I would love to know the proportion of people at, say, 25 that can afford to buy a house (in the area they grew up and of some reasonable size e.g. 3 bedroom) over time. Sure, income has gone up, but so have house prices and so that proportion has surely collapsed. That has a much bigger effect on young peoples' lives than the number of luxury items they can buy and stuff into the property that they don't have.
Edit: I found this interesting graph for the UK (where I live) [1]. It shows the ratio of average house price to average annual income. Not perfect measure as distribution of income over age brackets is probably more imbalanced now due to starting work later (18 - 25 rather than 16 - 21) but still interesting. Brief textual summary:
* 1920 - 1945: 5 ish
* 1945 - 1955: 6 - 7 (brief spike)
* 1960 - 2000: 4 - 5 (with occasional spike to 6)
* 2000 - 2020: 8 - 9 (with dip in the middle but still above 7)
Edit 2: Here in the UK the problem is particularly acute in the suburbs of the big cities, especially London, because the ability to build new housing is artificially restricted by the green belt legislation [2].
Going by that guy's numbers, someone in 1986 had to work 73 hours per week to afford a semester of college. I either don't think those numbers are accurate enough to reflect people who "put themselves through college", or that people back in the '80s didn't actually put themselves through college.
Edit: To clarify, he says "net tuition", then throws out a $15,000 number for modern colleges. That's on the low-to-medium end of the per-semester cost of a modern public institution, so I'm assuming he's also listing the per-semester cost for the 1986 tuition.
> Edit: To clarify, he says "net tuition", then throws out a $15,000 number for modern colleges. That's on the low-to-medium end of the per-semester cost of a modern public institution, so I'm assuming he's also listing the per-semester cost for the 1986 tuition.
not sure where you're getting those numbers. the average annual cost (tuition + fees + room + board) of a four-year public institution is around $20k. [0] $15k per semester is far from the low-to-medium end.
If one is talking exclusively about in-state tuition, my numbers are high, but my understanding is that enough students pay out-of-state tuition that the discrepancy becomes relevant.
Child commenter to your comment may be right about sticker prices being paid by the rich, which I don't know as much about.
To be clear, I think college is an expensive, unnecessary scam that does very little to serve either individuals or society; I just think that it's trended more expensive and worse over the past few decades.
ah, that probably accounts for the discrepancy. I think the in-state figures may be more relevant to the discussion at hand though. why would someone paying their own way through school choose to forgo the in-state discount?
Strength of the state universities in a desired field. Some state universities offer much better quality and reputation of their programs than the ones in other states. The way that college is marketed as a social vehicle is that you choose the best one that you can get into, and it's worth paying for because of the connections and job opportunities you'll get there. (Scam! Holding people hostage for runaway credentialism!)
For instance, several state universities are listed as top-tier mechanical and aerospace engineering schools (consider Purdue vs. Mizzou aerospace engineering), so if you want to seriously compete in the field, it could be worth your money to join the "better" school from out-of-state, assuming you're a competitive student. The recruiting, research, and internship opportunities at top state schools are way better than at low/mid state schools.
However, from a pragmatic standpoint, you are correct- it is unwise to select these schools if you can better afford the in-state discount. You just have to deal with the limitation of your selection of available fields and prestige of chosen degree. (That's why I think it's a scam; as any honest manager will tell you, degree/curriculum content means very little relative to job performance; the top performers come from top schools not because the top schools made them top performers, but because they were already top performers in high school and just got chosen by top schools.)
It's worth mentioning that if you pay out-of-state tuition to attend a highly ranked State school, you are almost certainly not going to become a median earner. You will comfortably find yourself spending most of your career in the top 2 quintiles, if not the top quintile altogether (~$100,000 salary puts you in the top quintile).
If you're below median and would like to attend, you're going to receive FAFSA, Pell Grants, on top of university-specific discriminatory pricing that favors the poor.
There's no reason one should pay out-of-state tuition outside their own State unless it's at a "top-tier engineering school", in which case the point is basically moot.
The numbers don't necessarily represent how people put themselves through college, on average — it's just an apples-to-apples comparison of what it would take to "put yourself through college" in 1986 vs today.
Right, but I'm saying I don't think his numbers are correct. Either it was also not possible on average to put yourself through college in 1986, similar to how it's not possible on average to put yourself through college today, or his numbers are wrong.
In fact, I bet it wasn't actually possible to put yourself through college in 1986. I bet the people who put themselves through college went between 1950 and 1975.
No, the whole point is "not much as changed". The narrative that one could pay their way through all of college is one that likely never really existed for a broad enough population outside of a brief unreproducible period after WW2 where the entire world was in ruins and the US was the sole supplier of all goods & services globally.
Agreed, and here in the UK the trend is even more pronounced: there were no tuition fees at all twenty years ago. In fact the government used to pay students a grant to go to university (although in its final years the grant had shrunk past the point of being much use).
I'd love to combine this with the previous idea. What's the ratio of median home price to first full-time full-year income minus student loan payments? That would probably put the difference between then and now in even starker relief.
Would 'median disposable income' be a good proxy for that?
(in other words, a metric to determine whether this increased median income ends up in the pockets of and usable by the recipients, or whether it is being used to support day-to-day life)
If by "that" you mean the ability to buy a decent house for yourself then the answer is that it would be an extremely poor proxy ... almost uncorrelated. It's possible to live without buying a house or even renting by yourself (you can live with parents or rent a shared house with other young people). People in that situation would still have (and be recorded as having) a disposable income even though accomodation is an essential expense because owning your own personal house is not technically an essential expense.
Therefore, if wages are decent but housing is extremely expensive (which I believe is the case here in the UK, especially city suburbs) then median disposable income would continue to increase while the ability of young people to buy their own homes would continue to decrease.
I'll explain why I was wondering about disposable income in a little more detail:
In some dense cities in particular, renting (typical for young people prior to property purchase) can be very expensive.
My sense is that this creates a large transfer of wealth from professionals to property owners on a monthly basis.
Across San Francisco or New York, for example, what percentage of the paycheck sums paid by employers is redirected to their landlords?
If that percentage were to rise it would become more difficult for young people to become property owners since it'd be challenging for them to put savings aside.
With that context provided: disposable income is an attempt to quantify how effectively people could save towards property purchase - regardless of whether they decide to take that route.
(and to some extent it's also a 'guard metric' to detect communities that rent-seek to unsustainable levels)
Edit: 'tech companies' -> 'employers' in third para, and remove assumption of high salary. This doesn't just affect tech..
>if by "that" you mean the ability to buy a decent house for yourself then the answer is that it would be an extremely poor proxy ... almost uncorrelated.
Um, what?
If you want to buy a house "disposable income" directly translates into ability to save up for down-payment.
The ability of more people to get housing earlier in their lives is only correlated with the growth in housing stock. If the housing stock is growing more slowly than the population then it's irrelevant if people manage to save more money towards it; that just increases the house prices for everyone. Conversely, if the housing stock is growing faster than the population growth then even a decreasing amount of disposable income wouldn't stop people moving into the vacant properties... the prices would all come down to match.
Of course this sounds ridiculous because in a normal market the supply of a good or service would increase if prices go up (positive price elasticity of supply, as the economists would say). But housing markets are often not like that, and they're certainly not like that in the UK suburbs (as I said, that's partly because of the green belt).
The income has been adjusted for inflation and inflation includes housing.
I think the difference between now and 50 years ago is that everyone wants to live in a few select dense cities where back then most of the middle class didn’t want to live in cities (especially true in the US).
(Edit: I'm not an economist by training and I've realised Im not really sure about any of this, so maybe ignore everything after this paragraph. But certainly, here in the UK, house prices have more than doubled in the last 30 years after adjusting their prices for inflation, so inflation is nowhere near the whole picture.)
It is included but at a very different proportion from its actual impact on consumers. For example, the UK standard inflation index, CPI, includes the following items in its measure (as of 2017 [1]):
04.1 Actual rentals for housing: 5.6%
04.2 Owner occupiers' housing costs: 17.4%
(Also, I'm not sure whether "Owner occupiers' housing costs" only includes mortgage repayments, but that's the closest thing I could see on the list. And the way it's phrased in that list, with the word "actual rentals", makes it sound like price increases won't necessarily be reflected in the index so long as everyone were to downsize correspondingly - but I'm not clear about that one.)
It's like that because inflation is meant to reflect a very different concept than we're talking about here. We're talking about something becoming intrinsically more valuable (in this case, because of scarcity). Inflation is meant to judge when a currency has less intrisic value. So if a house price goes up by 100% but that's because it's twice as valuable, then in some sense the inflation there is 0%.
I'm not sure whether "Owner occupiers' housing costs" only includes mortgage repayments
If it's similar to the situation in NL, those housing costs includes things like municipal taxes and local services (water, sewage, electricity), parts of which are billable to the registered owner of the property, not the inhabitant. And since the central government has been outsourcing more and more responsibilities to local government, these local taxes have increased massively to pay for things that were hereto paid out of the national tax budget.
So if a house price goes up by 100% but that's because it's twice as valuable
Not likely. Many studies have shown that in scarcity, house prices don't follow the value of the property, but the budget of the buyers. The increase in housing prices is more due to the ease of access to mortgages (low interest rates, tax bonuses, etc) than due to value increases of the property.
For you. Culturally, land ownership in the US is a big deal. Yeah, some cultures are broken - I don't know if the security provided by having somewhere to call your own until the day you die is one of them.
And I really mean that - I don't know. Some cultures thrive on women being subjugated to men. Some cultures thrive on authoritarian levels of control that are inconceivable in the west.
By comparison, a desire for land ownership seems pretty mundane.
I actually think we shouldn’t be surprised that the proportion of 25-year-olds that can afford to buy a house in the area they grew up in of some reasonable size is about the same as it was for boomers. But the emphasis should be on in the area they grew up in, because in the 21st century we’re seeing a clustering of the economy in a few (predominately coastal) metros. A big part of the problem is that it’s difficult for a 25-year-old to afford to buy a house near their job in San Francisco, not that it’s difficult for them to buy a house near the middle-America suburb they likely grew up in.
It’s also worth noting that the median 25 year old doesn’t live in San Francisco or New York. If that’s you, you’re probably in the top 2 quintiles in your age group.
> A big part of the problem is that it’s difficult for a 25-year-old to afford to buy a house near their job in San Francisco, not that it’s difficult for them to buy a house near the middle-America suburb they likely grew up in.
I think both are problems, because if they remain in the middle-America suburb, salaries are a lot lower. A 25 year old living where they grew up often doesn't earn enough to buy the local house either.
Salaries are indeed a lot lower, but the multiple of the median salary required to buy a home is a lot higher in the coastal metros. In other words, the salaries are nominally lower, but in real terms they’re actually higher.
But volatility of income is higher, or at least it’s perceived to be. If you think the future is volatile, you need to be in a place where you have multiple options for income as backup, and that is why people will put up with cities even if they prefer other places.
Well, Chicago, Dallas, and Houston are the third, fourth, and fifth largest metropolitan areas in the US so you should be able to find other jobs there and they all are in the affordable housing areas.
I do not. I imagine it's pretty difficult to quantify, but given the economic stagnation of many rural areas that depended on one or a handful of manufacturing or natural resource extraction facilities, I imagine many people can see and feel it.
It sort of makes sense with cheaper labor abroad and cheaper transportation and cheaper communications that money can move very quickly to take advantage of arbitrage. Unfortunately, for people with families, that isn't as easy, so next best solution is to live somewhere with lots of employers, and is experiencing growth.
Then I'm not sure that you can definitively claim that income "volatility" is necessarily higher outside of {list of expensive coastal metros}. It could be higher, but there's no information to suggest that to be case.
> given the economic stagnation of many rural areas that depended on one or a handful of manufacturing or natural resource extraction facilities, I imagine many people can see and feel it.
Rural areas have almost never been economically dynamic, in any society (outside of agriculture, at least). Nobody is arguing that one ought to live in a rural town — but there are a ton of tier-2 and tier-3 cities, and suburbs of tier-1 cities where gainful employment is within reach, especially for wage earners in the bottom 3 quintiles. This includes Pittsburgh, Atlanta, Omaha, Little Rock, St. Louis, Milwaukee, Madison, Nashville, Salt Lake City, Minneapolis, Philadelphia, etc etc etc. Even Chicago, a tier-1 city went from having an income-to-home-price multiple of 2.45x in 1984, to 3.55x in 2017.
> Outside of a few notorious coastal metros, the multiplier hasn’t changed all that much.
Interesting you put it like that. I looked at the same graphic and thought "ah, apart from the sparesly-populated central areas, the multiplier has changed radically, similarly to the pattern in the UK".
At the end of the day, the conclusion is that the pattern is commonly reflected in (sub)urban areas and not in rural areas - and neither of those facts is more important than the other.
> the proportion of 25-year-olds that can afford to buy a house in the area they grew up in of some reasonable size is about the same as it was for boomers
OK, first, boomers aren't relevant here. The people buying houses in anything like OP's timeframe were GenX, not boomers, and I'm going to stick with that timeframe.
Second, I just don't think your claim is true. For example, in Massachusetts (where I live) median income in 1990 was $62K and median home price was $162K for a ratio of 2.6:1. Today those numbers are $77K and $408K for a ratio of 5.3:1. That's all of Massachusetts, not just the high-demand areas. Even your source admits that Seattle, Portland, and Ft. Lauderdale show much larger ratio increases, but casually dismisses them as anomalies instead of considering that they might be the tip of the real iceberg. I believe that any scientific sample would show a very different picture than that derived from cherry-picked extremes.
It's practically all because of wage stagnation BTW. That's a 3.1% annual increase in home prices, vs. a paltry 0.7% for wages.
houses have gotten much larger since 30 and 40 years go. They've almost doubled in size since 1980, but adjusted for inflation, are now cheaper per sq ft
That's true, and interesting, but I'm not sure it's relevant. People have to buy the houses that are on the market, and smaller houses tend to get torn down to make way for larger ones. Why tweak the numbers that way and not others (e.g. to account for student-loan debt)?
>I would love to know the proportion of people at, say, 25 that can afford to buy a house (in the area they grew up and of some reasonable size e.g. 3 bedroom) over time. Sure, income has gone up, but so have house prices
That question is more about how government is for young people than the economy. High Housing costs are mostly caused by local government policy. In places where developers can respond to demand housing isn't any more expensive today than it was in the last 50 years.
another interesting way to look at is to look at the other basic of life: transportation.
can the average 25 year old in any given era afford to purchase their own vehicle? It is arguably way more affordable to be able to own your own car now than it ever has been in the past.
In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work at the current median wage.
In 1997, it took 1,565 hours of work at the median wage to purchase a Toyota Camry. In 2018, it took just 1,258 hours of work at the current median wage.
Also, not only do you work fewer hours today than 20 years ago, the car you get is of higher quality / safety.
In the '90s, the increase in income was partially attributable to employees putting in more hours every year, whereas in the recent boom working hours per employee were effectively constant.
Your stats are basically gonna look the same as the housing map but they're gonna be skewed by four-ish factors.
Vehicles are much more liquid than housing. You can't load freight trains full of land and ship them to an auction across the country where used land dealers buy them for resale.
Since the 1950s many states have adopted laws (and some states have adopted, repealed and re-adopted) and practices with the effect of increasing the price point of the "minimum viable shitbox". The bottom of the market is just a ton higher in some states than others. It's like how you can't buy a mobile home in Manhatten but with cars.
Used car dealers compete with exporters for cars. If Brazil (or wheverver) has an economic boom they remove used cars from the market in places like the US and Canada increasing cost.
The qualities of a new car and the life-cycle of a car has changed dramatically since the 1950s whereas houses are fundamentally just land prices plus some (with the "some" being a reflection of developers saying "well if I'm gonna buy this expensive-ass land I might as well put an expensive-ass McMansion on it)
Alternative (mostly public) transit options in various places has waxed and waned since the 1950s.
So yes, you could use cars for your point of comparison but you'd basically get the same thing as with housing but with the added downside of more variables to control for any time you want to make a cross-time or cross-location comparison with the data.
> Your stats are basically gonna look the same as the housing map
If I move to the big city, and I go from spending 30% of $50,000 on rent to spending 50% of $100,000 on rent that's going to look bad whatever measure of housing affordability you use.
But after rent, I've got $50,000 left instead of $35,000 - so maybe I'll get a BMW instead of a Camry.
Edit: I found this interesting graph for the UK (where I live) [1]. It shows the ratio of average house price to average annual income. Not perfect measure as distribution of income over age brackets is probably more imbalanced now due to starting work later (18 - 25 rather than 16 - 21) but still interesting. Brief textual summary:
* 1920 - 1945: 5 ish
* 1945 - 1955: 6 - 7 (brief spike)
* 1960 - 2000: 4 - 5 (with occasional spike to 6)
* 2000 - 2020: 8 - 9 (with dip in the middle but still above 7)
[1] https://www.schroders.com/en/insights/economics/what-174-yea...
Edit 2: Here in the UK the problem is particularly acute in the suburbs of the big cities, especially London, because the ability to build new housing is artificially restricted by the green belt legislation [2].
[2] https://en.wikipedia.org/wiki/Green_belt_(United_Kingdom)