Friday, November 23, 2007

How Women Drive Housing Prices and Men Drive Rents

So I was researching different countries in terms of their government debt and obligation to future generations, and as I'm wont to do, I came across some other information completely unrelated to my current mission that I found interesting none the less.

Normally we look at the US and the US "housing crisis." As if the bubble was only relegated to here. However that is not the case. Not by a long shot. Many other countries saw property bubbles occur in the mid-2000's and are facing the same debacle we're about to here. And the best way to measure the degree of a bubble is house price to rents and/or house price to income.

I like house price to rents because it relates the asset (the house) to the true variable that drives and determines its value (rents). I took some of the highest bubbly markets and least bubbly markets to show relatively how bad/good the US' housing bubble was and while housing prices increased 38% faster than rents, compared to Ireland, the UK and our Canuck friends to the north that's only half the overvaluation they're experienced near 75%. Spain outdid us all with a doubling of property relative to rents.

The second ratio compares housing prices to incomes. This affects what I call the "girl factor" of housing. Men can live in dumps. Long as there's a shower stall, a toilet, a couple electrical outlets for video games, and maybe an indentation in a wall somewhere to install a bar, we're pretty set. We don't even need bedrooms as most of us sleep on couches. About the only "luxury" I considered as a guy was installing a urinal in the basement which would be really cool because I could show it off to my friends and they'd say, "Hey, Cappy's got a urinal! Wow! That's so cool!" Alas, if it were only men, all of the housing landscape would consist of slight modern caves furnished with electricity and plumbing. But women they like non-necessities like drapes.

Who the heck buys drapes? And what are drapes? Aren't they curtains? I looked into curtains one time, something like $200. Went to Michael's Fabrics and for $40 found enough black vynil that I just stapled over the window sills and now I have drapes... or curtains or whatever the heck they're called. Sure my house looks like a meth house, but I saved $160!

In other words, what men are willing to pay for are the functionalities of a property; shelter, shower and shaving and some video gamage. Women want to pay for the aesthetics of the property. Drapes, carpet, landscaping, location, fireplace, wall paper, neighborhood, furniture, countless labor hours spent on picking paint colors etc., which disconnects the price of a house from its rents. ie-women treat housing like a durable consumer good whereas men treat housing as a service.

Thus, what drives the price of housing then as women have more and more purchasing power (and as many married men I surmise will testify women are the ones making the decision anyway on all matters of housing) may not necessarily be rents, but incomes, as more and more women are will to pay for various non-rental attribute of the property.

Still, the same ratios more or less hold. Spain, Ireland, the UK and Canada are most pricey whereas the US kind of is in the middle.

Of note however is that three countries have particularly low price to rents and price to incomes;

Germany, Japan and Switzerland.

Maybe Americans should be looking to buy some nice properties in the Alps...hmmmm...bachelor pad in the Alps...with them Heidi or Helga girls from Hogans Heroes, pouring beer steins for me and my buddies...complete with urinal.


Anonymous said...

It puzzles me why housing is so cheap in Switzerland. Land is so scarce because of the mountains and the state regulatory which prefers to hand out land only for agricultural purposes, not for construction. Also interest rates are very low. My personal experience is that finding a place to build a house is so difficult in this country that everybody prefers to live in apartments instead. Only 30 percent own a house. In Germany the number is 40 percent, in the US it's over 60 percent.

Anonymous said...

You're absolutely right. All I'd want is a big soundproofed shed in the back yard so that i can put my drum kit in it, and all my gear. My wife can have the house - I'll just sleep, eat, shower and sh1t in it :)

I just voted today - feeling a bit nervous! Hope lil Johnny Howard doesn't get the boot! Go libs!