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Have you been to China lately? Many Chinese cities are what happens when you allow supply to meet demand. Prices don't necessarily come down with increased supp

Have you been to China lately? Many Chinese cities are what happens when you allow supply to meet demand. Prices don't necessarily come down with increased supply because it also increases speculation (and contrary to economists believes we are not rational actors). Demand also follows supply, if you increase supply there is often an increase in demand because now people can move to $desirable_location.

seizethecheese 11y ago
> Many Chinese cities are what happens when you allow supply to meet demand. Um, no. Chinese cities are a direct result of government policies to boost GDP through construction and are the supply of housing has little to do with market forces.
- rahimnathwani 11y ago
  You are both right.
- ThrustVectoring 11y ago
  IMO it's more because of Chinese capital controls: buying an apartment that sits empty for fifteen years is literally the best option they have for turning money today into something valuable when they're old and cannot work.
rahimnathwani 11y ago
But that speculation only affects the value of a property. It doesn't affect rent levels, which are determined by short term supply/demand. The increased supply may not make it easier to buy, but it sure makes it cheaper to rent a place.
- Tsagadai 11y ago
  Speculation affects rent because many buyers have debt. If an owner can raise rents that cover the interest and costs, they will; that is their baseline for how low they will go. Large amounts of speculation will increase rents even with increases supply because owners need to service their debts (up until the point where renters won't pay and owners default).
  - rahimnathwani 11y ago
    That's not been my experience as landlord or as a tenant. Rents are negotiated within a narrow band (+/- 10%) based on the market rent for a comparable property at the time. The landlord's decision (forced or not) about whether to dispose of the property is independent of the rent-setting process. Residential rents in Beijing don't cover landlords' mortgage interest unless the debt-to-value ratio is low.

seizethecheese 11y ago

> Many Chinese cities are what happens when you allow supply to meet demand. Um, no. Chinese cities are a direct result of government policies to boost GDP through construction and are the supply of housing has little to do with market forces.

rahimnathwani 11y ago
You are both right.
ThrustVectoring 11y ago
IMO it's more because of Chinese capital controls: buying an apartment that sits empty for fifteen years is literally the best option they have for turning money today into something valuable when they're old and cannot work.

rahimnathwani 11y ago

But that speculation only affects the value of a property. It doesn't affect rent levels, which are determined by short term supply/demand. The increased supply may not make it easier to buy, but it sure makes it cheaper to rent a place.

Tsagadai 11y ago
Speculation affects rent because many buyers have debt. If an owner can raise rents that cover the interest and costs, they will; that is their baseline for how low they will go. Large amounts of speculation will increase rents even with increases supply because owners need to service their debts (up until the point where renters won't pay and owners default).
- rahimnathwani 11y ago
  That's not been my experience as landlord or as a tenant. Rents are negotiated within a narrow band (+/- 10%) based on the market rent for a comparable property at the time. The landlord's decision (forced or not) about whether to dispose of the property is independent of the rent-setting process. Residential rents in Beijing don't cover landlords' mortgage interest unless the debt-to-value ratio is low.