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Holy shit, supply and demand is still a thing! Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was wha

Holy shit, supply and demand is still a thing! Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was what was causing the high rents. headdesk

timr 9y ago
"Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was what was causing the high rents." Well, no. People are complaining about the change in their neighborhoods, of which high rents and new construction are both observable qualities. But not to worry...if rents are truly declining, the new construction will rather quickly stop. Real estate investors are smart enough not to build into falling markets for long. They will leave holes in the ground before they complete a project that won't pencil out on financing -- just as they did in Seattle and San Francisco during the last bust. (Edit: you guys...really. The article itself says that construction has already slowed down: "Developers and banks that lend money for new construction have taken notice of the market cooling. While tons of new buildings are already approved or under construction now, the pipeline for future projects that exist only on paper is shrinking." If rents decline from new construction, it happens over years of economic shifts, not because developers rush headlong over the cliff like a bunch of lemmings.)
- hn_throwaway_99 9y ago
  Sigh, not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying. I don't think anyone who understands supply and demand thinks that new construction won't slow - it's pretty self evident that if demand slows that people will stop adding supply. If anything, I think folks are objecting to the tone of your post that makes it sound like declining rents will leave a wake of "holes in the ground" instead of a normal and healthy adjustment.
  - timr 9y ago
    "not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying." I didn't post "evidence" (scare quotes yours). The quote is right there, in the article. It's something that's actually happening, and I quoted it because of the irony. Likewise, I lived in SF during the last crash. I saw the holes in the ground, with my own eyes -- developers pulled construction equipment out of foundations, and left them there, at mid-Market, in downtown San Francisco. I lived near two of them. Nothing I'm saying here is even remotely theoretical. The real issue is that there's a certain popular narrative here, and any facts that disagree with that narrative are immediately ejected from the conversation. It isn't "haughty disdain" to observe that people are rejecting facts that don't fit their biases.
    - lsc 9y ago
      You're not wrong, people are just objecting to your bombast. Also note, 2008 was unusually dramatic; one of the big projects in downtown sunnyvale went bankrupt and changed hands several times before completion. Yes, declining home prices do sometimes leave long term holes in the ground, but mostly only when prices decline a lot more quickly than expected, as they did in 2008. I was here in 2001, too, though (or a little up the peninsula) and there was a bigger drop in rent (though not sale prices) then than in 2008. In 2001, sure, you saw 'for rent' signs, but as far as I remember, the 'holes in the ground' as you put it, of buildings who's builders had gone bankrupt partway through were rare.
      - timr 9y ago
        Nah, people are objecting because they don't want to hear facts that contradict their preferred narrative. They want to believe that construction instantly lowers prices, and any information that contradicts this narrative is voted into the dirt on HN. I grant you that 2008 was exceptional, as recessions go...but it's not rare to see projects abandoned. I saw it in Seattle in 2001 as well. It just depends on the state of the projects when the recession hits -- you might not get "holes in the ground" unless the decline hits quite suddenly (as in 2008), but you definitely see projects abandoned. That's universal.
- c3534l 9y ago
  Certainly here in Portland that's what people complain about. The rent here isn't as bad as, say, New York City or San Francisco. But it does mean that over time people can no longer afford to live in the neighborhood they grew up in, and it means change that the existing residents don't want.
timr 9y ago
It's also worth noting that rents have been declining in hot US markets since (at least) Q3 of 2016. The trend is nationwide, and owes more to macroeconomics than to construction in a particular market: https://www.wsj.com/articles/u-s-cities-see-apartment-rents-fall-for-first-time-in-years-1475614808 https://www.wsj.com/articles/u-s-cities-see-apartment-rents-... http://www.businessinsider.com/rents-are-plunging-in-the-most-expensive-us-cities-2017-12 http://www.businessinsider.com/rents-are-plunging-in-the-mos... https://www.cnbc.com/2016/12/03/rent-prices-show-signs-of-calming-down-with-nyc-san-francisco-and-dc-sliding.html https://www.cnbc.com/2016/12/03/rent-prices-show-signs-of-ca...
- stock_toaster 9y ago
  Hasn't the Chinese government been clamping down more and more on "capital flight"? I read articles a few years ago how that [capital flight] was driving up rents in some markets. However, I imagine that would only have some impact in the so called "hot investment cities", but not /nationwide/. Any idea what the macroeconomic causes are?
  - timr 9y ago
    Interest rates. The reversal of quantitative easing. Both have been propping up asset bubbles across the US (including, you guessed it: tech investment) -- which are now beginning to slowly deflate.
    - weeksie 9y ago
      I think that's a fine point! Interest rates going up is def going to cool off investment. However, there can be more than one cause for an economic effect. Seattle had very low inventory and I'd be surprised if hundreds of new units coming online didn't put downward pressure on prices. But yeah, I haven't done the digging to attempt to quantify that effect. My second point remains, however. Building more housing does not inflate prices. (and yes, I know it's not quite as simple as econ 101 supply and demand, but)
  - lsc 9y ago
jxramos 9y ago
you mean trees don't grow to the stratosphere?
- deleted 9y ago
  [deleted]
- mandliya 9y ago
  chuckle.
ghein 9y ago
Instead of rent control we need nationwide minimum rent increase. 5% annual minimum increase and a max 5 year tenancy. ( if the feds can ban drugs they can do this...) Encourages construction of rental housing, disarms communist terror groups like acorn, and breaks up Stalinist renters groups like most HN posters.
smelendez 9y ago
It is complicated, though. Rich people moving in to a working class neighborhood makes the neighborhood more attractive to other rich people, both directly and by bringing in rich people amenities. So building high end housing can ultimately cause more demand and higher bids for the existing housing in the neighborhood.
- djsumdog 9y ago
  ..and create whole areas like Capitol Hill which are mostly tech people moving in, pushing out others .. or what's going on in Freemont where homes that people bought for $120k now go for $800k (and you see low-to-middle income workers like cashiers, nurses, hair-stylists, cash out on their houses and move way out). This is a good start, but I hope they don't stop building and complete all the existing projects. The prices are still high. ST3 will help make it easier to live where you want, with a lower income, and still be able to commute reasonably, by train, to work.
- weeksie 9y ago
  While that's intuitive, that's not an argument against building high end housing. I do agree that it's complicated, though! As someone who lives in New York, I can attest that affluent people will just rent the apartments that already exist in the neighborhood and drive the prices up for everyone. The difference is that the shitty tenement one bedroom gets bumped to 3k/month because the affluent will displace the current occupants. If you build luxury buildings, the affluent will move into those. Sure, that will have a second order effect on the desirability of the neighborhood (which is what I believe you are arguing), but I am of the belief that that is a separate issue. Gentrification is its own bag of worms. A while back someone said "Luxury Housing is future middle class housing" and that rings pretty true. The economic incentives are to build nice properties and over time those properties get old. A good percentage of them get divided up into smaller places or simply rented for less as new inventory comes on line.
- fulafel 9y ago
  Alternative conclusion: So building high end housing can ultimately cause the rich people move to the high end housing away from the working class neighbourhood, making room for lower income people.
kodablah 9y ago
I worked on some pricing recommendation/forecasting software for apartments. Many things come into play, but yes the general multifamily goal is to sustain ~95% occupancy. That, along with competitor info, is primarily what drives the prices. Anything that increases vacancy or makes the competitors cheaper drops prices...kind of obvious of course.
rorykoehler 9y ago
Should have banned airbnb instead of having a sensible housing policy.

Holy shit, supply and demand is still a thing! Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was what was causing the high rents. headdesk

timr 9y ago

"Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was what was causing the high rents." Well, no. People are complaining about the change in their neighborhoods, of which high rents and new construction are both observable qualities. But not to worry...if rents are truly declining, the new construction will rather quickly stop. Real estate investors are smart enough not to build into falling markets for long. They will leave holes in the ground before they complete a project that won't pencil out on financing -- just as they did in Seattle and San Francisco during the last bust. (Edit: you guys...really. The article itself says that construction has already slowed down: "Developers and banks that lend money for new construction have taken notice of the market cooling. While tons of new buildings are already approved or under construction now, the pipeline for future projects that exist only on paper is shrinking." If rents decline from new construction, it happens over years of economic shifts, not because developers rush headlong over the cliff like a bunch of lemmings.)

hn_throwaway_99 9y ago
Sigh, not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying. I don't think anyone who understands supply and demand thinks that new construction won't slow - it's pretty self evident that if demand slows that people will stop adding supply. If anything, I think folks are objecting to the tone of your post that makes it sound like declining rents will leave a wake of "holes in the ground" instead of a normal and healthy adjustment.
- timr 9y ago
  "not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying." I didn't post "evidence" (scare quotes yours). The quote is right there, in the article. It's something that's actually happening, and I quoted it because of the irony. Likewise, I lived in SF during the last crash. I saw the holes in the ground, with my own eyes -- developers pulled construction equipment out of foundations, and left them there, at mid-Market, in downtown San Francisco. I lived near two of them. Nothing I'm saying here is even remotely theoretical. The real issue is that there's a certain popular narrative here, and any facts that disagree with that narrative are immediately ejected from the conversation. It isn't "haughty disdain" to observe that people are rejecting facts that don't fit their biases.
  - lsc 9y ago
    You're not wrong, people are just objecting to your bombast. Also note, 2008 was unusually dramatic; one of the big projects in downtown sunnyvale went bankrupt and changed hands several times before completion. Yes, declining home prices do sometimes leave long term holes in the ground, but mostly only when prices decline a lot more quickly than expected, as they did in 2008. I was here in 2001, too, though (or a little up the peninsula) and there was a bigger drop in rent (though not sale prices) then than in 2008. In 2001, sure, you saw 'for rent' signs, but as far as I remember, the 'holes in the ground' as you put it, of buildings who's builders had gone bankrupt partway through were rare.
    - timr 9y ago
      Nah, people are objecting because they don't want to hear facts that contradict their preferred narrative. They want to believe that construction instantly lowers prices, and any information that contradicts this narrative is voted into the dirt on HN. I grant you that 2008 was exceptional, as recessions go...but it's not rare to see projects abandoned. I saw it in Seattle in 2001 as well. It just depends on the state of the projects when the recession hits -- you might not get "holes in the ground" unless the decline hits quite suddenly (as in 2008), but you definitely see projects abandoned. That's universal.
c3534l 9y ago
Certainly here in Portland that's what people complain about. The rent here isn't as bad as, say, New York City or San Francisco. But it does mean that over time people can no longer afford to live in the neighborhood they grew up in, and it means change that the existing residents don't want.

timr 9y ago

It's also worth noting that rents have been declining in hot US markets since (at least) Q3 of 2016. The trend is nationwide, and owes more to macroeconomics than to construction in a particular market: https://www.wsj.com/articles/u-s-cities-see-apartment-rents-fall-for-first-time-in-years-1475614808 https://www.wsj.com/articles/u-s-cities-see-apartment-rents-... http://www.businessinsider.com/rents-are-plunging-in-the-most-expensive-us-cities-2017-12 http://www.businessinsider.com/rents-are-plunging-in-the-mos... https://www.cnbc.com/2016/12/03/rent-prices-show-signs-of-calming-down-with-nyc-san-francisco-and-dc-sliding.html https://www.cnbc.com/2016/12/03/rent-prices-show-signs-of-ca...

stock_toaster 9y ago
Hasn't the Chinese government been clamping down more and more on "capital flight"? I read articles a few years ago how that [capital flight] was driving up rents in some markets. However, I imagine that would only have some impact in the so called "hot investment cities", but not /nationwide/. Any idea what the macroeconomic causes are?
- timr 9y ago
  Interest rates. The reversal of quantitative easing. Both have been propping up asset bubbles across the US (including, you guessed it: tech investment) -- which are now beginning to slowly deflate.
  - weeksie 9y ago
    I think that's a fine point! Interest rates going up is def going to cool off investment. However, there can be more than one cause for an economic effect. Seattle had very low inventory and I'd be surprised if hundreds of new units coming online didn't put downward pressure on prices. But yeah, I haven't done the digging to attempt to quantify that effect. My second point remains, however. Building more housing does not inflate prices. (and yes, I know it's not quite as simple as econ 101 supply and demand, but)
- lsc 9y ago

jxramos 9y ago

you mean trees don't grow to the stratosphere?

deleted 9y ago
[deleted]
mandliya 9y ago
chuckle.

ghein 9y ago

Instead of rent control we need nationwide minimum rent increase. 5% annual minimum increase and a max 5 year tenancy. ( if the feds can ban drugs they can do this...) Encourages construction of rental housing, disarms communist terror groups like acorn, and breaks up Stalinist renters groups like most HN posters.

smelendez 9y ago

It is complicated, though. Rich people moving in to a working class neighborhood makes the neighborhood more attractive to other rich people, both directly and by bringing in rich people amenities. So building high end housing can ultimately cause more demand and higher bids for the existing housing in the neighborhood.

djsumdog 9y ago
..and create whole areas like Capitol Hill which are mostly tech people moving in, pushing out others .. or what's going on in Freemont where homes that people bought for $120k now go for $800k (and you see low-to-middle income workers like cashiers, nurses, hair-stylists, cash out on their houses and move way out). This is a good start, but I hope they don't stop building and complete all the existing projects. The prices are still high. ST3 will help make it easier to live where you want, with a lower income, and still be able to commute reasonably, by train, to work.
weeksie 9y ago
While that's intuitive, that's not an argument against building high end housing. I do agree that it's complicated, though! As someone who lives in New York, I can attest that affluent people will just rent the apartments that already exist in the neighborhood and drive the prices up for everyone. The difference is that the shitty tenement one bedroom gets bumped to 3k/month because the affluent will displace the current occupants. If you build luxury buildings, the affluent will move into those. Sure, that will have a second order effect on the desirability of the neighborhood (which is what I believe you are arguing), but I am of the belief that that is a separate issue. Gentrification is its own bag of worms. A while back someone said "Luxury Housing is future middle class housing" and that rings pretty true. The economic incentives are to build nice properties and over time those properties get old. A good percentage of them get divided up into smaller places or simply rented for less as new inventory comes on line.
fulafel 9y ago
Alternative conclusion: So building high end housing can ultimately cause the rich people move to the high end housing away from the working class neighbourhood, making room for lower income people.

kodablah 9y ago

I worked on some pricing recommendation/forecasting software for apartments. Many things come into play, but yes the general multifamily goal is to sustain ~95% occupancy. That, along with competitor info, is primarily what drives the prices. Anything that increases vacancy or makes the competitors cheaper drops prices...kind of obvious of course.

rorykoehler 9y ago

Should have banned airbnb instead of having a sensible housing policy.