual lecturer tell me then they decided to give up the house they were renting and live in their car for a few months to save money. It was a crazy time.
So I understand. But those conditions didn’t last.
It was part of the cycle. The same cycle that happened in the 1980s and has repeated for centuries.
That is not to say the cycle is good. Just that it is a normal part of market behaviour.
If we don’t like that market outcome, we should definitely expand no-market housing option.
Also, some of what I write involves sharing lessons that I learnt - things I got wrong at first, even for years, because I didn't know enough. It is what I wish someone would have explained to me decades ago to speed up my learning process.
Hi Cameron, I really enjoy your work and have read your books, even if some of it stretches my brain a bit! My sense from your writing is that the Perth market is at a normal point in the normal growth cycle, but as a renter on the sidelines I can't help but wonder... Do you think Perth’s abnormally and historically low listing levels (and perhaps steady migration/demand) are having any affect in causing prices to hold or grow, and does supply/demand have any effect in an extreme example such as this? I know zoning/de-regulation isn't the answer, but curious as to what forces could cause prices to plateau when a market is this tight.
Your question about what causes the market to plateau or turn is a good one. The main force is the relative pricing between Perth and other cities. Once the crowd of market participants realises that they are paying big city rents for more regional economic opportunities, they will stop moving there or start leaving. People might consolidate homes (more people per dwelling), move more regionally, etc. There are lots of ways that rising rents and prices themselves cause responses that accumulate and lead to falling rents and prices.
Check out how clear the Perth cycle is in SQM's free rental data:
Notes that in 2013 house rents were $600/wk. There has been 40% inflation since then, which in real terms means $840 today, and asking rents are $886/wk today.
It seems to me that the cycle is very similar to the previous one in scale and will correct for the similar economic reasons.
I agree that exact elasticity numbers are meaningless but it's hard to deny that cities without zoning rules, with large unincorporated areas within urban area, easy county permits and low state regulation, keep long term housing prices not only lower but also less volatile (not without volatility because most volatility is driven by demand side - easy credit). Elasticity is not a silver ballet to stop volatility or high prices but the very idea in peoples heads that if they need or want they can build a house nearby helps to some degree to reduce FOMO which is one of main drivers of boom bust cycles (in addition to easy credit which is an enabling factor).
Maybe. I guess the problem is that the more we look, the less this seems to hold in general.
For example, the 1980s housing boom was much more dramatic in Texas than other places in the US, with prices rising twice the national average.
Many “frontier” towns with plenty of “spare” land (e.g. Perth and Darwin in Australia) see more dramatic price cycles than Sydney.
The various zoning systems in the US might be so different from others that there is more truth there. But not sure it’s a general rule.
I agree that it's hard to pinpoint the causation but 1980s "boom and bust" is a laughable event in comparison to what happened since.
S&L cycle was more prominent in TX due to more fraud and thrift failures but all of that hasn't move house prices significantly up or down
https://alfred.stlouisfed.org/series?seid=TXSTHPI#
Yes, it is hard to deal with causation.
But I'm a little confused as to your position on the relative scale of the savings and loan cycle.
Price doubled in the six years to 1982 according to that linked data. But the shortest recent period that saw a doubling was about 9 years (2013-2022).
over that period 1976-1982 inflation in USA was around 70%
"real" price growth in TX during this boom period was 20% or so over 6 years - not much really
in the USA on average house prices increased by 80% in nominal or around 10% in real terms during the same period
Sorry, replied to the wrong comment...
Yes, I suppose it makes sense why young people would feel overwhelmed by it. That said, like you say, it's they way the land market operates and has done since private land sales, banks, and money supply were a thing. Simply, because of the nature of land -- limited supply and price competition upward rather than down.
I am also a young, non-home owner, but it's more comforting to me to know the truth, even if it means being at odds with others.
I agree with your point on price controlled public housing -- a way to opt out of the market conditions. It's probably a bit more publically tenable than a 100% land tax. As much as I wish the latter could be implemented and think it makes sense for land to be a public asset.
Anyway, thanks for your hard work! And I'll continue to share it around, as I have been doing.
So if I understand correctly, comparing change in stock elasticity over two medium-long periods are a way of identifying the part of the cycle in which an area is in. This is because during booms, the change in the rate of house building increases substantially. I assume this would also line up pretty well with private debt to GDP ratio growth?
By the way, I recently finished undergrad economics at UQ. I can't imagine there are too many young non-home owners that agree with your analysis of housing generally, or take it seriously. Maybe you have had a different experience, but I have found the prevailing rehtoric (through media etc.) is too strong to be able to explain this stuff to them such that they engage with it in a critical way.
Your second point about young people engaging and the power of the prevailing rhetoric is a good observation.
I was in the same position 20 years ago during the last boom from 2001-2006. Prices doubled in Brisbane then. Rents started rising. And I myself thought the housing market was broken.
I was studying at QUT and had a casual lecturer tell me then they decided to give up the house they were renting and live in their car for a few months to save money. It was a crazy time.
So I understand. But those conditions didn’t last.
It was part of the cycle. The same cycle that happened in the 1980s and has repeated for centuries.
That is not to say the cycle is good. Just that it is a normal part of market behaviour.
If we don’t like that market outcome, we should definitely expand no-market housing option.
Also, some of what I write involves sharing lessons that I learnt - things I got wrong at first, even for years, because I didn't know enough. It is what I wish someone would have explained to me decades ago to speed up my learning process.
Hi Cameron, I really enjoy your work and have read your books, even if some of it stretches my brain a bit! My sense from your writing is that the Perth market is at a normal point in the normal growth cycle, but as a renter on the sidelines I can't help but wonder... Do you think Perth’s abnormally and historically low listing levels (and perhaps steady migration/demand) are having any affect in causing prices to hold or grow, and does supply/demand have any effect in an extreme example such as this? I know zoning/de-regulation isn't the answer, but curious as to what forces could cause prices to plateau when a market is this tight.
Hi MB,
Yes, Perth really is having a nice cycle.
Your question about what causes the market to plateau or turn is a good one. The main force is the relative pricing between Perth and other cities. Once the crowd of market participants realises that they are paying big city rents for more regional economic opportunities, they will stop moving there or start leaving. People might consolidate homes (more people per dwelling), move more regionally, etc. There are lots of ways that rising rents and prices themselves cause responses that accumulate and lead to falling rents and prices.
Check out how clear the Perth cycle is in SQM's free rental data:
https://sqmresearch.com.au/property/weekly-rents?region=wa-Perth&type=c
Notes that in 2013 house rents were $600/wk. There has been 40% inflation since then, which in real terms means $840 today, and asking rents are $886/wk today.
It seems to me that the cycle is very similar to the previous one in scale and will correct for the similar economic reasons.
Thanks Cameron!
Matt