Homes… now sell for 15 times the average salaried worker’s annual gross wage. Even small condominium units… sell for nearly 10 years’ pay. First-time buyers would have to contract 50- to 90-year mortgages to make the payments, even at … relatively low interest rates…It is clear that, once leases begin to expire, steady rent increases will have to ameliorate that impossible pressure. The result: inflation and a downward trend in home ownership for first-time buyers are being built into the … economy for decades to come.
The article appears in the May-June 1990 issue of the Harvard Business Review. It is about Japan at that time. Any resemblance to land prices in major American cities today is strictly coincidental. After all, the ratio of median house prices to median income in San Francisco is only 14.7
Interesting comparison, however, the inflation call turned out to be really wrong.
“Inflation…for decades to come” proved to be a poor prediction for 1990 Japan.
I’m guessing that I’m too obtuse to grasp your point, perhaps it was sarcasm or tongue-in-cheek. I think there’s something for me to learn here, so if you can make the point more clearly, I would appreciate your effort.
Maybe I’m “not even wrong” but deflation and inflation are linked. Booms lead to busts.
OK there is a parallel of Tokyo 1990 and San Francisco. Or Paris. Or London. Or Singapore. Or Beijing in 10 years. Again, I believe every developed nation is simply one or two generations behind Japan economy and this supports that hypothesis.
I am still left with three questions:
1) How do you convince current land/house owners and city hall that lower prices are good? Sounds like trying to Big Pharma that more saving lives with cheaper drugs is good thing for society. Considering you live in good suburbs of Maryland, are you pursuing deregulation policies at city hall?
2) This reality occurs when a very productive city has a lot of growth for an extended time.
3) Judging by Tokyo post 1994, the city can make deregulation improvements but very productive city with high land costs is not going to substantially change their reality. I like these goals but hoping this significantly changes reality is not likely to happen.
Didn’t Alex Tabarrok recently commend Japan for having a very quick, easy, and flexible building permitting process? IIRC, he also had a graph a declines or stability in prices since the peak of the bubble. The situations seem different enough that it’s hard to draw parallels.
Yes he did but he made all the City graphs = 100 in 1994 when the Tokyo land was still near the peak and substantially higher than any other city like London, Paris, New York, etc. The comment section was full of people noting this reality so:
1) Cities can deregulate to improve high cost of living.
2) Thriving can only deregulate so much to improve the cost of living.
Do we really want to live in huge high-rises on the tip of an earthquake-prone peninsula, which happens to have the worst weather in the entire state, at densities that defy any transportation option other than walking?
Perhaps a better solution would be to figure out how we can thrive again without all having to be in the same place. You’d think bandwidth would help. Maybe it will.
Do I? No, not at all. Chicago is dense and expensive enough as is for my tastes. But do other people? Yes, apparently lots and lots do and that’s their call to make.
At least Yogi Berra doesn’t want to live there.
Over the weekend I saw from across the Golden Gate the just topped-out tallest building in San Francisco and said something to the effect of, “That looks just like something from Hong Kong. We need a lot more of them.”
By the way, have you ever been to Blythe?
I did once visit Blythe, but only briefly, and a long time ago. I arrived at about 3am, had breakfast at 8:30 and left town by 10. I was en route to Fort Huachuca and needed to keep rolling.
Why do you ask?
Oh, just questioning the claim that San Francisco has the worst weather in the entire state. It’s a big state.
If my take home pay was $10,000,000/year I could afford to spend 99% of it on housing. I wouldn’t, of course, but I could. The higher the median goes, the greater percentage that can be spent on housing. But it’s still probably not enough to support a 15:1 ratio.
They just have to earn it the old fashioned way, inherit it .