Why is housing so much more expensive today vs. in decades past?
I was reading up on various Frank Lloyd Wright houses yesterday, and ran across this article about a FLW house that was built in 1940 for a mere $6600. Now according to my inflation calculator, that's approximately $110,000 in today's dollars (figuring nearly 4% annual inflation). You obviously cannot build a custom home in 2013 for $110k, especially one designed by a notable architect. So...what gives? What has changed?
real estate is speculated at a much high rate than it was in the past.
Um... the fact that there are now millions of houses on previously empty land?
Not enough people have died to keep up with existing home stock around the world.
Wright actually built quite a few houses that were (relatively) affordable. In particular, there's one called the Jacobs House in Wisconsin that was done as a challenge to see if Wright could build a house for $5000. Even though the actual construction budget was a tick more than that (and they used some leftover materials from the SE Johnson Building), Wright said that he didn't have a problem designing $5000 homes, he had a problem designing $5000 homes that owners insisted look like $10000 homes.
The Voice of the Night
[quote]Um... the fact that there are now millions of houses on previously empty land?
Even if you take out the land costs though, you still couldn't construct a custom home for $110k today. So it's not all about land. Plus, the house in the article is in an area of MI that isn't exactly overbuilt...there is still plenty of relatively cheap land available there.
Also, we've abandoned the concept of the starter home, which Wright's Usonian movement was addressing in the example you started. In 2013, we want to jump directly to the McMansion.
The Voice of the Night
The same reason everything is more expensive now. Gas was less than 20 cents a gallon in 1940. The price of gas and oil impacts everything.
There is more involved in modern homes.
Electrical systems must safely serve microwaves, game stations, and computers.
Climate systems must provide air conditioning and heating.
Plumbing must accommodate more than one bathroom.
Glass is now double-paned.
Water and sewage is now tied into city-wide systems.
[quote] Even if you take out the land costs though, you still couldn't construct a custom home for $110k today.
You can buy a modular home for this amount. And you could construct a house like the one I grew up in -- which was 860 square feet. The problem would be making sure your municipality would allow such a small home to be built.
Calculating the historical value of money is at least as much an art as a science, but even in seemingly comprehensible calculations of the value of one thing in X year compared to the equivalent in Y year, real estate values tend always to stands out as anomalous.
It's notoriously difficult to translate the cost of a house in 1798 or 1836 or 1946 into today's money, and rarely can be it done in a calculation that makes sense across other commodities. As you hint, the contemporary values placed on housing costs at different points vary widely; the percentage of income and personal wealth devoted to housing varies considerably.
Using the link below, there's a wide range of results:
[quote]In 2012, the relative value of $6,600.00 from 1946 ranges from $61,400.00 to $466,000.00.
People did not used to borrow money to buy houses.
Houses built today are also around 3 times bigger than houses in the 40s.
If you own the land, you can build a house pretty cheaply. We built a 3,200 square foot house, well tricked out, for $145,000 on land we owned.
I would also imagine that taxes are part of the issue.
I wonder if the contractor's markup is the same today as it was back then.
I friend was having a house built. The contractor doubled the price of everything he bought for the house. The interior design charged a flat 25%. So a light fixture that was 5,000.00 cost 10,000.00 if the contractor purchased it and $7,500.00 if the interior designer purchased it.
I am not sure that this is exactly apples to apples as I believe the contractor did not pass on his discount to the client, while the interior designer did.
[quote]So...what gives? What has changed?
Mortgages. Before WWII, they were virtually unheard of, particularly during the Great Depression. It was only after the war, and particularly in the '50s, when the concept of buying a home on a long-term 30-year note took hold. And, voila, the modern suburb was created. Also, as noted, homes were much smaller then; the average house in 1950 was 1,200 sq ft.
R8 is flat-out wrong on nearly every level. City-provided water and sewage existed in the early part of the 20th-century. Central heating existed then as well. Electrical systems were strong enough then to handle iceboxes and the like, which consume vastly more power than a modern refrigerator. Plumbing is a negligible cost.
So mortgages drove up the cost of housing...which, in turn, made people NEED a mortgage in order to afford a house. Seems like a pretty raw deal for everyone but the banks.
R16, this is what drove up the housing market in the 1990s. Banks reworked the mortgage formula so a person could get a much higher mortgage than they could have got in the past. Poof! After being somewhat stagnate, housing costs soared.
R16, it's a lot more complicated than that. Keep in mind that before WWII, most people either lived in apartments in big cities (usually rental, except for the mega-rich) or on rural land they built up themselves. The banks simply provided a need, and with the similar common advent of cars being bought on credit, people embraced what became the "American dream" of having their own piece of land, with a back yard and pleasant, quiet surroundings, but still within easy commuting distance of a big-city job. To my knowledge banks have never charged usurious interest rates; even in the early '80s, when rates rose to nearly 20%, that was a reflection of inflation and the economy as a whole, not banks out to screw homebuyers.
It wasn't until the past 15 years, when the whole "ownership society" came into vogue (the widespread belief -- not entirely without merit, but in the end, fatally flawed -- that home ownership promotes societal stability) that the administration encouraged banks to "relax" their lending standards to the point of loaning just about anybody just about any amount of money, even without an iota's proof of income or credit history.
[quote]Home mortgages have loomed continually larger in the ﬁnancial situation of American households. In 1949, mortgage debt was equal to 20 percent of total household income; by 1979, it had risen to 46 percent of income; by 2001, 73 percent of income (Bernstein, Boushey and Mishel, 2003). Similarly, mortgage debt was 15 percent of household assets in 1949, but rose to
28 percent of household assets by 1979 and 41 percent of household assets by 2001. This enormous growth of American home mortgages....(as a percentage of GDP), has been accompanied by a transformation in their form such that American mortgages are now distinctively different from mortgages in the rest of the world. In addition, the growth in mortgage debt outstanding in the United States has closely tracked the mortgage market’s increased reliance on securitization (Cho, 2004).
[quote]The structure of the modern American mortgage has evolved over time. We begin by describing this historical evolution. The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down
payments and short maturities [5-10 years]. Before the Great Depression, homeowners typically renegotiated their loans every year.
Source: UPenn: The American Mortgage in Historical and
R15, you are a twit.
1. You pay for construction of water and sewer lines until they connect to the mains. If you ever build, you'll notice. Use of septic and well is still something you have to note when househunting.
2. Centralized heating & cooling was considered advanced, you tool. Most oil furnaces were room units (as opposed to the giant spider units) that vented out the wall. It's why so many older homes have what look like pie plates nailed to the wall; they cover the fucking chimney pipe. Coal furnaces were common as well.
3. "Iceboxes" used ice. An old refrigerator did not require nearly the power nor create nearly the power surge of a microwave oven, computer, or game station. Rooms commonly had one outlet. Extensive wiring was unnecessary. If you had purchased a prewar house, you would know they can't fucking handle power surges without a new box and a lot of conduit work. That's money.
4. "Mortgages. Before WWII, they were virtually unheard of" Did you attend Toilet School instead of regular high school? "The Jungle" features a common 'mortgage' scam used against blue collar workers. There was a sub-prime and prime market.
Let's fucking pretend you saw a movie called "It's A Wonderful Life" Yes, James Stewart pulled the notion of S&L out of his fucking ass in that movie and convinced a shitload of people to give him money! The movie was made in 1946 and the concept of S&Ls was not new.
In short, you are dumb. I don't like you. Your mother regrets having you, too. Jesus thinks you're 'meh'.
UH, R18, that is not true, at least the details. There were numerous suburbs in the early 20th century. And, of course there were the homes that one could buy from Sear Robuck & Co. Many Americans owned their own homes, and home ownership was just as much a part of the American dream then as it is today.
The big difference, as someone upthread mentioned is that homes were much, much smaller. I have a friend whose family owns one of the oldest family businesses in the USA. Their "mansion" in CT, has just about the square footage of a normal track house of today. It is far smaller than the McMansions being built as upper middle class housing today. My friend grew up with one bedroom for the boys, one bedroom for the girls, and one bathroom for both. And, this was a family that had millionaire status since the 1900s.
R19, I am not a "twit."
1. You pay a lot MORE to build a septic system than to connect to a sewer. You must live in Bumfucke if you live in an area where you don't have non-well water service at the very least. That hasn't been the case in most metropolitan areas, and certainly not any developed subdivisions, for over 60 years now.
2. The only area of the U.S. that has ever had oil-based heating was the Northeast -- and again, that was pre-WWII. Manhattan, Philadelphia, Chicago and other larger cities have had *water*-based radiator systems since the 19th century. Air-conditioning has been commonplace, particularly in the South/Southwest, since the late '50s.
3. By "icebox" I meant powered refrigerator/freezer, since that's what they were commonly called through the '60s. I should have spoken more clearly.
4. Yes, dear, I read "The Jungle," hence my point about LEGITIMATE mortgages not being commonplace until the '50s. Also, "The Jungle" was about an urban slum in the 1900s -- not exactly analogous to anything I was talking about.
Lets also factor in wages are higher. Buying a house equal to your salary is no big deal now
I had a rich friend in the 70s and their house was maybe 2500 sq ft.
Look at the Sharon Tate and La Bianca homes. These were wealthy people, but the houses weren't outsized. Today I live in an area of the country where 10,000 sq ft is normal for a second home that is only used 8 weekends out of the year.
1. You are comparing modern costs and then applying them to pre-WWII homes again. Municipal water and sewer became more commonplace with the creation of subdivisions after WWII. You didn't have that option if you weren't urban. Before pumping stations, many suburbs had to go with well and septic. You really should step outside of whatever little universe you're applying to the USA.
2. Currently Portland, Seattle, St. Paul, and Milwaukee feature homes that disclose 'oil heating'. I'm an experienced buyer and I'm in the market right now. I have to look at that kind of shit instead of pulling gross generalizations out of my ass.
3. You are still ignoring the fact that your 'icebox' was running on a box carrying 5/10 amps - the kind with little screw fuses. Now you have boxes carrying 15/20 because of complexity and you have conduit running throughout your house. Please pay for an electrician some day.
4. You lost the 'Mortgages Virtually Unheard of' argument because of your dumbness. You're wrong. Seriously. Let it go.
5. "Plumbing is a negligible cost". Yeah, I just looked it up on my power sucking machine with a wifi-enabled internet browser. Average price of a US bathroom install? 15K-38K. Plumbing is a negligible cost for people who shit in KFC buckets. The rest of us pay a lot for our hygiene.
You really should recognize that homes have vastly improved since WWII. Stop blaming a system. You pay for every improvement. Every time.
During the housing meltdown weren't some houses being sold for $1.00?
I'm glad I've always been drawn to cozy, older homes and not new construction.
That is all.
OT, but did you know that most homes in New Zealand do not have central heating?
Because the global banking system has hijacked the USA.
I fucked the plumber and all I got was this lousy cracker-box house!
What were typical interest rates after WWII on a thirty year mortgage? I just refinanced from a 30 year at 4.8% (which I thought was great when I got it!) to a 15-year at 2.8, and it's only costing about $80 more per month.
I know when my oldest sister bought her first house in the 1980s, mortgage rates were like 10 - 12%. I think that's what helped overinflate property values. If you bought a house for $250,000 at 10% interest, people expected to get some of that money back somehow.
My sister had an 18% mortgage on her first house!
When we bought my house, we could only afford a 7 year adjustable mortgage. My mother warned about it -- we would be skewered, we were tools, we were going to be sorry. But ha ha, rates went down.
According to R19's info, 30-year mortgages are a relatively new thing.
[quote]OT, but did you know that most homes in New Zealand do not have central heating?
Yes, because I lived in one and finally dragged my bed to the room with the stove in it. It gets cold there in July.
Despite the cost of living, it's still popular.
Someone decided they were the "American dream," then everyone had to have one.
Jesus Christ on a cracker, would you all stop repeating the cliche that this somehow a new version of the American Dream.
Having ones own house has ALWAYS been part of the American concept of success and male adulthood. May I remind you that for many, many years one could not vote unless one owned property. Owning ones own home is nothing new. Owning an enormous MacMansion with a 30 year mortgage that one cannot afford to furnish is new.
Who said it was new?
The fact is there are so many more people competing for this share of the "dream."
[quote]Why is housing so much more expensive today vs. in decades past?
[quote]Someone decided they were the "American dream," then everyone had to have one.
The clear implication is the answer is that this is new.
And to address your implied answer, no, it is not competition for limited housing stock. The market is artificially inflated.
[quote] a normal track house of today
Wrong [R-31], 12% interest rates did not contribute to the run up in housing prices. Lower interest rates did. Most people are not cash buyers and buy based on monthly payments... they can afford a much more expensive house at 3 or 4 percent than they could at 12%.
Interest rates are about as low as they can go.... they will have to go up to reflect the true inflation rate at some point. What do you think the effect on housing prices will be if interest rates go up...? If you guessed dramatically DOWN you would be correct.
So cash buyers should wait?
Along the same lines, why has college tuition skyrocked in the last 30 years?
You can do well as a cash buyer right now by purchasing a fixer-upper. Lots of repos lack something like a kitchen sink and are therefore not financeable as they stand. You can pick them up for 60% of the value if paying cash. You have to hire contractors and have the work done, but don't buy a turn-key property for cash unless you get it for low ball offer. Get out and look and make offers with short expirations. I have started offering 50% of what I feel the property can be brought to with some minimal repairs but I offer cash with no contingency on properties and have gotten several of them. To use the cliché, cash is king.... don't underestimate your advantage.
Great info, thanks R44.
Issues relating to plumbing, wiring, insulation and so on do drive prices up for new construction. However, a bigger factor in the price of all housing is, unfortunately, what the market will bear.
And, in a rapidly growing city, the market will bear a lot. Friends of mine, for example, bought a three-bedroom bungalow for $110,000 in 1990. According to the inflation rate, that house should now be worth $190,300, but the city's assessment data has it valued at $560,500.
So, here and a lot of other places, people who didn't buy early and don't have two good incomes now are pretty much locked out.
R39, inference does not equal implication.
Sorry if you couldn't tease it out.
By the way, even though the bank mortgage concept is relatively new, the idea of owing money on your deeded property is a very very old concept.
In the 1700s and 1800s in the USA, for instance, many farm properties were mortgaged by the seller of the properties. You were a poor farmer, and you wanted to expand your land, so you would 'buy' the land you needed from someone, with a promise to pay the Seller the money, plus interest, over a certain period of time. Sometimes the Seller would call in the note, and take the property back. But this was a very common practice since the beginning of our country.
Real Estate Researcher
Australia and New Zealand created the home ownership society we copied after World War II.
I bought my house for $155,900 in 1993 and the town just assessed the house and property at $814,00. The bank assessed it at $950,000. We added a 14x30 great room, a pool and a small deck.
r50, where do you live?
We bought in '93 in a small town outside of Portland, OR for $97k. Unfortunately the town lost the two largest employers and we sold last year for $189k after putting quite a bit of money into it. All in all, it worked out to us being able to live there rent free for close to 20 years.
Too bad we didn't buy in Portland.
This is all part of the new "Service Economy" that Bill Clinton promised us. We don't manufacture anything any more (because that would require paying factory workers a living wage), so instead we "grow" the economy by selling each other our houses and delivering our young adults into decades of college debt slavery to the Banksters.
WOW R46...my parents custom built a house in MI in 1991 for $350k. They're lucky if it's worth $400k today, over two decades later. To think they could have taken that $350k and bought a place somewhere DESIRABLE back then and lived happily ever after on their equity. I could have grown up somewhere NICE -and- had a sizable inheritance because of it. A win-win situation. Instead my parents were complacent and chose to live a mediocre life in a mediocre town, dragging me down with them. It's enough to drive me mad when I think about it.
I meant R50, sorry!
[quote]You really should recognize that homes have vastly improved since WWII.
This is bullshit.
Quality of new construction is shit.
[quote] Also, we've abandoned the concept of the starter home, which Wright's Usonian movement was addressing in the example you started. In 2013, we want to jump directly to the McMansion
During the Depression the only people who could afford to buy homes - which were pretty cheap because of the Depression DUH! - were the wealthy and those few with steady jobs and decent wages like police and fire men, teachers. My mother's aunt and uncle were the ones who owned a nice home and had a car. He was a policeman in NYC.
Tuition skyrocketed when professors decided they all needed to make $100,000. Among other things.
Same with lots of things like homes - salaries have increased across the board for many professions. When a population makes more money there are purveyors of goods and builders ready to jack up their prices to fit the new wages. You just can't win.
[quote]salaries have increased across the board for many professions. When a population makes more money there are purveyors of goods and builders ready to jack up their prices to fit the new wages.
But...I'm always hearing that America no longer has a middle class, manufacturing is dead and gone, and that wages are stagnant. People are underemployed or staying in college forever in order to avoid the job market. Which is true?
Full disclosure: I'm under the influence of Ambien right now, so none of this may make any sense to me by the time I read it again in the morning.
College tuition increased because the wealthy realized that the more educated the masses, the more threat there was to the established social order. Everyone likes to believe the 60's was all sound and fury signifying nothing but the 1% was shitting itself over it. They took steps to make sure another 60's didn't happen. That's why government funding for education began getting cut drastically beginning with Reagan. Blaming college professors? Really? You seem ignorant. You would possibly have benefited from more government sponsored education. Too bad.
BTW, the Usonian house in the OP's link was meant to be mass produced and cheap. Except, it never was. Now, think: a cheap mass produced house by a world famous architect never got off the ground--so to speak. What happened? Turned out the houses were way more expensive than Wright priced them. He lost money on that $6600 house and the only way not to do so would of course be to raise the price. But people could buy ready built houses tract crap much cheaper.
The Usonian was never a tract home. It was a failed experiment. That's why so few of them were built. To compare the price of a Usonian home to a home built today, you'd have to realize that even back then, the price on the Usonian was too good to be true.
Cost of college went up when the banksters decided to loan money to anyone who wants to go to school. They have no worries as the debts are gov backed and follow the borrower for life.
It's all about corporations taking money from the poor, that's why. It's the grand plan, bleed the people dry.
[quote] where do you live?
In a small village between Southampton and Bridgehampton on Long Island.
[quote]In a small village between Southampton and Bridgehampton on Long Island.
So...I've never been to that area...can you tell me what happened there in the past twenty years that justify a 6x increase in housing prices? If it's a small village, it's obviously not built-out. So where did all that added value come from other than the great room, deck & pool you added?
[quote] can you tell me what happened there in the past twenty years that justify a 6x increase in housing prices?
Deregulation, greed, insurance industry...
The average home price in my area is now $3M thanks to the 1% building houses the size of hotels over the past twenty years. So my house is not the norm.
When I bought here I was in grad school in public health and did a community survey for school. The average price for a home back then was $330,000. So my house was below average back then, too. It was an affordable housing project backed by the town. It was meant to house local workers and to create construction jobs. It took forever for the houses to get built, so it kept the builders going for 2 years.
In 1940 a new house cost $3,920.00 and by 1949 was $7,450.00
Thanks R66. So some areas do truly "become" desirable like that. I always thought it was funny when I lived in CA how people would always justify the outlandish real estate prices with, "Well--we have perfect weather! Everybody wants to live here." Which is cool and all, but CA had that exact same weather pre-2000 when home prices weren't anywhere as ludicrous as they've been the past decade.
Real estate prices are inflated and wages have stagnated the past 30 yrs. Building more McMansions instead of normal sized homes and more condos instead of apartments. It's about greed, not normal living accommodations. Mostly the inflated prices and stagnated wages. And the cost of everything else has gone up.
BTW, the $3M houses in my area are second homes. They sit vacant for 8 months out of the year. Wondering where all that money "lost" by the banks went? Into the offshore accounts of the bankers and real estate moguls who own the houses. They usually have multimillion dollar places in Manhattan and Palm Beach, too.
R69, indeed, I just wish that we could stop this nightmare