I get why Matt says this: hard-money libertarians decrying this can then be used with Republican deficit hawking to put pressure on the Fed and argue against Democratic spending.
Wanting to change the semantics because of political pragmatism is fine.
Glossing over how stimulus (monetary especially) is a bit egregious though. There is a valid hypothesis (that I think holds up reasonably) that a lot of Fed easing is going into financial assets. *That was part of the design of monetary stimulus.* QE (which was an extension of more typical Fed easing) wouldn't have worked at all without this. As mentioned by other folks already, you could get bad outcomes from this—and I'd argue you already have bad outcomes in terms of asset price inflation without *wage inflation* exacerbating inequalities.
You see? Not even all inflation that Matt classifies as inflation is bad. Would it really be that bad if we got some disproportionate wage inflation (just speaking from politics—not even from an economic perspective).
I get the politics, but this seems to be denying something exists or has any bad consequences a bit further than necessary.
For a supposedly fact centric audience, so much complaining about facts! Seriously people, the point of an explainer like this is to enable us to respond - yeah, that stupid thing I used to say, it's stupid, I'm going to stop saying it. People are putting their money in dumb investments doesn't make a bubble, and the existence of bubbles doesn't mean that asset price inflation is a thing.
While I'm being grumpy - asset inflation isn't a thing, and therefore asset inflation isn't stopping you from owning a home in CA. NIMBY neighbors tho.
A bit of an aside but "something eccentric that’s only done by farmers and weirdos" is hilarious. My favorite in the genre is still "Dead or Canadian?", which struck me as funny even before I got an explanation.
I think what most people think of as "inflation" is the erosion over time of the value of their nominal salary. For many Americans, a significant portion of their earnings are allocated to retirement / education savings -- i.e. today's salary is earmarked for consumption years in the distant future. To the extent yields are lower (asset prices are higher) the power of current earnings to purchase future goods/services is diminished.
In other words, traditional inflation measures only measure today's consumption. There's an inflation-adjacent phenomenon where today's dollars buy less future consumption. It seems reasonable to use the term "asset price inflation" for this reduction in purchasing power of future goods/services with today's earnings.
If I'm reading it correctly, it's 65.8% of households, not 65.8% of people. My question is, how many people live in owner-occupied households and how many don't?
That would only matter if renter households are larger than owner households. I don't believe they are.
"The average renting household has 2.48 residents." The average for all homes is 2.62% so that implies owner occupied housing has more occupants per unit than rental housing.
Two additions, not really corrections. There is a best rate of inflation that is not zero and probably not more than 5-10%. 1) Why is some inflation good? Because for all sorts of good real reasons relative prices of goods and services need to change, but some prices can't fall very fast or at all. [Wages are the typical example, but in principle it does not matter which prices cannot fall.] If some prices can go up while the ones that can't fall do not, that allows the relative prices to adjusts to changing conditions.
2) Why is "too much" inflation bad. Because for the same reason, some prices cannot rise very fast or at all. [Un-indexed multi-year contracts and various tax provisions are the typical example.] This is especially important for investment decisions whose results depend on what future relative prices will be. Inflation (and more inflation and more variable inflation over time the worse) just makes these difficult estimations even harder and that's bad.
Good monetary policy will shoot for the rate of inflation that best trades off the good and the bad. The Fed has chosen 2% inflation measured by the "Price of Consumer Expenditures" (PCE), equivalent to about 2.3% of the better know Consumer Price Index (CPI) as it's guess about this best rate. Since 2008, PCE and CPI inflation have averaged below this this target and the excruciatingly slow recovery and high unemployment/low labor force participation 2008-2020, from the 2008 financial crisis was the result.
In August the Fed made a new and clearer commitment to its target of 2% PCE inflation averaged over time, with the implication that a period of below average inflation could be followed by a period of above average inflation without indicating a change in the Fed's policy. And sure enough, market expectations of inflation have adjusted. As of last Friday traders of two kinds of Treasury bonds, one indexed to the CPI and one not, imply with the prices they pay for the two kinds that they expect CPI inflation to average 2.3% per year over the next 10 years [Bingo!] and about 2.5% per year over the next 5 years: pretty darn good work by the Fed.
That is the easy part of macroeconomic policy. The hard part is, given the Fed's actions, moving taxes and public expenditures between and among public and private sector uses to achieve some combination of rapid and equitable growth.
Before the housing crash, everyone assumed that if someone bought a house for $500k and it later fell to $250k, if they could still afford to pay the mortgage they would. It came as a shock when it turned out that if prices fell people who could still pay their mortgages didn't. In terms of the current bubble I haven't heard that risk being mentioned at all.
yea but you can buy less space buy a 2 bedroom condo rather than a house for your family and make the 2 kids share a room. You can consume less real-estate to keep more of that pay bump.
Is is really that nice if you're a homeowner? I think its really only valuable if you intend to sell and move to a lower price area. Otherwise, its just all bad.
If you're house was worth $250k, and went to 500k. In theory, you had a 250k increase in home value. But in practice, if you didn't sell your house, all that happened was that you are now paying more in property taxes (assuming they're not frozen). Plus, if you do sell, then you might just be going to go buy a another house that went from 250k to 500k. Net you don't have any actual gain.
I guess you could say the same thing about all asset prices? While I think your points are valid, we could add some other points to them. The thing about selling then buying is a point that highlights the fact that a home is a little different than other assets, which you can just sell and cash out more easily. In fact, some say a home is not an asset at all. If that's true, I suppose everyone should rent. But please note that this is an option in your scenario. If you want to cash out that $250 without putting it back into another house, you can cash out and become a renter. At any time. One of the reasons I bought a house instead of renting is that I view my property as part of my long-term retirement savings plan. The value is real.
"If you want to cash out that $250 without putting it back into another house, you can cash out and become a renter." This balances out.
If you bought this house 10 years ago at a 5% interest rate, you've been paying about $1,350 in principle and interest on a 30 year mortgage. If you decide to cash out with 500k, then for you to "rent" at the same level, you will now need to pay $2,700 a month because the landowner can charge that as all houses in the area cost that much. You have cash in hand (~300k), but your monthly expenses are significantly higher! Its really only beneficial if you can find a way to decrease your rent by downsizing or moving to an area where costs are lower.
False if the price to rent ratio has changed. At the moment the price to rent ratio is back to where it was before the last crash. In that case rents are lower than the PITI on an equivalent unit.
True. It depends. I don't know what the ratio is, typically, which why I said it sounds about right. The claim was that it balanced. I am guessing this is close to true in most cases.
That sounds about right. And again it speaks to the point about housing being a unique asset as most people have to spend money on rent or mortgage one way or another, so when you are a seller on one side you are a buyer on the other. I would just add that to this point another point, which is that this circumstantial fact does not change the other fact that you do have a valuable asset that you can sell. You do have the option to downsize. You do have the option to move to a lower cost of living area. These are real options that put real money in your pocket because the value of your house going up is a real thing. It is real value.
I live and work in the city. When I retire I plan to downsize a bit and live in the country. I probably won't have to go to Mozambique. I think I will have other options. No one knows the future, but I think I will have a decent chance that I will be able to cash out and take advantage of my investment.
Yeah, we saw a 50% increase in the value of our house over 4 years (and then sold), and it was pretty much just all bad. Maybe in 10 or 20 years if and when we downsize houses or move out of the area, it will retrospectively be a good thing, but honestly right now I'd rather that houses were flat in price and I had the hundreds of thousands back in something more liquid.
The benefits of increased house prices for homeowners are largely theoretical.
No it’s not. At 3% inflation you lose almost half the value of your money in 20 years. That’s horrible.
As for asset inflation. You might think it’s good for the value of your home to be going up fast. But what if you don’t already own a home. Say you are just starting out trying to build a family, and all the home prices are crazy high. How do you feel then?
Not to mention most people are horrible at math. They take advice from realtors and lenders telling them of course they can afford the home they really can’t. What happens then (see 2008)
As for stocks, a stock valuation should be seen as ownership in a future dividend stream. When stock prices rise (and not driven by earnings increases) what that really means is you are paying more and more money for that future dividend stream. IE, you are getting less of a return (and maybe a negative one). Given current PE ratio’s, if you are buying right now, you should expect a negative return over the next 7 years)
“But if Powell could give me $20,000 and you $20,000 and everyone else $20,000 without prices rising, that would be amazing. You could end poverty!”
No, no, no. Money is a claim on assets. If you just create a bunch more money, what you have done is devalued that money in relation to the same asset base. Printing money doesn’t create wealth, just more money.
This is a very silly argument that has become dogma among Bitcoiners and their compatriots. There is no reason to own a large volume of cash. If you are dumb enough to do so, you probably deserve to have your wealth inflated away. Every financial investment (savings accounts, corporate bonds, Treasuries, inflation-protected securities, equities) has as part of its expected return an expectation of what inflation will be in the period you hold the investment. Every non-financial investment has to clear an IRR that includes an expectation of what inflation will be. You may not have realized, but people have thought about this before you did.
I think a key part of this claim is that the asset base remains the same. I think this is more true with services, but much less true with scalable goods (TVs, phones, etc.) and not at all true of digital goods.
If everyone was given $1,000 and only spent it on Slow Boring subscriptions (or other lesser digital goods), then would money be devalued?
As other people have hinted at, we would generally expect 3% inflation to be something that investments would just compensate for. There's some friction in that, so if inflation is super high or super inconsistent, it stops being possible for everything to just more-or-less cancel out inflation, but in a world where we have pretty consistent approximately 3% inflation, we expect nominal returns to increase such that we have roughly the same real returns as in a lower-inflation world.
"At 3% inflation you lose almost half the value of your money in 20 years. That’s horrible."
He did acknowledge that inflation erodes savings. I am not sure I would call it "horrible" that money under my mattress is half as valuable in 20 years. This fact makes me less inclined to put my money under a mattress to begin with. Maybe that's a good thing. At least, probably better than the reverse. If the value of my money doubled in 20 years, then I would have incentive to hoard it. That may well be much more horrible for the economy, in fact.
I think it's pretty clearly a good thing that sticking your money in a mattress isn't incentivized. What's money for in the abstract? To reduce the friction of commerce. Barter economies are a real pain in the ass, so we invented gigantic stone rings as a medium of exchange, store of wealth, and unit of account. If currency is deflating we're introducing this gigantic new friction of "just holding the money will be worth more than buying something" so then nobody buys anything and commerce halts. Money is for efficient commerce, deflation is antithetical to that
He also said inflation is "undesirable." His exact words were:
"Inflation is bad"
"The key thing about inflation is that it’s undesirable."
In context, he is distinguishing here between inflation (bad) and asset inflation (not bad).
In that context, he is further saying that inflation (bad) of 3% is "fine" - which he defines as meaning "not a disaster."
So, full context: asset inflation, not the same as inflation. Inflation is "bad" but 3% is not a "disaster."
Further, he acknowledges that "people worry about inflation because it erodes the value of accumulated savings."
So it seems to me that he fully acknowledges the view that inflation is "bad" but argues that at 3%, it is not "so bad" and more to the point, asset inflation is a different category that is not bad in the way that inflation is bad - i.e bad in the sense of eroding savings:
"asset prices going up doesn't erode savings; in fact, it usually does the opposite."
"At 3% inflation you lose almost half the value of your money in 20 years."
Only if you hold cash and why would you hold cash? If inflation is 3% and CDs are paying 5% then you don't have anything to complain about, do you? If inflation is 3% and CDs are paying 1% then that's a problem. But 3% inflation by itself isn't a problem.
True, but if you have fixed-rate debt you benefit from inflation. I think this is the way people typically conceptualize inflation--that it is "progressive" because it benefits debtors and causes creditors to get paid back with future dollars that are not worth as much. Clearly credit markets defy this sort of simple explanation but it does represent sort of a "hedge" for some people against inflation.
Most brokerage accounts are now commission free and many also have no minimum required to open an account. There is nothing stopping someone from buying stock if they wish.
Sure you need an emergency fund but that should only be a small percentage of your savings by the time you hit your 50s. The majority of your wealth shouldn't be in cash.
People saving up for retirement get hammered by low inflation. At least retirees can hedge against inflation. If you're in your 20s with 5% student loans or your 30s with a mortgage, your only option is to make more money. Except the low growth that's tied to low inflation makes that difficult.
I couldn't agree more if you said that water is wet. But the median person's net worth is ~100k, and for many people that is the mostly wrapped up in the mortgage. Over 40% of American's would have to borrow or sell something to cover a $400 emergency, and 25% of households making 100k-150k couldn't raise $2,000 in a month without borrow or selling.
Biggest concern is if their wages don't keep up with price inflation. So long as they are increasing at similar rates, unlikely to impact people at the bottom.
Indeed, inflation is generally bad, but not totally, as some of the comments note. One way inflation is helpful is to create flexibility on changes in wages. "Sticky wage" theory holds that workers strongly resist reductions in wages (they're "sticky down"). However, since apparently people aren't rational and can't do arithmetic, they're much more accepting of a 2% wage increase with inflation at 3% which is the same as a 1% pay cut.
We wouldn't normally cheer an employer's ability to cut workers' wages; however, given that the alternative is firing a small part of the workforce, who then bears 100% of the cost reductions, inflation is helping firms make more equitable decisions when costs must be cut.
I understand that housing prices going up while rent stays the same is a win and not-loss for home owners and renters, respectively. But isn’t it a loss for renters who are in the market to buy a house? Isn’t this one of the reasons fewer and fewer youngish people are making the leap from renting to owning?
I’m just saying it isn’t a free lunch. There are still winners and losers in this example.
So the argument here is... that speculative bubbles are always good, except maybe in the special case of housing?
That seems to be your thesis, and it also seems obviously false in the abstract. (Although it may be true that the *current* behavior of markets is more good than bad.)
Can we get a post about the dangers of speculative bubbles, and why you're not worried about those dangers right now?
All I ask here, indeed I beg, is that no one try to convince me that the stock valuations of Elon Musk's various enterprises are in any way related to market fundamentals. I might die laughing.
Big thing that Tesla has that could maybe, (long shot) justify the valuations is the lack of dealerships. The dealership industry is actually a few times the size of the manufacturing industry. If Tesla can get 1/3 of the auto market including the dealership side that might justify the valuations.
Tesla Motors finally succeeded in making a profit last year. Not by making and selling cars mind you. That came from selling tax credits to other auto manufacturers. Who will soon be building EVs and won't need to buy credits from Tesla or anyone else. And every one of them is better at manufacturing cars than Tesla.
Matt posits that if the fed could give everyone 20k and it wouldn't cause inflation, then it would be a good thing. I haven't actually heard Matt provide any sort of limiting factor on what the government/fed should issue other than if inflation picks up stop. Why not just make a one time payment to everyone and then stop. Give everyone 100k and end poverty?
It might go down, but by what proportion? If we gave everyone 100k and that decreased the value of money (aka inflation) by 5%, that would still be a significant improvement on behalf of the bottom 50% of the population. The more significant question to me is whether that would drop the value of the currency 5% or 90%. If the former, its a good trade off; if the latter, quite a bad trade off. I'm more interested in what theory, principle, etc. people are using to decide whether its closer to 5% or 90% and why.
15 years ago, I would have agreed. Look at a chart of money supply since 2008 and get back to me. I don't have a replacement theory that I'm comfortable with, but that hypothesis definitely failed the natural experiment.
MMT (or functional finance if you don't want to go down the full rabbit hole) would probably help here, as it points to the real economy as the the true bottleneck rather than money supply. In an economy with a lot of idle resources (i.e. the economy we have seen for quite some time), adding more money will increase demand and reduce slack. It is only when there are no slack resources in the economy that an increase in the money supply will be offset by inflation. There has been this idea that, for reasons (also known as 'frictions'), the economy will have no slack resources around 5% unemployment. Trump and GOP ran a natural experiment before the pandemic and showed that, yes, you can indeed run the economy at 3 % unemployment and still have slack resources. This is the main reason you only see useful idiots screaming about inflation at the moment.
You also have to include the velocity of money. IIRC during the financial crisis "everyone" thought QE would cause inflation. But while the volume of money grew, the velocity plunged, so they canceled each other out.
I generally agree that if current policy is raising asset prices that's fine, but is possible that in the future the money currently going into assets will come back out and go toward consumer goods (pushing up consumer prices)? The only real way I can see this happing is if substantial wealth tax was implemented so I guess what I'm asking is, should we expect a wealth tax to be inflationary (unless the government doesn't spend the wealth tax money on goods and services or redistribute it to the less wealthy)? Or am I worrying too much over nothing.
Thing is I don't think the money is actually going "in" to asset prices. If someone buys a stock at a hugely inflated price, that money leaves their pockets, but it doesn't sit in the stock market, it's simply transferred to the seller's pockets. So really only IPOs go "in" to the market.
That's true but then it's a question of what the seller spends the money on. I'm assuming that most of the time it goes into other assets (otherwise the price of assets on average wouldn't go up).
I guess I am making the assumption that the "low interest rates are pushing up asset prices" hypothesis is at least partially correct. Do we know if there is good reason to believe that it is (or isn't)?
"But the “asset price inflation” hypothesis is that the value of owner-occupied housing goes up but the rent doesn’t.
So who’s mad about that? Nobody! It’s just good."
As an aspiring homeowner currently working in the CA tech industry, I do not see this as good!! I see it as a massive obstacle to the type of life I want.
It was rising but covid offered some reprieve. Invest and wait is the only option. In the meantime, my family grows older without making memories in our home the way I did as a child.
Their is stuff in the Bay area you can afford you just don't want to live there. I can show you Condo's in East Palo Alto or Masons in Tracy. It is true that you cannot afford to buy a large hose in the most exclusive neighborhoods that you and your friend group where 90% have a degree consider normal, but you can buy in actual normal neighborhoods.
If the guy who makes your coffee and cleans your office every day in Mountain View lives in Tracy it is part of the commute pattern of the Bay Area. I know people who say Dublin is part of the bay even though it has 2 Bart stations. There are a lot of people who think the Bay Area is Marin to San Jose. I hear people say I would rather move to Texas than the East bay.
What do you mean "it's a part of the commute pattern of the Bay Area"? It's a BAD part of the commute pattern of the Bay Area, climate arson, and we should stop it. Also, the guy who cleans your office in Mountain View lives not in Tracy, but in Redwood City or East San Jose, in a two bedroom apartment with 11 other people. He got COVID from his work, and it spread to his grandmother, who died. Overcrowding is bad, and we should stop it.
First I agree build more condos in the Bay Area. However I don’t think the commute is necessarily bad for the environment in a Prius it is like one extra gallon of gas a day and electric cars can do the trip. Prior to Covid I liked the idea of multi generational housing being closer physically and emotionally to grandparents etc. I am hopping the ADU rules will make multi generational housing more live able.
Quality schools for my children is the number one concern. Number two is a house with a yard where we can hunt Easter eggs or have a 4th of July BBQ. Building these cherished childhood memories shouldn't be out of reach for all but those who inherit homes.
Well Pleasention is in the top 5 for school districts in the Bay Area the houses in Pleasention are crazy expensive but the Condos are like 400-700 for a 2 bedroom my community the condos are 400-500 and I have seen neighbors use the common area for Easter egg hunts. Better housing policy will actually result in fewer houses and more condos. The Tri Valley is one of the only the places that is pro building housing.
Better housing policy would result in fewer houses and more multi-unit housing of all kinds, but as I am sure you are aware, multi-unit housing is illegal in 82% of residential land in the Bay Area.
I am really curious to see how many people in a single family home get an ADU. Now that they are legal. A lot of houses have really small yards. My guess is maybe 10% will get an ADU it will help. But you need like 1/2 of all single family homes getting ADU because the numbers are that bad. I would like to see laws making it easier to be a landlord of an ADU so it truly easy money. It only takes one news story of the nightmare eviction to make a busy professional say it isn’t worth it.
It's extremely easy to be the landlord of an ADU. Indeed, in California there are companies that will put up an ADU in your back yard, rent out the property, and manage it, for a share of the income.
In San Jose, you can get approval for an ADU over the counter. That is, you hand them your permit application, and you get the permit that same day.
There are many, many quality schools in the Bay Area. The problem is not a lack of quality schools, but a multi-decade campaign by cities in the Bay Area to keep kids out of their quality schools. They don't want people who can afford less than $1.5m for a house in their schools. That's the real snobbery.
Does it need to be detached from all of the other houses? Townhouses, duplexes, four-plexes, etc. are illegal in most of the Bay Area, and are exactly how humans have built affordable housing for centuries in places where land prices are high.
This is a gross mischaracterization of the housing crisis in the Bay Area. It is really, very bad for people of all incomes, and it's not caused by people being afraid of minorities or entitled attitudes from Millenial tech workers.
Having people of any income commuting from Tracy to the job centers is an immense daily waste of human and economic potential, while also being climate arson. There are some condos for sale in EPA, but the number of units is tiny.
Lastly, you missed the most important part: on the scale of the Bay Area, nearly all
the land suitable for housing and in commutable distance to a job center, could be described as "most exclusive neighborhoods...where 90% have a degree." It makes the Bay Area a place where the only millionaires can have stable finances, high-quality schooling for their children, reasonable commutes for parents, and a retirement. This fact is an affront American egalitarian/liberal values.
There are no normal neighborhoods. Especially in the South Bay and the Peninsula, this fact has been consciously engineered by a generation of homeowners and city officials, who have staked their retirements, lifestyles, and careers on turning California cities into state-sanctioned country clubs competing for the richest residents, rather than healthy communities full of people with a range of incomes, races, values, occupations, and backgrounds.
I live here too. And the attitude of people in the South Bay or peninsula toward the East Bay kind of offends me. It is true that East Palo Alto is small only like 15 square miles but the fact that is still sort of affordable makes think there is some snobbery going on. Also even in CA only about 34% have a 4 year degree or higher. Your Uber driver doesn’t have a 4 year degree. The staff at Chipotle doesn’t have a 4 year degree. Like ask people where they live. Also, you can commute from Tracy to Palo Alto in an electric car I used a hybrid. 50 mpg Prius C. I ultimately bought in the East bay my condo is worth like 480. if your working in the South Bay I would suggest the Tri Valley. Dublin and Livermore have lots of new construction. My commute to Palo Alto was 45 minutes if I left by 7. Tracy adds another 30 minutes. So it is really only an option if you must have a house.
I'd bet dollars to donuts that your Chipotle associate, Uber driver, etc. are either (a) living in very crowded living conditions (more than one tenant per bedroom), (b) living with family well past when they want to, or (c) are commuting from somewhere very far, like Vallejo, the Central Valley, etc. These are all hallmarks of a severe housing crisis.
I think it's pretty simple: If your city does not have enough housing to accomodate all of its daytime workers, including options affordable-enough for those daytime workers making relatively less (e.g. Uber, service workers, etc.), then it is exporting a housing crisis to its neighbors. Cities like that in CA are benefitting from the economic activity of large numbers of jobs, without paying the costs in the form of schools, infrastructure, emergency services, public transit improvements, etc.
I am a 10-year resident of the East Bay (Berkeley/Oakland), and I am also offended by the attitude of Peninsula and South Bay people about the East Bay, especially Oakland (many of whom are my coworkers). The Bay Area is very woke, except your your garden variety white-flight fear of living near brown people, pearl-clutching over the quality of the schools, "quality of life" as a euphemism for fewer brown people near me, etc. It's all alive and well here in sunny Santa Clara/San Mateo county. People who say things like "but if our company opened an office in Oakland, wouldn't the real estate savings quickly be overtaken by extra security costs" are breathtakingly ignorant and they should feel bad about that.
Maybe it's the pandemic, or maybe we need to agree to disagree on our facts, but pre-COVID there's no way the commute from the outer East Bay or down the 101 towards Gilroy is going to be less than 1 hour per way to tech companies in the South Bay. 90 minutes seems more likely.
In any case, 2-3 hour per day car commutes becoming considered what's normal to be able to afford a condo is what housing policy failure looks like. The snobbery exists: it's in Cuptertino, Palo Alto, Mountain View, every city in San Mateo County, etc. not providing housing for the workers their cities benefit from.
I really don't think $700k for 1bd/1ba condos in EPA is "sort of affordable" by anyone's definition, except for perhaps people in the Bay Area whose perspectives have been warped by the crisis. Those are Hong Kong/Shanghai/Tokyo-level condo prices, except instead of living in the a dynamic amenity-rich world city, you are down the street from Back-A-Yard, have a good commute to one employer and a livable commute to many others. And I love Back-A-Yard--the oxtails are amazing -- but it doesn't justify $700k condos in EPA.
Richmond is super affordable I saw a condo there for 200k. But it is only a reasonable commute to SF and Oakland. Richmond to Mtn View etc is same time as Tracy maybe more. People really exaggerate how bad the altamont pass is.
Damm those one bedrooms on university are $700 now. As for commute from Tri valley to Palo Alto if you left at 7 you could be at work by 745 if you leave at 730 you get in at 9 am because apparently you can be 15 minutes early or an hour late no in between.
Housing is not expensive in the Bay Area, but people are psychologically obsessed by housing prices to the exclusion of all else for many interest reasons I will not go into
I get why Matt says this: hard-money libertarians decrying this can then be used with Republican deficit hawking to put pressure on the Fed and argue against Democratic spending.
Wanting to change the semantics because of political pragmatism is fine.
Glossing over how stimulus (monetary especially) is a bit egregious though. There is a valid hypothesis (that I think holds up reasonably) that a lot of Fed easing is going into financial assets. *That was part of the design of monetary stimulus.* QE (which was an extension of more typical Fed easing) wouldn't have worked at all without this. As mentioned by other folks already, you could get bad outcomes from this—and I'd argue you already have bad outcomes in terms of asset price inflation without *wage inflation* exacerbating inequalities.
You see? Not even all inflation that Matt classifies as inflation is bad. Would it really be that bad if we got some disproportionate wage inflation (just speaking from politics—not even from an economic perspective).
I get the politics, but this seems to be denying something exists or has any bad consequences a bit further than necessary.
For a supposedly fact centric audience, so much complaining about facts! Seriously people, the point of an explainer like this is to enable us to respond - yeah, that stupid thing I used to say, it's stupid, I'm going to stop saying it. People are putting their money in dumb investments doesn't make a bubble, and the existence of bubbles doesn't mean that asset price inflation is a thing.
While I'm being grumpy - asset inflation isn't a thing, and therefore asset inflation isn't stopping you from owning a home in CA. NIMBY neighbors tho.
A bit of an aside but "something eccentric that’s only done by farmers and weirdos" is hilarious. My favorite in the genre is still "Dead or Canadian?", which struck me as funny even before I got an explanation.
I think what most people think of as "inflation" is the erosion over time of the value of their nominal salary. For many Americans, a significant portion of their earnings are allocated to retirement / education savings -- i.e. today's salary is earmarked for consumption years in the distant future. To the extent yields are lower (asset prices are higher) the power of current earnings to purchase future goods/services is diminished.
In other words, traditional inflation measures only measure today's consumption. There's an inflation-adjacent phenomenon where today's dollars buy less future consumption. It seems reasonable to use the term "asset price inflation" for this reduction in purchasing power of future goods/services with today's earnings.
"But most Americans live in owner-occupied housing."
Anyone have a citation for this?
https://www.census.gov/housing/hvs/files/currenthvspress.pdf
The denominator there seems to be "units", not "Americans"?
I don't follow. If 65.8% of people live in a home that is owned by one or more of the occupants you think the majority of people somehow rent?
If I'm reading it correctly, it's 65.8% of households, not 65.8% of people. My question is, how many people live in owner-occupied households and how many don't?
That would only matter if renter households are larger than owner households. I don't believe they are.
"The average renting household has 2.48 residents." The average for all homes is 2.62% so that implies owner occupied housing has more occupants per unit than rental housing.
Yes, that's what I want a citation on.
2.62 not 2.62%
Two additions, not really corrections. There is a best rate of inflation that is not zero and probably not more than 5-10%. 1) Why is some inflation good? Because for all sorts of good real reasons relative prices of goods and services need to change, but some prices can't fall very fast or at all. [Wages are the typical example, but in principle it does not matter which prices cannot fall.] If some prices can go up while the ones that can't fall do not, that allows the relative prices to adjusts to changing conditions.
2) Why is "too much" inflation bad. Because for the same reason, some prices cannot rise very fast or at all. [Un-indexed multi-year contracts and various tax provisions are the typical example.] This is especially important for investment decisions whose results depend on what future relative prices will be. Inflation (and more inflation and more variable inflation over time the worse) just makes these difficult estimations even harder and that's bad.
Good monetary policy will shoot for the rate of inflation that best trades off the good and the bad. The Fed has chosen 2% inflation measured by the "Price of Consumer Expenditures" (PCE), equivalent to about 2.3% of the better know Consumer Price Index (CPI) as it's guess about this best rate. Since 2008, PCE and CPI inflation have averaged below this this target and the excruciatingly slow recovery and high unemployment/low labor force participation 2008-2020, from the 2008 financial crisis was the result.
In August the Fed made a new and clearer commitment to its target of 2% PCE inflation averaged over time, with the implication that a period of below average inflation could be followed by a period of above average inflation without indicating a change in the Fed's policy. And sure enough, market expectations of inflation have adjusted. As of last Friday traders of two kinds of Treasury bonds, one indexed to the CPI and one not, imply with the prices they pay for the two kinds that they expect CPI inflation to average 2.3% per year over the next 10 years [Bingo!] and about 2.5% per year over the next 5 years: pretty darn good work by the Fed.
That is the easy part of macroeconomic policy. The hard part is, given the Fed's actions, moving taxes and public expenditures between and among public and private sector uses to achieve some combination of rapid and equitable growth.
Before the housing crash, everyone assumed that if someone bought a house for $500k and it later fell to $250k, if they could still afford to pay the mortgage they would. It came as a shock when it turned out that if prices fell people who could still pay their mortgages didn't. In terms of the current bubble I haven't heard that risk being mentioned at all.
If my pay goes up by 2% but the price of housing goes up by 7%...
This is nice if I am a homeowner. I like it. But if I am trying to enter the home owner market, I don't like it so much.
yea but you can buy less space buy a 2 bedroom condo rather than a house for your family and make the 2 kids share a room. You can consume less real-estate to keep more of that pay bump.
Is is really that nice if you're a homeowner? I think its really only valuable if you intend to sell and move to a lower price area. Otherwise, its just all bad.
If you're house was worth $250k, and went to 500k. In theory, you had a 250k increase in home value. But in practice, if you didn't sell your house, all that happened was that you are now paying more in property taxes (assuming they're not frozen). Plus, if you do sell, then you might just be going to go buy a another house that went from 250k to 500k. Net you don't have any actual gain.
I guess you could say the same thing about all asset prices? While I think your points are valid, we could add some other points to them. The thing about selling then buying is a point that highlights the fact that a home is a little different than other assets, which you can just sell and cash out more easily. In fact, some say a home is not an asset at all. If that's true, I suppose everyone should rent. But please note that this is an option in your scenario. If you want to cash out that $250 without putting it back into another house, you can cash out and become a renter. At any time. One of the reasons I bought a house instead of renting is that I view my property as part of my long-term retirement savings plan. The value is real.
"If you want to cash out that $250 without putting it back into another house, you can cash out and become a renter." This balances out.
If you bought this house 10 years ago at a 5% interest rate, you've been paying about $1,350 in principle and interest on a 30 year mortgage. If you decide to cash out with 500k, then for you to "rent" at the same level, you will now need to pay $2,700 a month because the landowner can charge that as all houses in the area cost that much. You have cash in hand (~300k), but your monthly expenses are significantly higher! Its really only beneficial if you can find a way to decrease your rent by downsizing or moving to an area where costs are lower.
False if the price to rent ratio has changed. At the moment the price to rent ratio is back to where it was before the last crash. In that case rents are lower than the PITI on an equivalent unit.
True. It depends. I don't know what the ratio is, typically, which why I said it sounds about right. The claim was that it balanced. I am guessing this is close to true in most cases.
The ration may be off in the short term, but I would think they would be tied together pretty well over the long term. Do you have evidence otherwise?
"but I would think they would be tied together pretty well over the long term."
If interest rates were flat, yes. They have been falling for 30 years.
ratio, not ration
That sounds about right. And again it speaks to the point about housing being a unique asset as most people have to spend money on rent or mortgage one way or another, so when you are a seller on one side you are a buyer on the other. I would just add that to this point another point, which is that this circumstantial fact does not change the other fact that you do have a valuable asset that you can sell. You do have the option to downsize. You do have the option to move to a lower cost of living area. These are real options that put real money in your pocket because the value of your house going up is a real thing. It is real value.
I agree that people could. People could move to Mozambique and live like kings! But they don't. And they don't want to. Silly people.
I live and work in the city. When I retire I plan to downsize a bit and live in the country. I probably won't have to go to Mozambique. I think I will have other options. No one knows the future, but I think I will have a decent chance that I will be able to cash out and take advantage of my investment.
Is it your opinion that buying a house is a mistake and that people would be better off to rent?
Prop 13 makes this situation extra pernicious in CA, because of the frozen property taxes.
Yeah, we saw a 50% increase in the value of our house over 4 years (and then sold), and it was pretty much just all bad. Maybe in 10 or 20 years if and when we downsize houses or move out of the area, it will retrospectively be a good thing, but honestly right now I'd rather that houses were flat in price and I had the hundreds of thousands back in something more liquid.
The benefits of increased house prices for homeowners are largely theoretical.
“Three percent inflation is fine”
No it’s not. At 3% inflation you lose almost half the value of your money in 20 years. That’s horrible.
As for asset inflation. You might think it’s good for the value of your home to be going up fast. But what if you don’t already own a home. Say you are just starting out trying to build a family, and all the home prices are crazy high. How do you feel then?
Not to mention most people are horrible at math. They take advice from realtors and lenders telling them of course they can afford the home they really can’t. What happens then (see 2008)
As for stocks, a stock valuation should be seen as ownership in a future dividend stream. When stock prices rise (and not driven by earnings increases) what that really means is you are paying more and more money for that future dividend stream. IE, you are getting less of a return (and maybe a negative one). Given current PE ratio’s, if you are buying right now, you should expect a negative return over the next 7 years)
See GMO’s excellent asset return forecast
https://www.advisorperspectives.com/commentaries/2021/01/21/gmo-7-year-asset-class-forecast-4q-2020
“But if Powell could give me $20,000 and you $20,000 and everyone else $20,000 without prices rising, that would be amazing. You could end poverty!”
No, no, no. Money is a claim on assets. If you just create a bunch more money, what you have done is devalued that money in relation to the same asset base. Printing money doesn’t create wealth, just more money.
This is a very silly argument that has become dogma among Bitcoiners and their compatriots. There is no reason to own a large volume of cash. If you are dumb enough to do so, you probably deserve to have your wealth inflated away. Every financial investment (savings accounts, corporate bonds, Treasuries, inflation-protected securities, equities) has as part of its expected return an expectation of what inflation will be in the period you hold the investment. Every non-financial investment has to clear an IRR that includes an expectation of what inflation will be. You may not have realized, but people have thought about this before you did.
I think a key part of this claim is that the asset base remains the same. I think this is more true with services, but much less true with scalable goods (TVs, phones, etc.) and not at all true of digital goods.
If everyone was given $1,000 and only spent it on Slow Boring subscriptions (or other lesser digital goods), then would money be devalued?
As other people have hinted at, we would generally expect 3% inflation to be something that investments would just compensate for. There's some friction in that, so if inflation is super high or super inconsistent, it stops being possible for everything to just more-or-less cancel out inflation, but in a world where we have pretty consistent approximately 3% inflation, we expect nominal returns to increase such that we have roughly the same real returns as in a lower-inflation world.
"At 3% inflation you lose almost half the value of your money in 20 years. That’s horrible."
He did acknowledge that inflation erodes savings. I am not sure I would call it "horrible" that money under my mattress is half as valuable in 20 years. This fact makes me less inclined to put my money under a mattress to begin with. Maybe that's a good thing. At least, probably better than the reverse. If the value of my money doubled in 20 years, then I would have incentive to hoard it. That may well be much more horrible for the economy, in fact.
I think it's pretty clearly a good thing that sticking your money in a mattress isn't incentivized. What's money for in the abstract? To reduce the friction of commerce. Barter economies are a real pain in the ass, so we invented gigantic stone rings as a medium of exchange, store of wealth, and unit of account. If currency is deflating we're introducing this gigantic new friction of "just holding the money will be worth more than buying something" so then nobody buys anything and commerce halts. Money is for efficient commerce, deflation is antithetical to that
The case in the bank (or most other places) worth less as well.
It's a real problem if you've been saving money to say retire on
Yes, it is a real thing. Matt acknowledged this. I am not convinced it is "horrible" which is the word that is being disputed here.
He said it's fine. It's not fine, it's bad
He also said inflation is "undesirable." His exact words were:
"Inflation is bad"
"The key thing about inflation is that it’s undesirable."
In context, he is distinguishing here between inflation (bad) and asset inflation (not bad).
In that context, he is further saying that inflation (bad) of 3% is "fine" - which he defines as meaning "not a disaster."
So, full context: asset inflation, not the same as inflation. Inflation is "bad" but 3% is not a "disaster."
Further, he acknowledges that "people worry about inflation because it erodes the value of accumulated savings."
So it seems to me that he fully acknowledges the view that inflation is "bad" but argues that at 3%, it is not "so bad" and more to the point, asset inflation is a different category that is not bad in the way that inflation is bad - i.e bad in the sense of eroding savings:
"asset prices going up doesn't erode savings; in fact, it usually does the opposite."
Deflation is, yes, bad for the economy. Much worse for the economy than symmetrically high inflation.
"At 3% inflation you lose almost half the value of your money in 20 years."
Only if you hold cash and why would you hold cash? If inflation is 3% and CDs are paying 5% then you don't have anything to complain about, do you? If inflation is 3% and CDs are paying 1% then that's a problem. But 3% inflation by itself isn't a problem.
What do you think happens if interest rates go up to 5%?
Take a look at the federal debt, and calculate the interest at 5% (or even 3%)
Moreover, it's quite likely that inflation will be 3%, and interest rates will be at 2%, or even 1%.
Do most people have access to non-cash options? Home ownership rate is 65% https://www.census.gov/housing/hvs/files/currenthvspress.pdf, stock ownership rate seems to be 55% https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx. I wouldn't think those are independent. It sounds quite plausible that a quarter or a third of the country doesn't have a good ability to hedge against inflation.
True, but if you have fixed-rate debt you benefit from inflation. I think this is the way people typically conceptualize inflation--that it is "progressive" because it benefits debtors and causes creditors to get paid back with future dollars that are not worth as much. Clearly credit markets defy this sort of simple explanation but it does represent sort of a "hedge" for some people against inflation.
Most brokerage accounts are now commission free and many also have no minimum required to open an account. There is nothing stopping someone from buying stock if they wish.
You hold cash because you want your resources to be liquid.
Sure you need an emergency fund but that should only be a small percentage of your savings by the time you hit your 50s. The majority of your wealth shouldn't be in cash.
When you retire, most of your savings should be in cash like vehicles. CD's, Bonds etc. Those get hammered with inflation
People saving up for retirement get hammered by low inflation. At least retirees can hedge against inflation. If you're in your 20s with 5% student loans or your 30s with a mortgage, your only option is to make more money. Except the low growth that's tied to low inflation makes that difficult.
I couldn't agree more if you said that water is wet. But the median person's net worth is ~100k, and for many people that is the mostly wrapped up in the mortgage. Over 40% of American's would have to borrow or sell something to cover a $400 emergency, and 25% of households making 100k-150k couldn't raise $2,000 in a month without borrow or selling.
This article was mind boggling when I read it: https://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
That was a sad article. The core of his problem is that he's too generous.
But if they have no money then they are at no risk of having it inflated away.
Biggest concern is if their wages don't keep up with price inflation. So long as they are increasing at similar rates, unlikely to impact people at the bottom.
Indeed, inflation is generally bad, but not totally, as some of the comments note. One way inflation is helpful is to create flexibility on changes in wages. "Sticky wage" theory holds that workers strongly resist reductions in wages (they're "sticky down"). However, since apparently people aren't rational and can't do arithmetic, they're much more accepting of a 2% wage increase with inflation at 3% which is the same as a 1% pay cut.
We wouldn't normally cheer an employer's ability to cut workers' wages; however, given that the alternative is firing a small part of the workforce, who then bears 100% of the cost reductions, inflation is helping firms make more equitable decisions when costs must be cut.
I understand that housing prices going up while rent stays the same is a win and not-loss for home owners and renters, respectively. But isn’t it a loss for renters who are in the market to buy a house? Isn’t this one of the reasons fewer and fewer youngish people are making the leap from renting to owning?
I’m just saying it isn’t a free lunch. There are still winners and losers in this example.
So the argument here is... that speculative bubbles are always good, except maybe in the special case of housing?
That seems to be your thesis, and it also seems obviously false in the abstract. (Although it may be true that the *current* behavior of markets is more good than bad.)
Can we get a post about the dangers of speculative bubbles, and why you're not worried about those dangers right now?
All I ask here, indeed I beg, is that no one try to convince me that the stock valuations of Elon Musk's various enterprises are in any way related to market fundamentals. I might die laughing.
Big thing that Tesla has that could maybe, (long shot) justify the valuations is the lack of dealerships. The dealership industry is actually a few times the size of the manufacturing industry. If Tesla can get 1/3 of the auto market including the dealership side that might justify the valuations.
The man knows how to market himself
https://www.wsj.com/articles/how-volkswagens-50-billion-plan-to-beat-tesla-short-circuited-11611073974
Tesla Motors finally succeeded in making a profit last year. Not by making and selling cars mind you. That came from selling tax credits to other auto manufacturers. Who will soon be building EVs and won't need to buy credits from Tesla or anyone else. And every one of them is better at manufacturing cars than Tesla.
And I'm sure you said the same about Nokia and Blackberry.
Matt posits that if the fed could give everyone 20k and it wouldn't cause inflation, then it would be a good thing. I haven't actually heard Matt provide any sort of limiting factor on what the government/fed should issue other than if inflation picks up stop. Why not just make a one time payment to everyone and then stop. Give everyone 100k and end poverty?
Because you wouldn't have created any actual wealth, just more money. Thus the value of that money would go down (by definition)
It might go down, but by what proportion? If we gave everyone 100k and that decreased the value of money (aka inflation) by 5%, that would still be a significant improvement on behalf of the bottom 50% of the population. The more significant question to me is whether that would drop the value of the currency 5% or 90%. If the former, its a good trade off; if the latter, quite a bad trade off. I'm more interested in what theory, principle, etc. people are using to decide whether its closer to 5% or 90% and why.
It should go down in proportion to increase in money related to the existing money supply.
IE, for example, if you gave everyone 100k if that doubled the supply of money, then the value of that money should go down 50%.
Of course, I'm sure there would be distortions in reality.
15 years ago, I would have agreed. Look at a chart of money supply since 2008 and get back to me. I don't have a replacement theory that I'm comfortable with, but that hypothesis definitely failed the natural experiment.
Yes, the Fed's certainly been busy, but nothing like adding 100k to every household
The Fed has added around 7.8 trillion dollars in quantitative easing since 2009. This sums up to around 68k per US household.
MMT (or functional finance if you don't want to go down the full rabbit hole) would probably help here, as it points to the real economy as the the true bottleneck rather than money supply. In an economy with a lot of idle resources (i.e. the economy we have seen for quite some time), adding more money will increase demand and reduce slack. It is only when there are no slack resources in the economy that an increase in the money supply will be offset by inflation. There has been this idea that, for reasons (also known as 'frictions'), the economy will have no slack resources around 5% unemployment. Trump and GOP ran a natural experiment before the pandemic and showed that, yes, you can indeed run the economy at 3 % unemployment and still have slack resources. This is the main reason you only see useful idiots screaming about inflation at the moment.
But you would agree that slashing the money supply would destroy wealth, correct?
Depends on how it was slashed, would it not?
Its only when money supply is changed non proportional to existing distribution that wealth is affected.
You also have to include the velocity of money. IIRC during the financial crisis "everyone" thought QE would cause inflation. But while the volume of money grew, the velocity plunged, so they canceled each other out.
I generally agree that if current policy is raising asset prices that's fine, but is possible that in the future the money currently going into assets will come back out and go toward consumer goods (pushing up consumer prices)? The only real way I can see this happing is if substantial wealth tax was implemented so I guess what I'm asking is, should we expect a wealth tax to be inflationary (unless the government doesn't spend the wealth tax money on goods and services or redistribute it to the less wealthy)? Or am I worrying too much over nothing.
Thing is I don't think the money is actually going "in" to asset prices. If someone buys a stock at a hugely inflated price, that money leaves their pockets, but it doesn't sit in the stock market, it's simply transferred to the seller's pockets. So really only IPOs go "in" to the market.
That's true but then it's a question of what the seller spends the money on. I'm assuming that most of the time it goes into other assets (otherwise the price of assets on average wouldn't go up).
I guess I am making the assumption that the "low interest rates are pushing up asset prices" hypothesis is at least partially correct. Do we know if there is good reason to believe that it is (or isn't)?
"But the “asset price inflation” hypothesis is that the value of owner-occupied housing goes up but the rent doesn’t.
So who’s mad about that? Nobody! It’s just good."
As an aspiring homeowner currently working in the CA tech industry, I do not see this as good!! I see it as a massive obstacle to the type of life I want.
As an aspiring homeowner in the Bay Area not in tech, I agree! And unfortunately (for me) probably with a lower ultimate salary potential.
And what is your rent doing? If it's rising with house prices, that's inflation. If it's not, invest your savings in a risk-tolerant way and wait
It was rising but covid offered some reprieve. Invest and wait is the only option. In the meantime, my family grows older without making memories in our home the way I did as a child.
Rent and housing prices are not perfectly matched. Rent goes up 20% but housing goes up 300%
Their is stuff in the Bay area you can afford you just don't want to live there. I can show you Condo's in East Palo Alto or Masons in Tracy. It is true that you cannot afford to buy a large hose in the most exclusive neighborhoods that you and your friend group where 90% have a degree consider normal, but you can buy in actual normal neighborhoods.
Tracy is not the Bay Area.
If the guy who makes your coffee and cleans your office every day in Mountain View lives in Tracy it is part of the commute pattern of the Bay Area. I know people who say Dublin is part of the bay even though it has 2 Bart stations. There are a lot of people who think the Bay Area is Marin to San Jose. I hear people say I would rather move to Texas than the East bay.
What do you mean "it's a part of the commute pattern of the Bay Area"? It's a BAD part of the commute pattern of the Bay Area, climate arson, and we should stop it. Also, the guy who cleans your office in Mountain View lives not in Tracy, but in Redwood City or East San Jose, in a two bedroom apartment with 11 other people. He got COVID from his work, and it spread to his grandmother, who died. Overcrowding is bad, and we should stop it.
First I agree build more condos in the Bay Area. However I don’t think the commute is necessarily bad for the environment in a Prius it is like one extra gallon of gas a day and electric cars can do the trip. Prior to Covid I liked the idea of multi generational housing being closer physically and emotionally to grandparents etc. I am hopping the ADU rules will make multi generational housing more live able.
Multi-generational housing is fine. Twelve people living in a two bedroom apartment is overcrowding, which is not fine. (I like ADUs too.)
Quality schools for my children is the number one concern. Number two is a house with a yard where we can hunt Easter eggs or have a 4th of July BBQ. Building these cherished childhood memories shouldn't be out of reach for all but those who inherit homes.
Well Pleasention is in the top 5 for school districts in the Bay Area the houses in Pleasention are crazy expensive but the Condos are like 400-700 for a 2 bedroom my community the condos are 400-500 and I have seen neighbors use the common area for Easter egg hunts. Better housing policy will actually result in fewer houses and more condos. The Tri Valley is one of the only the places that is pro building housing.
Better housing policy would result in fewer houses and more multi-unit housing of all kinds, but as I am sure you are aware, multi-unit housing is illegal in 82% of residential land in the Bay Area.
I am really curious to see how many people in a single family home get an ADU. Now that they are legal. A lot of houses have really small yards. My guess is maybe 10% will get an ADU it will help. But you need like 1/2 of all single family homes getting ADU because the numbers are that bad. I would like to see laws making it easier to be a landlord of an ADU so it truly easy money. It only takes one news story of the nightmare eviction to make a busy professional say it isn’t worth it.
It's extremely easy to be the landlord of an ADU. Indeed, in California there are companies that will put up an ADU in your back yard, rent out the property, and manage it, for a share of the income.
In San Jose, you can get approval for an ADU over the counter. That is, you hand them your permit application, and you get the permit that same day.
There are many, many quality schools in the Bay Area. The problem is not a lack of quality schools, but a multi-decade campaign by cities in the Bay Area to keep kids out of their quality schools. They don't want people who can afford less than $1.5m for a house in their schools. That's the real snobbery.
Does it need to be detached from all of the other houses? Townhouses, duplexes, four-plexes, etc. are illegal in most of the Bay Area, and are exactly how humans have built affordable housing for centuries in places where land prices are high.
This is a gross mischaracterization of the housing crisis in the Bay Area. It is really, very bad for people of all incomes, and it's not caused by people being afraid of minorities or entitled attitudes from Millenial tech workers.
Having people of any income commuting from Tracy to the job centers is an immense daily waste of human and economic potential, while also being climate arson. There are some condos for sale in EPA, but the number of units is tiny.
Lastly, you missed the most important part: on the scale of the Bay Area, nearly all
the land suitable for housing and in commutable distance to a job center, could be described as "most exclusive neighborhoods...where 90% have a degree." It makes the Bay Area a place where the only millionaires can have stable finances, high-quality schooling for their children, reasonable commutes for parents, and a retirement. This fact is an affront American egalitarian/liberal values.
There are no normal neighborhoods. Especially in the South Bay and the Peninsula, this fact has been consciously engineered by a generation of homeowners and city officials, who have staked their retirements, lifestyles, and careers on turning California cities into state-sanctioned country clubs competing for the richest residents, rather than healthy communities full of people with a range of incomes, races, values, occupations, and backgrounds.
I live here too. And the attitude of people in the South Bay or peninsula toward the East Bay kind of offends me. It is true that East Palo Alto is small only like 15 square miles but the fact that is still sort of affordable makes think there is some snobbery going on. Also even in CA only about 34% have a 4 year degree or higher. Your Uber driver doesn’t have a 4 year degree. The staff at Chipotle doesn’t have a 4 year degree. Like ask people where they live. Also, you can commute from Tracy to Palo Alto in an electric car I used a hybrid. 50 mpg Prius C. I ultimately bought in the East bay my condo is worth like 480. if your working in the South Bay I would suggest the Tri Valley. Dublin and Livermore have lots of new construction. My commute to Palo Alto was 45 minutes if I left by 7. Tracy adds another 30 minutes. So it is really only an option if you must have a house.
I'd bet dollars to donuts that your Chipotle associate, Uber driver, etc. are either (a) living in very crowded living conditions (more than one tenant per bedroom), (b) living with family well past when they want to, or (c) are commuting from somewhere very far, like Vallejo, the Central Valley, etc. These are all hallmarks of a severe housing crisis.
I think it's pretty simple: If your city does not have enough housing to accomodate all of its daytime workers, including options affordable-enough for those daytime workers making relatively less (e.g. Uber, service workers, etc.), then it is exporting a housing crisis to its neighbors. Cities like that in CA are benefitting from the economic activity of large numbers of jobs, without paying the costs in the form of schools, infrastructure, emergency services, public transit improvements, etc.
I am a 10-year resident of the East Bay (Berkeley/Oakland), and I am also offended by the attitude of Peninsula and South Bay people about the East Bay, especially Oakland (many of whom are my coworkers). The Bay Area is very woke, except your your garden variety white-flight fear of living near brown people, pearl-clutching over the quality of the schools, "quality of life" as a euphemism for fewer brown people near me, etc. It's all alive and well here in sunny Santa Clara/San Mateo county. People who say things like "but if our company opened an office in Oakland, wouldn't the real estate savings quickly be overtaken by extra security costs" are breathtakingly ignorant and they should feel bad about that.
Maybe it's the pandemic, or maybe we need to agree to disagree on our facts, but pre-COVID there's no way the commute from the outer East Bay or down the 101 towards Gilroy is going to be less than 1 hour per way to tech companies in the South Bay. 90 minutes seems more likely.
In any case, 2-3 hour per day car commutes becoming considered what's normal to be able to afford a condo is what housing policy failure looks like. The snobbery exists: it's in Cuptertino, Palo Alto, Mountain View, every city in San Mateo County, etc. not providing housing for the workers their cities benefit from.
I really don't think $700k for 1bd/1ba condos in EPA is "sort of affordable" by anyone's definition, except for perhaps people in the Bay Area whose perspectives have been warped by the crisis. Those are Hong Kong/Shanghai/Tokyo-level condo prices, except instead of living in the a dynamic amenity-rich world city, you are down the street from Back-A-Yard, have a good commute to one employer and a livable commute to many others. And I love Back-A-Yard--the oxtails are amazing -- but it doesn't justify $700k condos in EPA.
Richmond is super affordable I saw a condo there for 200k. But it is only a reasonable commute to SF and Oakland. Richmond to Mtn View etc is same time as Tracy maybe more. People really exaggerate how bad the altamont pass is.
Damm those one bedrooms on university are $700 now. As for commute from Tri valley to Palo Alto if you left at 7 you could be at work by 745 if you leave at 730 you get in at 9 am because apparently you can be 15 minutes early or an hour late no in between.
Housing is not expensive in the Bay Area, but people are psychologically obsessed by housing prices to the exclusion of all else for many interest reasons I will not go into
Excuse me, we were talking about the San Francisco Bay Area here. What area were you talking about?
The Bay Area is the richest place in the world, it’s not even in the top 50 in terms of real estate prices
"Housing is not expensive in the Bay Area" where are you getting your facts on that one?