Very very little is made/manufactured on site. You do not make turbines, computers, pipes, or much at all, on a construction site. You form, weld, pour, and assemble. The goal would be a standard design, to cut those giant engineering and custom fabrication costs to a small fraction.
You don't need to deliver a completed factory on a pallet to save costs (although that's possible with distributed small module reactors, as Asia is ramping up for).
But the "negative learning" was exactly because they abandoned the standardized approach.
"Conversely, the gradual erosion of EDF’s determination to
standardize (caving in to proposals of numerous design changes
in the wake of the ‘‘frenchifying’’ of the Westinghouse de-
sign—the P’4 reactor series—and above all to the new N4 reactor
design pushed by the CEA), as well as the abrupt slowdown of the
expansion program after 1981, paved the way towards a gradual
demise of the French success model, as borne out in lengthened
construction times and ever higher cost escalation towards the
end of the program (cf. Section 4 below)."
As a result, France's electricity grid is almost fully decarbonized (and we'd be in a better state if we didn't shut down one reactor for political reasons) while industrialized countries betting only on NREs are still counting the days they don't need to burn coal. So there are good things about it.
It’s a little more complicated as they’re importing and exporting a great deal of electricity. But overall yea it’s been good for the environment, just expensive.
It's not subsidized. In fact, cheap nuclear electricity is used to subsidize other industries.
The entire nuclear industry (construction, operation, support) cost France € 228 billion and produce 11000 TWh (by 2012). That's 2,07 cents/kWh. Not too shabby.
Your numbers are wildly off and not just from ignoring inflation when using poorly sourced numbers from 2012. Quick, how much did they spend on fuel over that timeframe? Well according to that estimate it was 0, so it’s hardly including the operating costs.
To give some perspective: “In March 2023 France's Parliament formally approved the government's nuclear investment plan – by 402 votes in favor and 130 against – which considers the €52 billion construction of six new EPR-2 PWRs at three sites.” That’s not operations that’s just for construction of 6 reactors when they have 56 in operation and that’s interest free unlike US reactor where interest is included with construction costs. One year later that’s already been increased to 67.4 billion euros: https://www.reuters.com/business/energy/french-utility-edf-l....
France operated as a pay as you go system so they didn’t set money aside for the full cost of decommissioning their reactors etc. Last I checked there was some talk in 2017 of them setting aside 27 billion based on some ridiculously optimistic estimates but mostly the plan is just foist the costs onto future taxpayers.
The article explicitly says "overall cost" and "including all expenditures."
"Following the Fukushima nuclear accident in 2011, the French government requested that the Court of Accounts prepare a report on the overall cost of both public and private investment in the French nuclear power industry from its beginning, including all expenditures.[225] The report estimates that the industry has cost around 228 billion euros for a yearly production of roughly 400 TWh, with a cumulative production of approximately 11,000 TWh. Among the expenses, the Court of Accounts differentiates €55 billion spent on research since 1950 (equivalent to approximately a billion dollars annually) and €121 billion spent on construction, which includes €96 billion on the 58 reactors."
Your quoting estimated future prices does not contradict what has already happened. The new reactors both have higher rated output than what is currently installed and higher capacity factors. Operating costs are small compared to initial investment, and fuel costs are a small part of the operating costs.
Let's math the shit out of this!
Assuming the 1.5 GW output for the EPR2 that's quoted in Wikipedia and a conservative 90% capacity factor, each of these reactors will produce 1.5 * 24 * 365 * 0.9 = 11826 GWh of electricity per year.
80 year running life makes that 11826 * 80 = 946080 GWh of electricity over the lifetime of the plant. Or 946 TWh. That's 946 Trillion Wh, or 946 Billion kWh. If I can sell these 948 Billion kWh for 1 cent / kWh, that's 948 billion cents or € 9.48 billion so close to the estimated cost of constructing each of these plants. So let's assume an extremely unlikely ~100% cost overrun and operating costs that are the same as originally estimated construction costs and we have 3 cents / kWh. Everything after that is profit, even with 100% cost overruns for construction.
Which maybe gives you an idea why, though the French government almost certainly does not like the cost overruns, they don't seem to be nearly as perturbed by them as the anti-nuclear activists.
And neither is the UK government. So nobody is going to claim that Hinkley Point C is going well. Nevertheless, the UK is proceeding with Sizewell C, have just selected a site for an additional pair of reactors and have made it policy to quadruple nuclear output.
Just like neither the Poles nor the Ukrainians let the problems at Vogtle-3/4 keep them from selecting the Westinghouse AP-1000 for 4 reactors each, with site-prep work having started in both countries earlier this year.
From that same Wikipedia article: “The actual cost of generating electricity by nuclear power is not published by EDF or the French government but is estimated to be between €59/MWh and €83/MWh.” that’s using numbers from 2012 in todays money €73/MWh and €103/MWh. What you were quoting was counting “investments” not total costs on an inflation adjusted basis.
In 2012 published results for ongoing costs at “The court expects EDF's projected investment programme in existing plant, including post Fukushima safety improvements, will add between 9.5% and 14.5% to generation costs, taking costs to between 37.9 and 54.2 EUR/MWh” (Note that’s annual costs excluding construction and decommissioning.) Your investment number included R&D subsidies that aren’t part of that 47 to 67 EUR/MWh in today’s money. If you wonder how these could be so wildly different it’s because France isn’t just adding up total costs and adjusting for inflation they simply don’t want to admit how large the subsidies have been because it’s so dam expensive.
France nuclear power plants don’t hit 90% capacity factors. If your generate 30% of power from nuclear you can have capacity factors that high but France ran past that and ran into the fundamental issue that people want less power on nights, weekends, and spring/fall when they don’t need heat or AC.
How about some real world numbers. From 61.4 GW of generating capacity In 2022 France produced 282 TWh, in 2023 it hit 320 TWh that’s (282 + 320)/2 / 365 / 24 * 1000 / 61.4 = 56% capacity factor.
“80 year running life” you know France is having troubles keeping a ~40 year old fleet operating, I’m sure they will have zero problems trying to hit 80 years.
There’s an art to it, but civility isn’t about avoiding all conflict. A prosecutor can have a perfectly civil conversation where they threaten someone with execution if they don’t accept a plea deal. A few mocking jabs about how incorrect someone’s statement was is fine as long as you’re mocking what was said and not their person, manor of speech, accent, speech impediment, etc.
Operating costs for nuclear power plants are low and consistent over time. The bulk of the cost is the initial investment, and of that the bulk is financing, i.e. interest.
This has a graph of operating costs for French nuclear plants over time on page 10. After an initial high cost of 40 centimes / kWh it settles down to slightly above 10 centimes / kWh in around 1984 and then stays flat until 2000, where the graph ends. Let's call that 12 centimes. The French franc was converted to € at a rate of 6.55 : 1 so that's slightly less than 2 euro-cents per kWh.
2. Capacity factors
Current French nuclear plants are old designs and there was significant overbuild. Modern plants easily hit > 90% capacity factors, heck, the EPR even has 4 independent cooling systems so that they can keep the plant running while doing maintenance on the cooling system! Alas, that's one of the reasons it is so difficult to build.
For the US: "Nuclear has the highest capacity factor of any other energy source—producing reliable, carbon-free power more than 92% of the time in 2021."
France is also adding renewables so the nuclear plants don't have to buffer all the variability in demand. Right now they have nuclear plants that they just shut down on weekends.
So let's low-ball this and say the capacity factor of these new plants will only be 80%. How much does this affect the calculations?
1.5 * 24 * 365 * 0.8 * 80 = 840960
So instead of producing 946 TWh over its lifetime, the plant will produce 840 TWh or 840 billion kWh. That doesn't really affect the calculations much. At 1 cent / kWh that's € 8.4 billion, which is still pretty close to the construction costs. At 2 cents / kWh we are looking at € 16.8 billion. Add another 2 cents for operating costs and we are at a total of 4 cents / kWh.
4 cents / kWh.
Now this is obviously not a perfect calculation, if such a thing can even be made. But it is very much in the right ballpark.
The claims of 20 cents / kWh or more by anti-nuclear lobbyists are not in the right ballpark. And unsurprisingly, their source for those kinds of numbers is "trust me, bro". Or Lazard, which is arguably worse than "trust me, bro".
3. Lifetime
Yes, I believe 80 years is extremely realistic, particularly for these newer reactors that were specifically designed for long operation, with lessons learned from older designs. Probably more of a lower bound than an upper bound.
"There are no technical barriers to running some nuclear plants for up to 80 years, ..."
"There are two research programs addressing the five main challenges to long-term operation: primary system metals and piping; concrete and containment structures; electrical cables; reactor pressure vessel and buried piping. “These programs have not uncovered any technical show-stoppers that would prevent the renewal of licenses from 60 to 80 years,” the study authors wrote, adding that more research is needed."
"... a majority of executives say that it is very likely their plants will operate for 80 years or longer. It is a fairly natural progression, according to Was.
"If they last till 60, maybe they can last to 80," Was said. "Heck, maybe 100?"
> Operating costs for nuclear power plants are low and consistent over time.
CRE‘s current cost estimates for operating existing nuclear reactors (Ie zero profit, and excluding all costs associated with construction, risk, and decommissioning) is ~€57.8/MWh. Some of that is age, but even with an already paid off power plant, and zero money set aside for decommissioning, and the government talking 100% of the risks of a major accident, and no need for profit, it’s still 3x the current total cost of solar per kWh.
Further that’s their optimistic estimate. I get you want to crunch some numbers here, but they just aren’t matching up.
> 2. Capacity factors
> Modern plants easily hit > 90% capacity factors
In other countries sure, in France reactors are more limited by Curtailment than just technical issues.
If nobody wants to use electricity from your reactor you must shut it down or damage the electric grid. If France had 32 GW of Nuclear they could have ~90% capacity factors but they have 62 GW and nobody wants that much power on nights and weekends. https://en.wikipedia.org/wiki/Curtailment_(electricity)
Now if you’re projecting France to have far less nuclear in 2070 then at first 90% seems reasonable. Except ultra cheap wind and solar is what’s going to replace nuclear and that makes things worse for nuclear with regular oversupply at zero marginal costs vs nuclear non zero fuel costs.
CRE is also having other issues, but I don’t think we can know there will be equal levels of mismanagement and incompetence in 70 years. So I’m mostly ignoring their recent issues.
> 3. Lifetime
Again not purely a technical issue. Power plants cost more to maintain over time and increased maintenance means lower capacity factors. You still pay ~€10/MWh for enriched uranium, and you still need a huge workforce, but most pumps etc last 10+ years, they don’t last 80. And you can’t replace a critical pump during normal operations so you end up with more downtime. Eventually concrete and steal will fail and there’s no cheap way to replace a steel pipe embedded in several feet of concrete.
Thus the 40-50 year lifespan, roughly when replacement + decomisioning costs less than maintenance. Ideally you line things need replacing on different years so you can fix em during refueling, and then have a bunch of equipment need replacing right after you shut things down. However France extended the plants lifespans so in effect they were hit with a maintenance backlog.
> own cost estimates for operating existing nuclear reactors (Ie zero profit, and excluding all costs associated with construction, risk, and decommissioning) is ~€57.8/MWh.
You are 100% incorrect. This is "the complete production cost of France’s existing nuclear fleet". And yes, I put that in quotes because it is a direct quote from the article you cite to claim the opposite. It's in the first sentence, difficult to miss. Furthermore, this is an estimate for the future total cost between 2026-2040.
And 5.7 Cents / kWh total cost for dispatchable, reliable and CO₂ free energy is very good.
Which is why France is investing heavily in nuclear again.
> Curtailment
"Nuclear power in France has a total capacity factor of around 77%, which is low compared to nuclear power plants in other countries due to load following."
So 77%, not the 50% you wrote. And they are increasing the share of other electricity sources therefore lowering the total share of nuclear (which was overbuilt during the time of the Messmer Plan). So curtailment of nuclear will decrease and capacity factors can only go up from the 77% they have.
Unless you give priority to variable renewables. Which you can do, but it's a stupid idea.
Given that, 80% total seems entirely realistic for France, and for the new plants they can go higher than that. Curtail the older plants that are already paid off. However, the key point is that this is a choice they can make. With variable renewables, you get average capacity factors in the 20-30% range, if you're lucky, and you do not get to choose.
Anyway, even at the completely unrealistic 50% you assume, the cost would be around 6-7 cents per kWh, which still seems fine given retail electricity prices of around 25 cents / kWh in France and above 35 cent / kWh in Germany. And of course it is nowhere near the 20+ cents anti-nuclear lobbyists claim with no evidence whatsoever.
> Thus the 40-50 year lifespan, roughly when a replacement costs less than maintenance.
Sorry, the actual experts on this + the owners of the plants disagree with your off-the-cuff speculation, and they are extending the lifetime even of their existing plants to 80 years and possibly beyond.
All nuclear power plants made since around 1980s or so have been made in factories. The US (and other nations) use them all the time for their submarines- defense concerns correctly override environmentalists (and the oil companies backing them financially).
The problem is a solved one. We're rich enough to afford to tilt at windmills instead- for now, anyway.
If they really work in this factory like shown in that video, handling radioactive material in the production process with little personal protection (especially against airborne dust), then at least I for one would not like to work for them, ever. The safety of "final" product notwithstanding (that's fine), the shaping, size sorting and sintering processes create dust and really, you don't want to get that into yourself.
I doubt it. The current system is a local optimum. Better local optimums already exist elsewhere.
In The Netherlands, direct online payments using debit cards are very common. These are secure payments, verified through a bank’s mobile banking app or internet banking with 2FA.
This means there is no risk for the seller that a payment gets reversed. There is fraud, but it centers mostly on social engineering people to authorise payments for others, or to mail their debit card to “the bank” for “recycling”.
Cost per payment: about 30 cents.
Meanwhile, in other countries, credit cards are the common online payment option. Security? A number on the front of the card and a “secret” second number on the back of the card.
Cost: 1.5-3.5% of payment.
Better security is possible, but it’s hard to move from a local optimum when you’re locked into a certain ecosystem.
The credit card no-security scheme works because everyone gets reimbursed for fraud. It comes at the cost of retailers handing a few percent of every transaction to intermediaries, instead of just a few pennies.
At some point (maybe already) we will perform 50% of GDP online. That makes the Visa network essentially a seperate private tax collecting entity. I get the "local optimum" - it's hard to break. But if anything motivates governments it's competition
Burn biomass (plants) in a power plant to generate electricity, then store the carbon dioxide in empty gas fields. This is called BECCS, Bioenergy with carbon capture and storage [0].
Unfortunately, carbon capture and storage is not economical (yet). Let's hope it will be soon, with EU CO2 prices already reaching 50 euros / ton this week [1].
If I understand this International Energy Agency report[2] correctly, many forms of carbon capture become economical if these price levels subsist in the EU (and other economic blocs impose similar prices on their industry).
Alternative, make charcoal, bury the charcoal, extract whatever useful thing you can from the not-charcol that comes from that process.
Charcoal is pretty much pure carbon and that's what we should be putting into the ground. Putting CO2 into the ground runs into problems because you have to deal with the fact that you are burying a gas (gasses don't like to be contained).
So skip that, and instead focus on burying pure carbon.
This is a good idea, But getting the biomass will be difficult. I dream about large lakes of algae that can be skimmed and then sundried, and cooked in solar ovens to create essentially a solar powered only capture process.
This sort of operation would need a stable cap and trade or carbon tax system to be profitable.
I should also add, I think China or somewhere in the hot parts of Africa would be a a good place for this as it would be a large area operation. Sadly as an Australian we suffer from regulatory capture and a carbon tax won't be back on the cards for some time.
Pretty much the description of all carbon capture. Capturing carbon is inherently difficult.
IMO, barring some breakthrough, biology will be the most efficient mechanism for capture. Millions of years of evolution have made plants and algae pretty good at carbon capture as the carbon levels slowly depleted (until recently).
An appealing benefit of biological carbon capture is the fact that all biology is solar powered. All the non-biological solutions required a pretty hefty energy input from somewhere. I mean, I guess it's nice that you could provide that from solar/wind/or nuclear. But then it's also nice to not require transmission lines for energy input.
I'm hoping someone can find, or mix and match an algae in lab that will have the right mix ofproperties to explosively grow.
Providing food stock will be tricky, either through something very efficient like straight sugar or designing the algae to consume anything which could have other upside benefits.
And like all well meaning engineering the real challenge will be making sure the algae that can grow by eating anything doesn't get out of the pond.
Algae are generally autotrophic, meaning they don't need sugar or food, they create sugars from CO2 and light, and they need nutrients like phosphorus and nitrate and other minerals to do so.
But if you provide too much nutrient, too much algae grow, and when they die and decompose they absorb all the oxygen in the water and kill the whole ecosystem. (That's called eutrophication).
Interviewer: Is it possible that the photo was taken a wee bit before the black line?
Photo operator: I doubt it... I doubt it because we really took a good look if it's all been set up correctly.
I operated the photo finish at the Amstel Gold Race for a few years, in the early 2000s, as well as at many other races in the Netherlands, Belgium and Germany. We weren't a constant presence at that event, as the association liked it better to either bring in their own people, or rather full-time professionals like the company that does La Tour de France. My boss at that time later sold his timing business to the guy who operated the photo finish this year (the one being interviewed).
While all folks involved here take great pride in their work, the alignment of the camera just never got the attention it clearly deserved. No one ever did the math and they just assumed the difference wasn't significant. Also, people just liked it better to align the camera on the white part of the finish line, since it greatly improves the contrast of the capture. I am sure the equipment has improved, but for a long time, the only thing you were concerned about was contrast, a sudden change in weather (lighting) was known to, at times, render the entire operation useless. Particularly since we were a small operation with only one (photo-finish) camera. Plenty of times I had to climb up ladders and vans to make eleventh hour adjustments to the equipment, with the contestants already in sight.
I feel super bad for the guy. To his defense, the responsibility lies with the UCI officials. To their defense, they do not check up on details like this. Until now, that is.
I remember at least one other time where the broadcast camera (they also tend to have one exactly on the finish line) seemed in disagreement with our "official" photo finish results. That time, a simple shrug did the trick: "hey, photo finish, you know".
Hi Sverhagen, thanks for such an interesting insight. I do feel bad for the guy too, tough gig to have the cycling world analysing you just trying to do your job - especially when there are so many variables he'd have to account for.
And 99.9% of the time it wouldn't make a difference, he's just very unlucky that this time it may have (or may not have, but either way it's brought a focus to the camera position).
I see you're now a software engineer. How did you end up moving from photo-finish operations to software?
The photo finish thing was part of the family business of my neighbors, where I grew up. I did it as a side gig to going to school/college, where I studied electronics, then software engineering. The software I wrote during all that, for the results processing of these cycling events, and of which I sold a few copies around the world, was the reference to get me my first programming (day) job: https://www.totaalsoftware.com/products/stagerace
Edit: looks like the Amstel Gold guy is still using a copy of my software, he has it on his website, neat!
I was in the same situation and just made sure to always pay an amount in euro that would definitely be too much in Swedish Crowns once converted. Better to pay 1% extra than to lose much more paying ridiculous conversion costs to my bank.
It helps because words describing a profession, a person or something animate are usually male/female. The same goes in Dutch, where "de" refers to male/female and "het" to neutrum.
There are several rules of thumbs which can help foreigners to correctly guess the article in both Swedish and Dutch. Of couse, they'll only be an accurate guess at best, but they can give you a headstart as a novice learner.
How come this is legal in the US? It’s extremely unfair toward other businesses that are too small to coerce the government to make a tax exemption for their individual business. To me, it seems to create inequality before the law.
I don’t think the officials handing out the tax breaks have bad intentions, but the system itself seems corrupt.
It keeps amazing me too. A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries. Allowing it just means businesses can play states out against each other and it becomes a race to the bottom. The EU solved it. The US could too.
Sometimes in the discussion about this I get counterarguments about how it’s a “win win” (company gets subsidy, area gets jobs) or how it’s a net gain for the area (without the subsidy you get nothing, and with the tax break you get the jobs so at least it’s something).
> “win win” (company gets subsidy, area gets jobs)
Anand Giridharadas recently gave an a great talk[1] (at Google!) in which he explains how "win win" is a charade used to set the framing of the conversation.
Framing a plan (like a subsidy) as something that benefits everyone has good optics, but it implicitly creates a framing that only considers that plan. (it's either this plan or "you get nothing"). Without the restricted framing, the choice isn't a binary "subsidies or nothing"; there are many ways that money could be spent. (e.g. maybe going without that business and investing in education or infrastructure would provide a greater benefit).
> A state (or any other local government) shouldn't be allowed to subsidize individual businesses, nor whole industries
Does this apply to green industries as well? How about industries that pollute? Should there just be one flat tax for every business regardless of revenue/income? How about valid business deductions? Should all capital equipment depreciate the same as well? Should payroll taxes be the same regardless of the number of workers and their incomes?
It's nice to say there should be no subsidies on businesses or industries and I agree with the sentiment, but in actuality there is a lot of complexity in the tax code and a "level playing field" would be a drastic change to what we have now.
For instance, you could think businesses should be taxed progressively on income. So now you have to define revenue and expenses, which can leave a lot of arbitrary distinctions and vast differences among businesses and industries.
> Allowing it just means businesses can play states out against each other and it becomes a race to the bottom
There's already competition among cities, states and countries and its generally a good thing. Some states offer differences in taxes (e.g. rates, income vs property, etc), regulations (e.g. zoning, employment), benefits (e.g. state sponsored insurance), infrastructure (e.g. roads & bridges). This is thought to be a great benefit as smaller political entities can experiment to lure people and businesses. Not to mention it makes. Having a top down approach doesn't really make sense. I don't think its a race to the bottom, it's competition and states and cities should have to compete to provide its residences and businesses the best deal.
The best form of charity is luggage. People escape poverty and leave places with poor governance to greener pastures.
Yeah I agree. This seems to be a corruption that's been with the US since our inception tbh. There's been this generalized idea that "government = bad, business = good" and to that end we've relied heavily in our development on companies to build the country. One can take railroads in their early days as a prominent example or frontier settlers who were literally paid to go build cities out west.
It seems part of the problem is we're in a new world where such subsidies are counter productive because too many people rely on them. In this case, it shouldn't even be legal to use taxes to subsidize any singular private businesses -- and those that require subsidy to function should be nationalized (they're not functioning on the market system).
The legality possibly derives from it not being directed to a specific company directly, but by offering a tax break to any company who satisfies the criteria that has been tailored to fit only one or a few companies.
Well, the government does need to hire contractors, to build buildings, develop public transit, etc., which don't make sense to have a permanent government business around.
But yes, anything more than the minimum required to perform public functions is inequitable.
Not sure what you mean. I'm all for a large government providing all kinds of services. What was discussed was subsidies (usually tax breaks) directed to individual businesses or industries. That's a terrible practice and we were saying how we were amazed how it is still allowed (unlike in e.g. the EU).
Governments obviously will always need to enter contracts with businesses to provide the services it wants to provide.
It's not fully outlawed in the EU, to simplify things, essentially it's just not Prüfkriterien to favour individual companies. But respecting certain conditions you can still have some local incentives. One idea there is to protect from companies playing regions against each other, although that still happens to some degree, the other is to assure fair competition between companies (eg as others here mention that not only big companies can benefit)
This is just legalized corruption, but of course people in developed countries don't like to use that dirty word, so they call it "tax breaks" or "campaign contributions".
After spending 2.5 years through 30 countries in Africa, I can tell you there is no difference. It's corruption.
It's not donations. It's regional development funds and social funds which are also distributed at regional level. They are meant to build up the capacity in certain fields in certain regions. The money tends to be a lot for some region and the administrations fail to manage and use them properly. The issue is not that they are given, the issue is how they are used. But they do not support individual companies, they are for the regions. Yes too many people are dependent on these nowadays be they are essential to infrastructure development and social support systems in many places.
If a company receives free money then a company receives free money, there is nothing else. There is no way to sponsor a company without... sponsoring a company. I don't care that "it's for the regions", it literally destroys lives of other people; one former businessman that was pushed out of business by EU funded-companies confessed that he seriously considered suicide after his wife left him because she couldn't withstand life with a man who's indebted forever, for example, and the whole previously functioning sector is now deformed and basically destroyed and might not rebuild within our lifetimes. Companies 10 times older than the EU were destroyed. I'm talking about printing companies, read something about it. If something has the potential to destroy lives, there can't be excuses like "oops, sorry, it wasn't properly managed".
It's legal because the people making the laws are the people making the laws.
It's a "who watches the watchers" sort of situation.
Besides electing people that just don't do this, how might you imagine this being "illegal"? Some constitutional item that can't be overridden by the legislature?
But why do you let the students grade the course after they've already gotten a grade? That's insane. In my university, you'd get a paper for the teacher and course review after handing in the final exam. This means you can comment on the quality of the exam, but you don't know your grade yet.
Theoretically, if you grade students several times throughout the course, you can correct those who are on course for a poor grade (due to misunderstanding the content, or misunderstanding how much studying they need to do) while there's still time for feedback to improve their grade.
(At my school many teachers were slow to mark and return assignments, so this benefit wasn't really achieved - but it might have been had feedback been more timely)
Great, so you made $50k because your $200k house is now worth $250k - a 25% increase.
You now have a family and bigger income and are looking at a bigger house priced $500k. You are really glad that you “made” $50k on your old house.
But wait, if the new house is in the same neighbourhood, it’s price increase was probably also close to 25%. If prices had stayed the same, it would be worth $400k today.
So you just gained $50k on your old house but are paying $100k more on the new one.
This is only beneficial if you move from a large house in a popular area to a smaller house in a less popular area.
If you have kids, they might inherit the wealth gained from your housing “investment” - after splitting with their siblings and after taxes of course. Sounds good, until you realise that they will have to spend it all - and put in extra - on housing because of the price increases.
In a world where housing prices stay the same, or become slightly cheaper year by year, everyone is better of. The prices of common utilities such as food and clothing have gone down spectacularly in the last decades while quality has gone up. No one would rather live in a world where these had instead become more expensive.
It’s time we start thinking about housing in the same way.
The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest.
1. The alternative to buying a home is renting. If the net cost of home ownership is lower than renting, you do not need to make a net profit on the sale of your home for it to be a good decision. The right way to make this decision is to look at all net cash flows, discounted to their present value, such as is done by the New York times rent vs. buy calculator.
2. The article ignores the fact that mortgages, which most people use, amplify the gains of inflation.
3. The inflation hedging properties of a home make for a good way to protect your future self and retired self from cost of living changes in a way that alternative investments cannot.
Many people outside of VHCOL San Francisco have found housing that is both affordable and a good investment.
Here's the core argument of the article, rephrased slightly: housing cannot both outpace inflation and remain affordable indefinitely.
This is not incompatible with some people being able to find affordable housing that is a good investment. All it means is that in the long term - especially when real wages remain relatively constant [1] - these two policy aims are mathematically at odds.
I agree with your rephrasing that housing cannot both outpace inflation and remain affordable indefinitely, but I disagree that it is identical in content to the article's core argument.
> The article is dead wrong about the economics of whether buying a house is a good investment. So much so as to be intellectually dishonest.
What part of the article is that? Because that certainly wasn't my take away. The article is about whether housing can be affordable and a good financial investment, giving large returns, at the same time. Housing as an "investment" in your life, family or security isn't what is meant.
Just an example: the average price per square meter in Berlin has increased up to 4x between 2007-2018[1], and it was possible to buy a 42 m² apartment for 25k EUR in 2006[2].
> If the net cost of home ownership is lower than renting
How do you know the net cost on a 30 year loan? If you can confidently predict decades of interest rates there's far more profitable investment classes for your money.
Most homes are bought with fixed interest rates. If you are buying with a variable rate, 99% chance your credit is shit, and you shouldn't be buying a home, because the bank will own it soon.
Ah yes, you're right, I forgot about that occurring in the States. Everywhere else offers far shorter fixed terms. Struggle to understand how the banks manage it, seems like some risk is offloaded onto either taxpayers or other bank customers.
So let me rephrase then: How do you know the cost of 30 years rent to compare it with?
In a big city, rents almost never go down. Here's my calculations to buy: I will pay somewhere $1700-$2200/month to rent 2+ bedrooms (wife + 2 kids) in LA near where I want to work (5 years ago). $2200 can cover the mortgage on a $600k house, assuming ~3.5% interest (rates were good 5 years ago) and ~20% down payment (pretty common down payment). In the right market conditions in the part of LA I like, $600k of house might be 2-4 bedrooms, 2-4 bath, and 1000-1600 square feet. Now it's just a parameter fitting / optimization problem.
But how does that even pay off? Consider down payment as an investment, and rent / mortgage something you'd have to pay to live wherever as a cost of life or an investment in yourself.
Even if all you got was your original purchase price back in 30 years, that can make the purchase worth it. Doing the math above, saying I paid $2200/month for 30 years on a $600k house, that gets me $792k paid for a $600k house, with $120k required up front. But I get $600k back at the end (even assuming zero market appreciation). So if you had instead invested the $120k somewhere else, rented some place for $2200/month (never to see that money again, like it was burned up), in order to get $600k back in 30 years, you would need to beat 5.5% annual return on that invested $120k.
But if that house increased in price (even by average appreciation)? Then the reality is that your investment of $120k needs to beat 9.2% of annual return in the open market to beat the investment in a house, even if all you did was live there instead of some place else (assuming your house can fit your needs).
Of course things like property tax, HOA dues, etc., can muddy up those calculations, but all of it is easy to drop into a spreadsheet. The hard part is actually earning the money (or at least that's been the hard part for me).
(please note that I paid substantially less than $600k for my home in LA, the numbers above are for reference, and not necessarily valid for current market conditions - especially interest rates and home cost)
Maybe that's true in the US (I don't know), but it's certainly not true elsewhere in the world; such as Australia for example where most home loans are have a variable rate.
No, never massive swings in the short term (GFC caused a 4% drop (7% to 3%) in 2009 for example). I think that even when the cash rate is moving quickly rates don't change more than a percent or two per year.
Re budgeting, I think the relatively slow rate of change makes it mostly a non-issue though I think people at the upper end of their borrowing power struggle with rate rises.
The ARMs (Adjustable-Rate Mortgages) here in the US can jump pretty severely, mostly because they are only given to folks with bad credit. Folks with bad credit push to buy something out of their budget, get behind, rates spike, then lose it all to the bank, continuing the bad credit cycle.
Housing is not independent of other goods, house prices go up because we use inflation to manage the economy. They make people money because they are the one example of large yet safe leverage which most investors have access to, so they are a good hedge against inflation. This is why buying is worthwhile long term. Over a lifetime the gains can be considerable because of the falling value if the debt and the rising value of the asset. Of course a volatile market makes this very risky and is highly undesirable.
Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.
All that said I agree relatively stable housing costs are desirable, and in fact quite achievable as the government controls pricing via planning laws. They are in fact 'making' buildable land all the time, and the supply is tightly constrained and tightly regulated in cities. This is a solvable problem.
> Deflation is generally agreed to be a bad thing by economists. I disagree falling housing costs would be good as then no-one would want to buy and quality would fall.
Is it a bad thing when the prices of mobile phones and large screen TVs fall? Does those falling prices mean no one wants to buy them? Do they imply falling quality?
Taiwan was nearing net deflation for 2 decades while the GDP grew at double digit rates. That saying that is more of a self fulfilling prophecy, than something with fundamental underlying mechanism.
Deflation is the critical component of human progress. Economic cycles and interest rates can make it difficult to see the long term, underlying trends. This becomes very destructive when governments pursue policies which pretend otherwise.
I'm generalizing a great deal without providing examples, because it is such a large topic and economics is filled with misleading theories. In the simplest example, when prices are flat or declining, if you want to do well financially you have to be more productive, produce more and/or better products. When prices just go straight up, borrowing money and buying assets is "profitable."
This stuff is really obvious for those of us who have been in technology a few decades but I can understand why people in other areas are led to believe ideas which aren't very logical.
Yes it is. Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall. This may actually be a driver of inflation, as it is the biggest way consumer borrowing changes things.
> Or rather, prices rise with inflation but there is another much larger influence on housing prices - interest rates. When rates fall, prices rise and when rates rise prices fall.
Interest rates have the exact effect you describe on all prices, because they effect consumer credit at all levels (and houses aren't the only thing typically bought on credit), business access to capital (and thereby employment), etc., which drives the demand curve in every sector of the economy.
So, no, that's not a unique effect on housing prices. It's the reason monetary policy is a lever for effecting the economy broadly.
Consumers don't borrow money for most spending. Houses and cars are primarily it. Credit cards are generally at higher interest rates that the Fed doesn't really have control over and that's not a consideration in most buying decisions. I would hypothesize that one of the primary ways Fed interest rate changes influence the economy is through home lending and the resulting consumer spending of that borrowed money.
Withdrawing tax benefits and government backing for long term mortgages would both probably reduce the increases in housing prices.
As would higher price inflation. Because people decide on a monthly payment and more price inflation means higher interest rates. Those interest rates would reduce the size of mortgages that people would enter into.
Could you please describe exactly how could housing get continuously cheaper when there are more people every year and the demand for good locations is increasing?
(Edit: I asked a sincere question. Don't downvote without explanation, please. It's really tiring, anti-discussion and makes it seem like you don't have any good point at all.)
Yes, there are more people every year, but in the US, there aren't a lot more people every year. Population growth is at 0.7% and falling.
On the other hand, I see no reason to think that "demand for good locations is increasing". What counts as a "good location" is in flux, but people always want to live in "good locations". I see no reason that it's more important to live in a "good location" today than 5 years ago, or 50, or 3000.
So what I see is a fairly static number of people who'd like to live all over the place, but a decent chunk wanting to live in large, dense, desirable cities. Which are, not surprisingly, quite expensive.
> how could housing get continuously cheaper
Housing, as opposed to land, is a manufactured good, and we're getting better at manufacturing things every year.
As for land, we can use it more efficiently (higher density, fewer parking lots, more transit, etc.) It's well documented that many cities (Los Angeles is an infamous example) drive up the cost of housing and bias new developments towards luxury units due to building codes that, eg, require very inefficient land use and a large number of parking places.
Alternatively, we can work towards changing what is desirable. In 1920 something like 5% of the entire US population lived in New York City; now things are much more spread out. Today a hefty slice of software engineers live (or want to live) in San Francisco, but that's not an immutable law of nature.
I mean, taken to an extreme, if you build an absurd number of houses in San Francisco without sufficient infrastructure, the combination of massively increased supply (all the new units) and decreased demand (because it's no longer a great place to live) would absolutely lead to house prices dropping. That doesn't sound like a good policy (and is certainly not what the parent comment was suggesting!) but there's no particular reason why house prices can't continuously fall.
In regards to whether or not a good location is more desirable today than 5, 50, or 3000 years ago it definitely is. Reminds me of a story I found about Greyhound going down in my neck of the woods.
"More and more people are leaving rural Canada, and the people who remain are often the ones who are unable to leave.” Since 1950, the rural share of the country’s population has fallen by half."
So while population growth isn't fantastically large, people are flocking to urban areas (for many pretty obvious reasons).
> On the other hand, I see no reason to think that "demand for good locations is increasing".
I think demand pretty clearly is increasing and my hunch is that it's a technological effect. † The internet didn't make place irrelevant, as many thought it would; in fact, it had the opposite effect in that it made it a lot easier to move to the most desirable cities. You can scope out neighborhoods on Street View; shop for new apartments on Street Easy or Craigslist; endlessly research the target city, apply for your new job, and complete the first round of interviews -- all on the internet, from the comfort of wherever you live now.
(And, not for nothing, it's also a lot cheaper to fly back and forth today, once you get to that point in your transition.)
† In some abstract, Platonic sense, San Francisco is probably no more desirable than it might have been in 1971, but, as I try to argue above, a Clevelander then would have had a much, much harder time manifesting that desire than today. And as more and more people realize this desire, the attraction grows as if by accretion.
but its not just house prices themselves if you look at a map of value of farmland in the US you will find that more accurately reflects the current house price upward rise.
Example...in NW Indiana farm land is about $35k per acre which reflects the amount of revenue earned per acre. In California its 3 times that.
Its we are running out of farm land acre to feed the world that is driving up the house price in the US
At significantly higher cost. If you’ll excuse a very broad brushstroke, this is why California — with lots of land — builds so many single-story buildings compared to the UK where there is so little land available for construction. (That the difference is in part due to policy doesn’t change that there is less availability).
I’m looking forward to more automation in construction so that vertical is not significantly more expensive.
Significantly higher building costs, but lower land acquisition costs.
Excerpt from a BuildZoom analysis:
"The high cost of housing in expensive coastal metros is not driven by construction costs. It is driven by the high cost of land which, in turn, reflects a scarcity of zoned units, not a scarcity of land per se."
You can bribe those people. If any new building on your block gives you a tax abatement for 5 years (which is then absorbed into that building's construction costs), then you bring a serious economic incentive to YIMBY. You can tune up the amount of tax benefit until YINBY outvotes NIMBY, and then you're good.
That sounds like a way to make construction more expensive. Transfer money from new buyers to existing owners. This is against the entire premise of the article.
All things being equal, it would, indeed. However, the main driver of the high real estate prices is the artificial scarcity of locations. If you can remove that, you'll see prices collapse all over the country. To remove this scarcity, you need to fight NIMBY.
We currently have a feedback loop where rising prices attracts investors who sink money into real estate, which reduces supply and raises prices, which attracts investors, etc. There are a number of factors that incentivize reduced supply such as reduced incentive to build lots of new buildings because that would increase supply too much and reduce prices and an increased incentive to build a small number of luxury apartments instead, which further raises property values.
If ownership wasn't seen as an investment vehicle, this feedback loop would be broken. People would only buy because they need it, or in the case of landlords, the rents they could secure from rentees would be much lower because of the lower market value of the object and the overall lower rent prices across the entire market.
Of course, sufficient supply has one big condition: Zoning laws are relaxed, allowing enough supply to be built in the first place.
I'd argue the SF Bay Area is not being driven by investors (many investors think it is bad to invest given the very low rent yields), but by supply constraints themselves.
The supply constraints are not so much financial, but being driven by residents who don't want their neighborhood to change. And since they don't suffer (no property tax increases come with the home value increase), there's not much push back other than the moral argument that their children can't afford homes anymore.
I guess, meet and exceed housing demand and improve less affluent areas. This involves government money but most seem happy to let the public take the bill in the form of continuously inflating house prices instead.
You build more houses, supply/demand, etc. There are many, many good locations in the US where affordable housing been be built. You can also replace low density housing with medium/high density housing.
Population growth is very low, the technology to make homes should get cheaper, and old homes degrade and become less desirable as the rich continue to build new homes.
