Great reminder! I wonder if delayed family formation has an effect on top of this, or if it’s accounted for just by looking at average household size. Eg does it make a difference if people form their average-sized household 10 years earlier vs later?
It's true that smaller household size is an important consideration. But, it's also true that as factories (and factory jobs) disappear, people flee the factory towns and relocate where employment is more robust. You can buy a large and relatively inexpensive house in Gary Indiana or Toledo Ohio. But, if you're out of work, even a cheap house can be unaffordable. In Silicon Valley, both people in a 2-person household might be earning six-figure incomes -- and they have difficulty finding a decent affordable home. It's not because the price of lumber, pipes or labor is that much higher in California than in Ohio. It's because the price of land is that much more expensive. And wherever the economy is robust (and jobs and wages are up), land prices rise even more, leaving both residents and businesses struggling to find affordable space.
Thanks for your comment. I don't mean to diminish the issue of affordability at all, and unaffordable housing can be a problem across the income spectrum. But I wanted to bring attention to the impact of decreasing household size, as well as the fact that the building industry continues to build the product it wants to sell rather than the product buyers or renters want.
Speculation is both a "cause" and a "result" of rising land prices. Speculation can also lead to a land price "bubble" that, when it bursts, causes land prices to crash. It is widely known that the lion's share of publicly-created land values accrue to the landowner as a windfall. This is the fuel for land speculation. As landowners hoard land in hopes of an advantageous future sale, it creates an artificial scarcity of sites available for development today. This artificial scarcity of development sites results in real increases in the price of land -- which can lead to even more intense land speculation. This self-fulfilling behavior continues until potential land users are totally priced out of the market. At this point, there are only speculators buying and selling to each other. This is the land price bubble, where the price that speculators are buying and selling to each other radically exceeds what actual users are willing to pay. Land speculation is making money off of other people's work. It creates nothing of value, is parasitic, and exacerbates both land price booms and busts -- neither of which are good for residents or businesses. So taking the profit out of land speculation can reduce speculative activity, thereby reducing the demand for land and allowing the price of land to reflect what actual users are willing and able to pay. Please read the article linked above and let me know if you have any questions or concerns.
Rick, You are speculating on "Speculation" at best.
The availability of land for development is overwhelmingly controlled by cities and regional governments. That is where changes are needed.
I doubt (but maybe I am wrong) you can cite one article on speculation's responsibility for land value increases over any significant period.
Regarding your comment "it creates nothing of value" is both correct and irrelevant. If a potential buyer completes the purchase at the price the speculator is asking, the buyer obviously sees the value. Otherwise, the transaction would not occur.
Almost every major recession / depression in our country's history has been preceded by a real estate boom and bust. In the 1930s, real estate assessments in many major cities fell by 25% to 40%. An outlier was Pittsburgh which adopted the tax reform mentioned in my article to combat land speculation. Pittsburgh's assessments fell by only 11%. The primary reason for this was that Pittsburgh did not see the excessive real estate price boom caused by speculation. See "Pittsburgh's Pioneering in Scientific Taxation" by Percy R. Williams (Pittsburgh's Chief Assessor, 1934 - 1942), fn 59. Republished as "The Pittsburgh Graded Tax Plan: Its History and Experience" by the Robert Schalkenbach Foundation, New York, 1963. Another important study is "The Impact of Urban Land Taxation: The Pittsburgh Experience" by Wallace Oates and Robert Schwab in the National Tax Journal, Vol 50, No. 1 (March 1997), pp 1 - 21.
Of course you are correct that every transaction satisfies the needs/expectations of both the buyer and the seller. Nobody puts a gun to a gambler's head, but, on average, they lose money. (The big casinos aren't built by winners.) Land speculation is gambling. And this parasitic attempt to make money off of the work of others is detrimental to affordable compact development. Numerous articles and reports can be found on the "Resources" page of my website, https://justeconomicsllc.com .
Household size also differs along other demographic factors such as race/ethnicity and income. Its surprising that it so often gets overlooked which leads to a mismatch or just misguided housing policy. Additionally, we put too much weight on the opinions of existing owner households. For example, there seems to be many more households with cohabitating friends where one friend rents from another friend who owns the home.
And please note during peak Baby Boom.... you had larger families often in smaller houses.
I am relieved to have this discussed and not ignored. We need to live together again, not build millions of tiny boxes for lonely people.
Karen, Can you cite a study or a literature review that demonstrates there is more loneliness and that smaller nuclear families is the reason?
Great reminder! I wonder if delayed family formation has an effect on top of this, or if it’s accounted for just by looking at average household size. Eg does it make a difference if people form their average-sized household 10 years earlier vs later?
It's true that smaller household size is an important consideration. But, it's also true that as factories (and factory jobs) disappear, people flee the factory towns and relocate where employment is more robust. You can buy a large and relatively inexpensive house in Gary Indiana or Toledo Ohio. But, if you're out of work, even a cheap house can be unaffordable. In Silicon Valley, both people in a 2-person household might be earning six-figure incomes -- and they have difficulty finding a decent affordable home. It's not because the price of lumber, pipes or labor is that much higher in California than in Ohio. It's because the price of land is that much more expensive. And wherever the economy is robust (and jobs and wages are up), land prices rise even more, leaving both residents and businesses struggling to find affordable space.
To remedy the situation, we need to solve the problem of land speculation. One such antidote is described in an article, "The Jobs, Housing Hamster Wheel," at https://shelterforce.org/2018/08/20/the-jobs-housing-hamster-wheel/ .
Thanks for your comment. I don't mean to diminish the issue of affordability at all, and unaffordable housing can be a problem across the income spectrum. But I wanted to bring attention to the impact of decreasing household size, as well as the fact that the building industry continues to build the product it wants to sell rather than the product buyers or renters want.
Investors speculate because the prices seem to be increasing. The speculation is not "the" cause of rising land prices....
Speculation is both a "cause" and a "result" of rising land prices. Speculation can also lead to a land price "bubble" that, when it bursts, causes land prices to crash. It is widely known that the lion's share of publicly-created land values accrue to the landowner as a windfall. This is the fuel for land speculation. As landowners hoard land in hopes of an advantageous future sale, it creates an artificial scarcity of sites available for development today. This artificial scarcity of development sites results in real increases in the price of land -- which can lead to even more intense land speculation. This self-fulfilling behavior continues until potential land users are totally priced out of the market. At this point, there are only speculators buying and selling to each other. This is the land price bubble, where the price that speculators are buying and selling to each other radically exceeds what actual users are willing to pay. Land speculation is making money off of other people's work. It creates nothing of value, is parasitic, and exacerbates both land price booms and busts -- neither of which are good for residents or businesses. So taking the profit out of land speculation can reduce speculative activity, thereby reducing the demand for land and allowing the price of land to reflect what actual users are willing and able to pay. Please read the article linked above and let me know if you have any questions or concerns.
Rick, You are speculating on "Speculation" at best.
The availability of land for development is overwhelmingly controlled by cities and regional governments. That is where changes are needed.
I doubt (but maybe I am wrong) you can cite one article on speculation's responsibility for land value increases over any significant period.
Regarding your comment "it creates nothing of value" is both correct and irrelevant. If a potential buyer completes the purchase at the price the speculator is asking, the buyer obviously sees the value. Otherwise, the transaction would not occur.
Almost every major recession / depression in our country's history has been preceded by a real estate boom and bust. In the 1930s, real estate assessments in many major cities fell by 25% to 40%. An outlier was Pittsburgh which adopted the tax reform mentioned in my article to combat land speculation. Pittsburgh's assessments fell by only 11%. The primary reason for this was that Pittsburgh did not see the excessive real estate price boom caused by speculation. See "Pittsburgh's Pioneering in Scientific Taxation" by Percy R. Williams (Pittsburgh's Chief Assessor, 1934 - 1942), fn 59. Republished as "The Pittsburgh Graded Tax Plan: Its History and Experience" by the Robert Schalkenbach Foundation, New York, 1963. Another important study is "The Impact of Urban Land Taxation: The Pittsburgh Experience" by Wallace Oates and Robert Schwab in the National Tax Journal, Vol 50, No. 1 (March 1997), pp 1 - 21.
Of course you are correct that every transaction satisfies the needs/expectations of both the buyer and the seller. Nobody puts a gun to a gambler's head, but, on average, they lose money. (The big casinos aren't built by winners.) Land speculation is gambling. And this parasitic attempt to make money off of the work of others is detrimental to affordable compact development. Numerous articles and reports can be found on the "Resources" page of my website, https://justeconomicsllc.com .
"What happens when, over the course of sixty years, the same number of people require 32 percent more housing units?"
Well...
What happens when, over the course of eighteen years, 1.5 billion more people require 100 percent more smart phones? NO CRISIS!
What happens when, over the course of seventeen years, 1.4 billion more people require 100 percent more electric cars? NO CRISIS!
What happens when, over the course of one year, 7.5 billion people require 100% more Covid vaccine? NO CRISIS!
Household size also differs along other demographic factors such as race/ethnicity and income. Its surprising that it so often gets overlooked which leads to a mismatch or just misguided housing policy. Additionally, we put too much weight on the opinions of existing owner households. For example, there seems to be many more households with cohabitating friends where one friend rents from another friend who owns the home.
The auto industry analogy is spot on.