New Houses Cost More & Plots Of Land Are Smaller Than In The 1970s
Owning a home has always been part of the American dream.
While even relatively wealthy Europeans often have no choice but to rent a cramped apartment, Americans of all backgrounds and creeds—rich or poor—have traditionally had the opportunity to own their own home.
And this has been an overwhelmingly positive thing for American society.
Home ownership breeds personal responsibility, independence, and stronger communities—people have a personal stake in their neighborhoods.
Homes also enable large, healthy families, and tend to foster a respect for private property.
It’s no coincidence that neighborhoods with a high proportion of renters generally suffer from maintenance neglect, and are less desirable overall—people naturally care more about their own stuff than their landlord’s.
But this is all changing.
Home ownership in America is declining.
Homes are becoming prohibitively expensive.
This is especially hurting millennials, who are increasingly locked out of home ownership in the neighborhoods, even cities, where they grew up.
Let’s look at the numbers.
Homes Are 73% More Expensive Today Than They Were In 1973
Homes are more expensive in 2017 than they were in any previous decade in recent memory.
In 1973 the median household income was $9,265—doesn’t sound like a lot, does it? But that’s because of something called inflation, which increases the nominal (numeric) value of money every year.
In real terms (what you can buy with the money), people in 1973 were actually very well off.
Consider that the median sales price of a new home in January, 1973, was only $29,900—3.2 times the median household income. In other words, if the median family saved up every penny earned, and put it towards a new home, it would take just over three years to buy a brand new house.
This held relatively steady for the next decade. In 1985, new home prices crept up a little, to 3.7 times the median household income.
It was during the 1990s and 2000s that home prices began to skyrocket towards where they are today.
In January 2017 the median sales price for a new home was $317,400, which is 5.6 times the median household income of $56,516.
All told, houses are 73% more expensive today, in real terms, than they were in 1973.
Higher housing costs impact real people—they’re the primary reason America’s middle class is shrinking.
The adjacent graph shows the mean average, and median US household after-tax expenditures, using data from the Bureau of Labor Statistics: blue is discretionary spending, red is shelter costs (this is an aggregate of mortgage payments, rent etc. for American households).
You can clearly see that discretionary spending increased steadily between 1934 and 1985—this was real economic progress, since people could spend more of their income on wants, as opposed to needs.
However, this progress stopped in the 1990s.
When we look at the median family (which removes the distortions caused by the super-rich), we find that household discretionary spending actually began decreasing.
And what took its place? Spending on shelter. On housing.
Higher housing prices are squeezing most Americans—costs have risen so dramatically that the average American household is worse off, in real terms, than they were decades ago.
New Home Plots Are Smaller Today Than In 1976
But it’s not just about costs, we have to consider what you get for your money—as it turns out, the average lot for a new home is smaller today than at any point in recent history.
The US Census started tracking the median lot size (in square feet) for new home construction in 1976. During that year, the average lot was 10,125 square feet. In 2015, it’s only 8,600—the smallest on record.
So not only are houses getting more expensive, but we’re getting less land as well.
In the interest of fairness, I’ll also point out that the median new home is larger, in terms of square footage, than older homes as well—so it’s not a total loss.
Although personal experience leads me to believe that the new homes, while larger, are also of poorer quality. For example, the wood used in framing is flimsy pine, the roofs generally need repairs sooner, and there’s simply no substitute for the old copper piping.
Why Are Houses So Expensive?
Houses are unequivocally more expensive today, in real terms, than they used to be.
It comes down to simply supply and demand: the supply of homes is relatively inelastic, since it takes years to build new neighborhoods (mostly due to legal impediments). Likewise, demand has been steadily increasing.
This is because American property is being gobbled up by foreigners looking for secure Western investments, or wealthy immigrants looking to settle in America’s big cities—these concentrated investments ripple throughout the entire property market.
Foreign investors have been buying up over $100 billion in US property every year, because they deem it a relatively safe investment—this constitutes over 8% of all US sales. And remember, these investments are concentrated in major cities, and therefore inflate local prices much more than 8%.
Additionally, immigration also inflates the housing market.
A good example that’s been studied recently is the property market in Vancouver, Canada. There, Chinese multi-millionaire immigrants accounted for one-third of all new home sales.
The case is similar with Chinese immigration to San Francisco, or Russians in London. In fact, immigration is fueling housing prices throughout the Western world.
In the US, it’s even worse, since we not only have one of the highest legal immigration rates in the world, but we also have a massive illegal immigrant population—all people, whether here legally or illegally, need to live somewhere, and therefore distort America’s housing market.
Increased competition for a scarce resource (housing), increases its price. No surprise there.
Either way, the result’s the same: many American citizens can no longer afford homes.
This is bad for our people, and our nation.