4 ms·

This is the most banal possible observation: increased supply drives prices down. It is literally econ 101, probably literally first week of econ 101. There

This is the most banal possible observation: increased supply drives prices down. It is literally econ 101, probably literally first week of econ 101. There may be wrinkles or complexities. Obviously, in an infill situation, if you tear down existing housing and then build new housing, it's less clear that overall affordability will increase. There may be a backlog of demand that means that as new stock comes onto the market, the affordability increases less than you would imagine. But is it basically true? Sure. Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc.

crdoconnor 10y ago
It's easier to fix the demand side (make billionaires not want 3 enormous apartments in every city) rather than the supply side: simply tax them. If land value (as opposed to property value) were taxed at a higher level (preferably at 100%), the following behaviors would stop making sense and the market would take care of them: * Buying and holding a property as a gold-like investment. Like electronics, most buildings would likely depreciate in value and if they are poor quality, holding on to them and renting them out would make losses, not profits. * Building apartments for people to treat like gold bars and leave empty. Instead, investors would build apartments for people like me and you who would live on them and there would be more real estate for them to do this with. * If the above doesn't end up fixing the problem all by itself, the tax revenue provides ample money to build affordable housing and owners falling into arrears on their land taxes would provide the space to build it. California's Prop 13 is essentially the main villain of this story since it did the exact opposite of the above.
- yummyfajitas 10y ago
  There are too few billionaires for this to have any significant effect. http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-rents/ http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-... NYC has 5,600 ultra high net worth individuals. If each of these people has 10 flats in NYC (rather than the 3 you hypothesized), that's only 56,000 flats taken off the market. NYC has 3.4 million housing units. http://www.nycrgb.org/downloads/research/pdf_reports/16HSR.pdf http://www.nycrgb.org/downloads/research/pdf_reports/16HSR.p... The rich are just a tiny drop in a very large bucket. The more inequality we have, the fewer rich people there are and the smaller this problem becomes.
  - crdoconnor 10y ago
    A) It's not just billionaires treating inner city property like bars of gold. B) Billionaire properties regularly take up 10x as much room as regular apartments. Let's be generous and say that they each have only two 10x sized properties, that means 112,000 new properties on the market which actually would make a serious dent in prices and rents. C) I can't quite figure out from your link if they counted people who do not list NYC as their primary residence but still have a property there (say, via a Cayman Islands investment vehicle). I suspect not.
    - yummyfajitas 10y ago
      The ultra high net worth individuals I was referring to were $30M and up, not $1B and up. According to Le Wik, there are only 536 billionaires in the US. So if all of them have 10 10x sized properties, that's equivalent to taking 53,600 flats off the entire US housing market. You can roughly triple that number if you assume every billionaire in Europe and Asia buys 10 10x sized flats in the US. https://en.wikipedia.org/wiki/List_of_countries_by_the_number_of_US_dollar_billionaires https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... Why don't you crunch your own numbers and see if you can make them come out different?
      - AstralStorm 10y ago
        The most real part of the problem is actually people investing into rental properties. It only takes a moderately sized rental company to take out many units off the sale market, especially over time due to reinvestment. Also holdings.
      - crdoconnor 10y ago
        >The ultra high net worth individuals I was referring to were $30M and up, not $1B and up. They were also just the people who declared their residency as being in NY. Not overseas investors who want a foothold. I don't know about NYC but in London, high end developments are usually ~80% bought by these types of investors. They take up a ridiculous amount of prime real estate with their almost-always-empty pied-de-terre's. This is not even starting to count prices being driven up by high net worth investors buying rental properties in those same cities.
mikeyouse 10y ago
I'm a huge proponent of new building and I fully support the Bay Area groups in favor of more housing (BARF, SFYimby, etc.) but the wrinkles and complexities of building new housing shouldn't just be hand-waved away. In a region as attractive as the SF Bay Area (or Boston / NYC / LA), there is a significant competent of induced demand that affects housing prices. If they built a 50,000 unit skyscraper in Mountain View and priced the apartments at $1,000/month, how many people would move from other parts of the country to be in Mountain View? How many people have relocated out of the Bay Area due to housing costs that would move back if things became more affordable? We should absolutely build more housing, especially around transit, but overselling the price impact isn't going to win many friends.
- kilroy123 10y ago
  Actually building a massive building doesn't sound like a bad idea. They want to try it Tokyo. http://edition.cnn.com/2016/02/10/architecture/tokyo-mile-high-skyscraper http://edition.cnn.com/2016/02/10/architecture/tokyo-mile-hi...
- Kalium 10y ago
  You're absolutely right! Induced demand is a real concern that merits careful consideration and study. Fortunately for us, the relevant professionals are keenly aware of this real and important concern! It's been studied quite explicitly in San Francisco. One of the results was that in a fairly representative new residential tower, in excess of 80% of households moving in were doing so from San Francisco. Induced demand is a real and important phenomenon we should all consider carefully in our urban planning. Yet, we should also consider that demand for housing in attractive regions like San Francisco is perhaps somewhere short of infinite.
- aetherson 10y ago
  I am a big believer that, in fact, it would be very hard to build enough housing in SF to really substantially change the affordability of the city in the relatively short term. So I think that we're much in agreement, but just to quibble over a few things: Sure, if there comes a bunch of new stock into the market in SF, a lot of what happens may be that people who are currently content to live in Daly City may instead get housing in SF proper, and it will be Daly City that has substantial stock available at rates sub, say $2000/month or $1500/month. So what? I mean, if Joe lives in San Jose now because that's the closest he can get to his job in SF and now he gets to move to Daly City, but isn't quite in SF itself, isn't this a net benefit? If SF doesn't really become affordable to people in the lowest two quintiles of income, but does become affordable to people in the middle quintile of income rather than staying in the upper two (or upper one, or upper fraction of one), maybe that's not ideal, but it's an improvement in the status quo, isn't it?
mrec 10y ago
> Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc I wonder how unit size affects this. E.g. if you knock down a block housing 20 poor people to build a mansion for one rich person to occupy.
- aetherson 10y ago
  Of course that does not increase affordability. We're speaking here of net increases to supply. Indeed, if you knock down 20 units of housing to build 25 units of much more expensive housing, you probably don't increase affordability, at least in the short run. But those are fairly divorced from the reality of housing development.
jonbarker 10y ago
Increases in supply do not always cause the same effect. An example is multi-lane highway expansion projects. This often leads to more traffic problems, not less.
- thwarted 10y ago
  This isn't that great of a comparison because a highway lanes are not the good that is in demand, the travel destinations are. More lanes doesn't translate into more demand for the destinations, but it does potentially reveal the actual demand for the destinations, which may have been artificially limited (or difficult to measure) when there were fewer lanes because of a lack of usable routes/bandwidth.
  - jonbarker 10y ago
    More lanes creates the perception that it is easier to drive than take other modes of transportation, so more people set up their lives around car ownership, taking cars everywhere, etc.
    - thwarted 10y ago
      Creates that perception right up until the point where they're sitting in traffic. Are you talking about building a new multilane highway where one didn't exist, or expanding the number of lanes on a highway that already exists? I thought you were referring to the latter, since that's the case that is closest to a increased housing in an established city==building lanes analogy, in as much as it is close at all as I previously described.
  - jonbarker 10y ago
    I agree with you that there may be some revelation of pent up demand for destinations, but also believe that that effect is overshadowed by the overall effect of creating a "car town" vs a "public transit town". There is an overall culture shift when one demonstrates that the highway is "open for business". The lagging effect is ridiculous traffic jams.

crdoconnor 10y ago

It's easier to fix the demand side (make billionaires not want 3 enormous apartments in every city) rather than the supply side: simply tax them. If land value (as opposed to property value) were taxed at a higher level (preferably at 100%), the following behaviors would stop making sense and the market would take care of them: * Buying and holding a property as a gold-like investment. Like electronics, most buildings would likely depreciate in value and if they are poor quality, holding on to them and renting them out would make losses, not profits. * Building apartments for people to treat like gold bars and leave empty. Instead, investors would build apartments for people like me and you who would live on them and there would be more real estate for them to do this with. * If the above doesn't end up fixing the problem all by itself, the tax revenue provides ample money to build affordable housing and owners falling into arrears on their land taxes would provide the space to build it. California's Prop 13 is essentially the main villain of this story since it did the exact opposite of the above.

yummyfajitas 10y ago
There are too few billionaires for this to have any significant effect. http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-rents/ http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-... NYC has 5,600 ultra high net worth individuals. If each of these people has 10 flats in NYC (rather than the 3 you hypothesized), that's only 56,000 flats taken off the market. NYC has 3.4 million housing units. http://www.nycrgb.org/downloads/research/pdf_reports/16HSR.pdf http://www.nycrgb.org/downloads/research/pdf_reports/16HSR.p... The rich are just a tiny drop in a very large bucket. The more inequality we have, the fewer rich people there are and the smaller this problem becomes.
- crdoconnor 10y ago
  A) It's not just billionaires treating inner city property like bars of gold. B) Billionaire properties regularly take up 10x as much room as regular apartments. Let's be generous and say that they each have only two 10x sized properties, that means 112,000 new properties on the market which actually would make a serious dent in prices and rents. C) I can't quite figure out from your link if they counted people who do not list NYC as their primary residence but still have a property there (say, via a Cayman Islands investment vehicle). I suspect not.
  - yummyfajitas 10y ago
    The ultra high net worth individuals I was referring to were $30M and up, not $1B and up. According to Le Wik, there are only 536 billionaires in the US. So if all of them have 10 10x sized properties, that's equivalent to taking 53,600 flats off the entire US housing market. You can roughly triple that number if you assume every billionaire in Europe and Asia buys 10 10x sized flats in the US. https://en.wikipedia.org/wiki/List_of_countries_by_the_number_of_US_dollar_billionaires https://en.wikipedia.org/wiki/List_of_countries_by_the_numbe... Why don't you crunch your own numbers and see if you can make them come out different?
    - AstralStorm 10y ago
      The most real part of the problem is actually people investing into rental properties. It only takes a moderately sized rental company to take out many units off the sale market, especially over time due to reinvestment. Also holdings.
    - crdoconnor 10y ago
      >The ultra high net worth individuals I was referring to were $30M and up, not $1B and up. They were also just the people who declared their residency as being in NY. Not overseas investors who want a foothold. I don't know about NYC but in London, high end developments are usually ~80% bought by these types of investors. They take up a ridiculous amount of prime real estate with their almost-always-empty pied-de-terre's. This is not even starting to count prices being driven up by high net worth investors buying rental properties in those same cities.

mikeyouse 10y ago

I'm a huge proponent of new building and I fully support the Bay Area groups in favor of more housing (BARF, SFYimby, etc.) but the wrinkles and complexities of building new housing shouldn't just be hand-waved away. In a region as attractive as the SF Bay Area (or Boston / NYC / LA), there is a significant competent of induced demand that affects housing prices. If they built a 50,000 unit skyscraper in Mountain View and priced the apartments at $1,000/month, how many people would move from other parts of the country to be in Mountain View? How many people have relocated out of the Bay Area due to housing costs that would move back if things became more affordable? We should absolutely build more housing, especially around transit, but overselling the price impact isn't going to win many friends.

kilroy123 10y ago
Actually building a massive building doesn't sound like a bad idea. They want to try it Tokyo. http://edition.cnn.com/2016/02/10/architecture/tokyo-mile-high-skyscraper http://edition.cnn.com/2016/02/10/architecture/tokyo-mile-hi...
Kalium 10y ago
You're absolutely right! Induced demand is a real concern that merits careful consideration and study. Fortunately for us, the relevant professionals are keenly aware of this real and important concern! It's been studied quite explicitly in San Francisco. One of the results was that in a fairly representative new residential tower, in excess of 80% of households moving in were doing so from San Francisco. Induced demand is a real and important phenomenon we should all consider carefully in our urban planning. Yet, we should also consider that demand for housing in attractive regions like San Francisco is perhaps somewhere short of infinite.
aetherson 10y ago
I am a big believer that, in fact, it would be very hard to build enough housing in SF to really substantially change the affordability of the city in the relatively short term. So I think that we're much in agreement, but just to quibble over a few things: Sure, if there comes a bunch of new stock into the market in SF, a lot of what happens may be that people who are currently content to live in Daly City may instead get housing in SF proper, and it will be Daly City that has substantial stock available at rates sub, say $2000/month or $1500/month. So what? I mean, if Joe lives in San Jose now because that's the closest he can get to his job in SF and now he gets to move to Daly City, but isn't quite in SF itself, isn't this a net benefit? If SF doesn't really become affordable to people in the lowest two quintiles of income, but does become affordable to people in the middle quintile of income rather than staying in the upper two (or upper one, or upper fraction of one), maybe that's not ideal, but it's an improvement in the status quo, isn't it?

mrec 10y ago

> Even if you build new units only for millionaires, that takes the millionaires out of competition for other high end markets, which then makes people who were previously marginal for those units get them, and takes them out of competition for the next tier down, etc I wonder how unit size affects this. E.g. if you knock down a block housing 20 poor people to build a mansion for one rich person to occupy.

aetherson 10y ago
Of course that does not increase affordability. We're speaking here of net increases to supply. Indeed, if you knock down 20 units of housing to build 25 units of much more expensive housing, you probably don't increase affordability, at least in the short run. But those are fairly divorced from the reality of housing development.

jonbarker 10y ago

Increases in supply do not always cause the same effect. An example is multi-lane highway expansion projects. This often leads to more traffic problems, not less.

thwarted 10y ago
This isn't that great of a comparison because a highway lanes are not the good that is in demand, the travel destinations are. More lanes doesn't translate into more demand for the destinations, but it does potentially reveal the actual demand for the destinations, which may have been artificially limited (or difficult to measure) when there were fewer lanes because of a lack of usable routes/bandwidth.
- jonbarker 10y ago
  More lanes creates the perception that it is easier to drive than take other modes of transportation, so more people set up their lives around car ownership, taking cars everywhere, etc.
  - thwarted 10y ago
    Creates that perception right up until the point where they're sitting in traffic. Are you talking about building a new multilane highway where one didn't exist, or expanding the number of lanes on a highway that already exists? I thought you were referring to the latter, since that's the case that is closest to a increased housing in an established city==building lanes analogy, in as much as it is close at all as I previously described.
- jonbarker 10y ago
  I agree with you that there may be some revelation of pent up demand for destinations, but also believe that that effect is overshadowed by the overall effect of creating a "car town" vs a "public transit town". There is an overall culture shift when one demonstrates that the highway is "open for business". The lagging effect is ridiculous traffic jams.