alt Hacker News>Why do you feel that rent scales with disposable income?
Because I'm from a country where 30 years ago average income was $220/month. Today it's $2475/month.
A large portion of people live in the same houses and apartments now as people did back then. The housing hasn't changed, but today renting a 70 sqm apartment costs you $800/month - the same apartment that people in 1996 lived in with their $220 monthly wage.
The reason why I think that housing is "lower priority" when setting a price is because the sale/rent price for housing is more divorced from the "manufacturing cost" compared to other goods. This happens for a number of reasons:
1. Housing scales with money. Most people live well beyond the "minimum required" for housing. You could survive living in a tiny room with a shared bathroom, but most of us want more than that. Compare this to food - rich and poor people will drink a similar amount of milk. You can't really spend 100x on milk and actually get appreciable benefits from doing so. You can with housing. (Same goes for most other goods. A $3 million car is not 100x better than a $30k car, it's not even 10x better.)
2. Housing is non-fungible. You can't have two houses in the same location. Food, furniture, and electronics are fungible.
3. Housing doesn't depreciate with use compared to other goods. You drink milk and it's gone. You drive your car and it degrades. Your house degrades simply by existing - your use of it will degrade it a little, but living in it also means you do maintenance, like cleaning, that will help keep its value.
4. Because of the above, housing is an asset that people invest in. This is a bit circular, but it also means a lot of people don't want to see housing become cheaper.
>And rent prices have been increasing faster than other necessities, and faster than income, so that might be a confounding factor in your argument.
Because the cost to produce other necessities hasn't increased as quickly as incomes have increased. We have better technology and better economies-of-scale that has made the cost of other goods cheaper. Now people have more money left over to pay for rent, so they do.
Yes rent (like everything) does scale with inflation. All the absolute numbers you’re using make reasoning about this more difficult than necessary. It’s better to use percent of income, in order to get a sense for whether today’s rent is more or less expensive for the renter. That said, you gave an example from 1996 of a $220/mo avg. income and $220/mo rent, which doesn’t add up. Google tells me that as a percent of income, rent has increased over the last 30 years. You might be right; that might be in part enabled by the cost of some goods going down. But the price of food hasn’t gone down. Higher rents also might be in part changes in spending habits, so you’d need to show those haven’t changed.
I used the wrong word, btw. The word I meant to use was ‘discretionary’ income. I think that’s what you’re suggesting, that rent is discretionary? ‘Disposable’ income is what’s left after taxes, but ‘discretionary’ income is defined as being what’s left after paying for things like rent, transportation, food, and utilities (https://www.investopedia.com/terms/d/discretionaryincome.asp)
It’s true the amount one spends on rent is a bit elastic, and that is also true for most consumer goods. The problem with your argument is that rent is not optional, like most consumer goods are. There are very few things that one cannot go without paying for at all, and rent is one of those.
If I understand correctly, what you’re suggesting is the reverse of how most people including economists think of rent. This discussion does depend heavily on what “other goods” you’re actually talking about. Can you provide more concrete examples, and show that they really are getting less expensive over time? Is your hypothesis supported by Eurostat’s HICP or the World Bank’s data on inflation and consumer prices?