[EconProf]

BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.

[EconProf]

BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.

[EconProf]

BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.

[EconProf]

BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.

[EconProf]

BobS
Good points gdcox.
It is common and easy to judge whether housing prices are above or below their “correct” level by comparing the rent of a property–or all properties–to their monthly cost of ownership. Easily grasped, easily measured, easily graphed over time, and a common starting point for deciding whether to rent or buy.
Right now one can rent a given house or condo for about half to two-thirds the cost of owning it. Depends heavily on neighborhood, with the fraction rising in lesser neighborhoods, falling in better areas.
This suggests that prices have quite a ways to fall (or rents to rise), before we get back to historical norms.
A complicating factor is expected appreciation or depreciation in housing values. Optimistic price expectations fueled the distortion in this ratio to historic lows recently. Perhaps the coming pessimism about future prices will cause the ratio to overshoot on the upside.

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
Your post is confusing. The first paragraph contradicts the last.
Are rents increasing 30 percent more than the government stated inflation rate (of about 3%)? That would mean they are going up about 4%. Or do you mean 30 percentage points more than the government inflation rate, putting them at about 33%.
Then in your last paragraph you say they are going up at “the lowest rate in 8 years”.
What are you trying to say here?

[EconProf]

BobS
It is pretty widely agreed that government employees are better compensated than their private counterparts. Let’s remember that “compensation” includes not just pay, but fringe benefits, retirement benefits, job security & stability (sometimes including tenure), and even difficulty of the job itself.
One source of this imbalance is that private, profit-seeking companies engage in a natural and healthy competition with their unions, or individual hires, while the public employers (city councils, state legislatures, school boards, etc.) do not. The end result is that the public employee unions run roughshod over their counterparts. They are highly mobilized, vocal, and each employee has a lot at stake. The taxpayers each have very little at stake, are less organized, and are often duped by the media and the PR abilities of groups like the public safety unions.
Groups like the Taxpayers Association can try to speak up, but it is an uphill battle. So far they are losing.

[EconProf]

BobS
It is pretty widely agreed that government employees are better compensated than their private counterparts. Let’s remember that “compensation” includes not just pay, but fringe benefits, retirement benefits, job security & stability (sometimes including tenure), and even difficulty of the job itself.
One source of this imbalance is that private, profit-seeking companies engage in a natural and healthy competition with their unions, or individual hires, while the public employers (city councils, state legislatures, school boards, etc.) do not. The end result is that the public employee unions run roughshod over their counterparts. They are highly mobilized, vocal, and each employee has a lot at stake. The taxpayers each have very little at stake, are less organized, and are often duped by the media and the PR abilities of groups like the public safety unions.
Groups like the Taxpayers Association can try to speak up, but it is an uphill battle. So far they are losing.

[EconProf]

BobS
It is pretty widely agreed that government employees are better compensated than their private counterparts. Let’s remember that “compensation” includes not just pay, but fringe benefits, retirement benefits, job security & stability (sometimes including tenure), and even difficulty of the job itself.
One source of this imbalance is that private, profit-seeking companies engage in a natural and healthy competition with their unions, or individual hires, while the public employers (city councils, state legislatures, school boards, etc.) do not. The end result is that the public employee unions run roughshod over their counterparts. They are highly mobilized, vocal, and each employee has a lot at stake. The taxpayers each have very little at stake, are less organized, and are often duped by the media and the PR abilities of groups like the public safety unions.
Groups like the Taxpayers Association can try to speak up, but it is an uphill battle. So far they are losing.

[EconProf]

BobS
It is pretty widely agreed that government employees are better compensated than their private counterparts. Let’s remember that “compensation” includes not just pay, but fringe benefits, retirement benefits, job security & stability (sometimes including tenure), and even difficulty of the job itself.
One source of this imbalance is that private, profit-seeking companies engage in a natural and healthy competition with their unions, or individual hires, while the public employers (city councils, state legislatures, school boards, etc.) do not. The end result is that the public employee unions run roughshod over their counterparts. They are highly mobilized, vocal, and each employee has a lot at stake. The taxpayers each have very little at stake, are less organized, and are often duped by the media and the PR abilities of groups like the public safety unions.
Groups like the Taxpayers Association can try to speak up, but it is an uphill battle. So far they are losing.

[EconProf]

BobS
It is pretty widely agreed that government employees are better compensated than their private counterparts. Let’s remember that “compensation” includes not just pay, but fringe benefits, retirement benefits, job security & stability (sometimes including tenure), and even difficulty of the job itself.
One source of this imbalance is that private, profit-seeking companies engage in a natural and healthy competition with their unions, or individual hires, while the public employers (city councils, state legislatures, school boards, etc.) do not. The end result is that the public employee unions run roughshod over their counterparts. They are highly mobilized, vocal, and each employee has a lot at stake. The taxpayers each have very little at stake, are less organized, and are often duped by the media and the PR abilities of groups like the public safety unions.
Groups like the Taxpayers Association can try to speak up, but it is an uphill battle. So far they are losing.

[Author]

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