Tag: neighborhoods

The error of price-to-income-

The comparison of home prices to buyers’ incomes is a popular measure for assessing the health of the real estate market. Presently, that multiple seems high, and people are using it to cry, crisis! But is this true?

Amy Nixon posts on Twitter (now known as X):

All of economics is supply and demand.

The median household to median income argument makes sense only in an economy where we have built enough housing units per capita, and every housing unit is being allocated as a family shelter unit because it serves no other economic utility

The model breaks down when you have wealthy families buying 3-4 spare vacation homes. And mom and pop landlords hanging onto starter homes when they upsize. And institutions buying millions of single family homes. And single people living alone in two units instead of coupling to buy one unit. And foreign citizens buying homes. And people buying and using 2 million single family homes as hotels (Airbnbs)

So long as single family residential housing is viewed as and can be used as an investment or luxury item beyond owner-occupied shelter and we don’t build enough homes to offset all those other uses, the ratio pictured in the infographic below can (and will) go even higher over time

It’s not 1985. And it’s never going to be 1985 again.

What Amy says is that there is a mix of home-ownership types. If you are analyzing Lake Country, with many second homes, there will be a different price-to-income figure than if you consider a first-tier suburb built almost exclusively of starter homes. I like to call them platters. It’s the local eco-systems of properties that have interesting numbers. Averaging just smudges out all the details.

I’ll also note the shift in demographic mix. The number of first-time buyers is at an all-time low. From NAR:

WASHINGTON (November 4, 2025) – The share of first-time home buyers dropped to a record low of 21%, while the typical age of first-time buyers climbed to an all-time high of 40 years, according to the National Association of REALTORS®’ 2025 Profile of Home Buyers and Sellers. This annual survey of recent home buyers and sellers covers transactions between July 2024 and June 2025 and offers industry professionals, consumers, and policymakers detailed insights into homebuying and selling behavior.

Repeat buyers enter the market with equity. They do not need to take on as much debt relative to their income as first-time buyers do. Yet the sales price is the measure from which payment is extrapolated, not the actual payment. As a market rises, so does the equity, pushing this fictitious measure of debt load out of whack with reality.

Jane Jacobs

The first author of neighborhoods points out the need for self-governance.

Let us assume (as is often the case) that city neighbors have nothing more fundamental in common with each other than that they share a fragment of geography. Even so, if they fail at managing that fragment decently, the fragment will fail. There exists no inconceivably energetic and all-wise “They” to take over and substitute for localized self-management. Neighborhoods in cities need not supply for their people an artificial town or village life, and to aim at this is both silly and destructive. But neighborhoods in cities do need to supply some means for civilized self-government. This is the problem.

Chp 6, The uses of city neighborhoods

Do those who claim ‘shoulds’ about wages get it right?

Let’s investigate the claim that every job should be paid a ‘livable’ wage by
spending some time with a mom in the neighborhood. First off, livable is very
subjective. What some people claim as a bare minimum to get by in, say, NY is a
fortune to others in Ames, Iowa. Furthermore, as soon as a generation goes by, livability
inevitably has upped itself on the notches of life’s expectations. But for this
examination, let’s assume that to qualify as livable the wage must be more than all
lower paid work.

Now to say every job ‘should’ command a livable wage is the same (well
almost the same) as saying that every job that does not offer a livable wage
should be eliminated. And the intent of wanting every job to pay at least a livable
wage (although I can read what’s in the hearts of those who say should) is to
make society better.

A mom of three kids starts her day by dropping them off at school, after
feeding them a breakfast of milk over cereal. After the middle schooler catches
the bus, she delivers the first one to a before-school program where a college
student greets them. He is picking up a few hours of work (not a working wage)
to help with tuition and later he will be sitting in classrooms getting his
in-school experience. The second child is walked over to the library where a
nice grandmotherly woman sits at a low table surrounded by six mini chairs
waiting to start extra reading help. She is part of a literacy program paid for
through grants. (She does not receive a working wage).

Then the mom runs over to Target. Thanksgiving is around the corner and
there’s lots of food to buy. At the checkout, she is pleased to see her
neighbor. Her kids are a bit older, so our mom always appreciates picking up
tips from a mom who has just forged down the road of rearing her children.
Target gets busy over the holidays and hires additional workers (not a livable
wage) so that busy parents can be in and out quickly with all their supplies.
Many workers like the extra spending money around the holidays and the store
gives a discount to employees.

Once the mom gets the groceries put away and straightens out the scattered
items throughout the house, she pops over to the Y to get some ‘me’ time. After
committing to a workout routine, which keeps her sanity, she’s gotten to know
some of the instructors. Her favorite is a graduate of West Point and, a mom
herself, is using the work (not a living wage) to keep in shape and provide an
outlet to adult relationships.

Before you know it the first round of school classes are starting to let
out. Her middle school child is involved in the Scouts, and they are having a
special activity with a city recreational leader, a senior adult (not a living
wage) who will show them some features of the local park. She drops him off
before running back to the elementary school to pick up her two youngest. Once
at home, a sixteen-year-old who lives next door stops in. She is going to look
after the kindergartener (not a living wage) while our mom takes her other
child to basketball. The coach (not a living wage) is great, and mom played in
college so she stays on to help.

Our mom encounters six workers in less than eight hours who voluntarily and
willingly participate in employment that is not considered a livable wage. They
are not coerced. They are not full of regret. They play an essential role in
elevating the quality of life for families.

If someone had time on their hands, they could calculate the market rate of
each of these services and come up with the pecuniary difference. Yet this
still would not be a true reflection of the total value as the interaction
between these folks serves as a clearing house of beneficial information
throughout the networks they support. The mom receives no income for her work
to raise her children and would be at a great disadvantage to lose these
support services.

Now think of a CEO, or an accountant, or a doctor, or a stockbroker, or a veterinarian.
Do they depend on lower-wage labor to do their jobs? It seems like the people
who they depend on like the managers and nurses and financial services admins
and vet techs are all paid a living wage.

So, by eliminating the jobs paid at below a living wage the groups that get hurt are
those who also do not earn above the living wage.

Anthony Downs and Neighborhood Utilities

In Chapter 3 of An Economic Theory of Democracy, the Anthony Downs suggests government services delivered to neighborhoods be measured by their utility.

All citizens are constantly receiving streams of benefits from government activities. Their streets are policed, water purified, roads repaired, shores defended, garbage removed, weather forecast, etc. These benefits are exactly like the benefits they receive from private economic activity and are identified as government-caused only by their source. Of course, there are enormous qualitative differences between the benefits received, say, from national defense and from eating mince pie for dessert. But no matter how diverse, all benefits must be reduced to some common denominator for purposes of allocating scarce resources. This is equally true of benefits within the private sector. The common denominator used in this process we call utility.

What he goes onto say is interesting as well. The reliability of government services in policing your streets, delivery your mail or making sure that potable water is shows up in your pipes should be thought of as a flow of utility income.

Using this broad concept of utility, we can speak of a utility income from government activity. This income includes benefits which the recipient does not realize he is receiving. It also includes benefits he knows he is receiving but the exact source of which he does not know. For example, many citizens are probably not aware that the water they drink is inspected by a government agency. If inspection were discontinued, they might not realize their utility incomes had fallen until they received polluted water. Even then, not all of them would know that a cessation of government activity had caused this drop in income.

He goes on to spell out a whole bunch of utility functions. But I am still back thinking about this flow of income to neighbors. Where is a the asset value that backs this benefit?