While home prices increase in price exponentially, many worry as to whether they will one day own a home.
For years the American dream consisted of home ownership and financial independence. The increasing price of homes makes it seem as though only a select group of elites can afford them.
The graph below shows median price of home sales exponentially outpacing real GDP per capita, not even taking into account that individual purchasing power trails far behind real GDP.
The urgency of desire for a homeownership creates perverse, long-term incentives for both home buyers and builders.
Rather than building homes that are intended to last, construction companies, lured by high present demand, will build homes from cheap materials and use techniques that prioritize speed.
The drastic decrease in the size of a 2×4 since the 1920s paints a vivid picture of the decline in home quality.
The material quality as well as the design quality of homes has shot through the floor because homebuyers are not able to see the full risks of their investment. Because homes include the limited resource of land as well as a traditional durable structure, they have historically been a solid investment. Houses that were built over 100 years ago are often still hot commodities and they seem to constantly appreciate. Homes used to be built with the idea that they would last a long period of time and be repaired as they needed it. While each house is different, the public still mentally places them into one asset category when they are deciding whether to buy a home or not. Specific companies earn trust through years of repeated performance, and it would be easy to think that homes as an asset function the same way. Fundamental differences in durability will stratify houses into different categories of investment as buyers see how newly built homes disintegrate.
Just as companies utilize different profit maximizing strategies, so also do home builders try unique approaches. Some builders plan for long-term success by creating homes that will bolster their reputation far into the future, but many home builders in recent years have planned for their investment to peak shortly after they build it, counting on housing shortage and buyer indifference to keep home prices in general high. While this is a good strategy for maximizing profit in the current market, people will slowly start to become more critical of new builds as they see their young homes disintegrate.
Two limiting factors for homebuilders of the past were more scrutinizing buyers and a smaller selection of materials. With lower demand for homes, sellers did not have the same negotiating power that they have been given since the housing shortage after World War II. Homebuyers were also more likely to have had experience in construction, or at least some knowledge of craftsmanship. Their more trained minds would let them see signs of fast and cheap construction more easily than the modern eye. Homes were often bought with the idea of keeping them in the family for an extended period of time, so they were more carefully examined for quality. The second limitation to the wiles of builders in the past was that they did not have access to the same cheap materials that are currently available. While homebuilding materials are by no means cheap, they are far cheaper than the logs and stone used to fashion homes of the past. Cheaper transportation costs along with cheaper methods of production have allowed the building materials of all types to decrease in price. While some would have thought that this could have made high-quality houses more accessible, it seems to have only stirred up exponential cravings for bargains among homebuilders. They try to use far less framing and ever smaller 2x4s to make up for a lack of more stable and durable materials.
Additionally, modern conveniences have shifted many costs away from building companies and towards residents. Homes in hot places that would have been built with thick, cooling walls are now fully reliant on air conditioning. Pre-fabricated parts also reduce producer cost and ultimately shift costs to long-term homeowners. pre-built units are much more difficult to repair and they are much more likely to fall apart if a single weak link is broken. Houses that are simple can be repaired simply, and that often pays off the higher cost of more substantial natural materials. While quickly built houses solve the housing problem for now, they will just exacerbate the problem 30 years from now when builders who could’ve been building new houses must waste time rebuilding where their old ones were demolished.
While their work may be questionable, builders cannot bear the blame for responding to the self-centered nature of their target market. The American consumer does not think about their children as they used to. A house becoming worthless in 50 years doesn’t weigh heavily in their mind of one who cares only for deals today. Building a house that can last is objectively more expensive, but it used to be expected, and it pays off in the long run.
Tyler Durden
Thu, 01/30/2025 – 14:45
