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Correct. People with only the basic gist of "Economics 101" fail to understand that supply and demand economics do not apply to the housing market the way they

Correct. People with only the basic gist of "Economics 101" fail to understand that supply and demand economics do not apply to the housing market the way they do for consumer goods. In a nutshell, hyper-inflation of rents in a metro area actually decreases the rate at which new units are built. Landlords have incentive to keep supply down; and when they do build "nice new" units for rent, those rent prices increase the average rents on the market. In a sense, landlords are able to bully renters into being "customers" for longer period of time. Harms middle-class housing in two ways: (1) larger portion of renters' income dumped into rent decreases ability to save for down-payment to buy (2) fewer people buying decreases rate at which new units are built, and thus never allows the "housing supply" to react to actual market realities. And what causes hyperinflation in rents? People being unable to "save enough money for a down payment" to buy. Great documentary called "The Flaw" that explains more. [edit] formatting

mrec 11y ago
Completely with you on the general gist, but a few points: 1. It's not just LLs who have an incentive to keep supply down; it's homeowners too. And banks, and estate agents (realtors), and builders, and media that relies on property advertising, and policians wanting votes and/or donations from any of the above. Anyone with a vested interest in higher prices has an incentive to constrain supply. 2. I don't think reduced buying decreases new build directly; a lot (most) of new-build here in London is being bought to rent (or even bought to leave empty while waiting for capital gains). Supply constraints are coming from all the people in point 1. 3. Various countries have failed in various specifics, but I think the overall driver for this worldwide is pretty clear: the Great Recession and resulting drive to "zero interest rates forever". The ultimate encouragement to take on ballooning mortgage debt, sending prices into the stratosphere and drawing in speculators, while at the same time punishing most non-parasitic forms of saving via financial repression.

mrec 11y ago

Completely with you on the general gist, but a few points: 1. It's not just LLs who have an incentive to keep supply down; it's homeowners too. And banks, and estate agents (realtors), and builders, and media that relies on property advertising, and policians wanting votes and/or donations from any of the above. Anyone with a vested interest in higher prices has an incentive to constrain supply. 2. I don't think reduced buying decreases new build directly; a lot (most) of new-build here in London is being bought to rent (or even bought to leave empty while waiting for capital gains). Supply constraints are coming from all the people in point 1. 3. Various countries have failed in various specifics, but I think the overall driver for this worldwide is pretty clear: the Great Recession and resulting drive to "zero interest rates forever". The ultimate encouragement to take on ballooning mortgage debt, sending prices into the stratosphere and drawing in speculators, while at the same time punishing most non-parasitic forms of saving via financial repression.