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Honest question, is it truly possible to build yourself out of a housing crisis? Or is housing like roads, where an increased supply just leads to even more dem

Honest question, is it truly possible to build yourself out of a housing crisis? Or is housing like roads, where an increased supply just leads to even more demand? In other words, traffic exists not because of a lack of roads per se, but because people are willing to accept a given level of traffic when deciding whether to drive somewhere. In an area as beautiful and in demand as SF, will people essentially keep on immigrating until it's unattractive enough that they stop, regardless of supply? Edit: thanks everyone for the thoughtful replies and for pointing out some of my potentially flawed assumptions. It's refreshing to have civilized exchanges of opinion on the internet every once in a while :)

inputcoffee 8y ago
Great question. In theory, jobs put an upper limit on housing usage. People almost always follow jobs. There are many beautiful cities in the world but only SF is near Silicon Valley. You can find cheap housing in nice areas if they don’t depend on jobs (college towns, retirement communities). People will present counter examples at the margins of course, but generally the relationship holds.
- gascan 8y ago
  But, also in theory, cost of living drives competitive salary, which in turn drives whether a company can afford to hire employees in a particular city. So if you build more housing, cost of living goes down, which attracts more companies to the city who were priced out of the labor pool before, which increases jobs in the city, which attracts people and increases housing usage...
  - inputcoffee 8y ago
    The part of this logical chain that I don’t follow is the low cost of living attracting companies. I can see why low cost of living ought to attract companies but in practice the new companies seem to gravitate towards already high cost of living cities. This may be because the other considerations (workers, education, infrastructure etc) May outweigh low cost of living alone. Or there might be another reason I cannot think of.
lewis500 8y ago
Regarding roads, it's not true that building roads can't alleviate traffic congestion---although there are special cases where building roads makes travel times. It depends on the network. In general though we should expect building roads to reduce travel time. The fact that driving increases following road-building is evidence of this: why would driving increase if travel times between all origins and destinations stayed the same? Validated models of travel demand all depend on travel time, not the existence of roadspace. Just because driving increases upon building new roads does not mean it does so to the extent that travel times are unchanged. For the record, I do not support building many more roads. They have become very expensive to build and maintain, the maintenance backlog in some places is severe, and in a thick network like many US cities have they do little good. In some cases the pollution they create is severe and disproportionately impacts poor people. But I still feel compelled to nitpick this common misunderstanding about induced demand.
namlem 8y ago
Yes, Tokyo did it. Rent for a 1 bedroom apartment is like $1000/mo. It's a huge thriving mega city with affordable housing thanks to zoning that's managed by the national government.
- TangoTrotFox 8y ago
  I'd consider why housing prices are high. The reason is of course pretty simple - there's high demand at current prices driving prices even higher. Why is there high demand? Supply is certainly a part of the equation here, but in this case it's secondary to the primary reason. That being that the economy is in a crazy boom phase and there are lots of jobs paying disproportionately more than the rest of the nation. So what about Japan? I think the big way they 'solved' this problem was by going through a 30 year recession. I don't think realize how extreme Japan's decline has been. In 1995 Japan was still a tech behemoth that many thought was on track to become the world's leading economy. They had a skyrocketing GDP that was $5.5 trillion at the time, compared to the US' $7.7 trillion. Today Japan's GDP is $4.9 trillion, the US' is $20.4 trillion. They've had an ongoing problem with deflation that's more recently been met with extreme measures including very heavy handed quantitative easing. If the US economy just suddenly collapsed and stayed that way for decades, you'd also start to see the real cost of living stagnate or even decline, especially in areas that were being driven up previously by a sky-high economy.
darksaints 8y ago
Yes it is possible. http://www.sightline.org/2017/09/21/yes-you-can-build-your-way-to-affordable-housing/ http://www.sightline.org/2017/09/21/yes-you-can-build-your-w... As far as the roads situation, a lot of people confuse that phenomenon with induced demand, which is likely incorrect (and very hard to prove, even if it is correct). The much more likely scenarios is that because roads are underpriced (we don't make people pay their full costs for use), there will always be unmet demand. If people were paying $8-15/gallon for gas (approximately what the unsubsidized cost would be), it would be much easier to build a new road and actualize the intended effect of reducing congestion, because you wouldn't be trying to catch up to pent up subsidized demand.
- smileysteve 8y ago
  Induced demand is no longer true when there is capacity such that there is no demand based on negative externalities. Ie: Traffic isn't bad at 4am; building/opening more roads at 4am likely won't cause more traffic/time/etc to happen at 4am.
- abalone 8y ago
  Roads are literally the classic example of induced demand. The price is the opportunity cost of using them. You build more, you lower that cost, more people decide to start driving. Not that hard to understand. Perhaps a fair proxy for tech professionals who’d love to move to SF if only the price came down a bit — But way higher than what working class folks can afford. That article is not immune from criticism. The first example it gives is Houston which it directly notes solved affordability through “sprawl”. It is totally invalid in an SF context where we live on the tip of a peninsula. The second example is Tokyo. It is true that Tokyo is more liberal on building codes, but there are many other differences that go unmentioned. For example a massive, generation-defining pop of a real estate asset bubble and resulting 30 year recession. That that goes unmentioned smacks of cherry picking. A more successful example is Vienna where the government was heavily involved in housing.
  - saosebastiao 8y ago
    > Roads are literally the classic example of induced demand. The price is the opportunity cost of using them. You build more, you lower that cost, more people decide to start driving. Not that hard to understand. Apparently it is hard to understand, because what you're describing isn't induced demand, it's the same exact supply and demand curve working as it always has done. Induced demand is where a shift in the supply curve shifts the demand curve, not simply adjusting to a new equilibrium on the existing demand curve (as would be expected for literally everything). We can prove this quite simply: in countries where driving is priced correctly, road expansions reduce congestion. And they don't reduce congestion in countries where driving is subsidized, like ours. > That article is not immune from criticism. The first example it gives is Houston which it directly notes solved affordability through “sprawl”. It is totally invalid in an SF context where we live on the tip of a peninsula. You didn't get the point of the article at all if you think that's a criticism of it. The whole point was that you can attack housing affordability in tons of different ways, but they all have something in common: they increase supply to meet demand. You can do it with sprawl, you can do it with tall density, you can do it with short density, you can do it with social housing, you can do it with market rate housing, etc. It doesn't matter, supply is the key factor. There isn't a single one size fits all solution to the housing crisis, but there are plenty of different ways to realize the goal of reducing rents via increasing supply. > For example a massive, generation-defining pop of a real estate asset bubble and resulting 30 year recession. Tokyo's economic reality has been different from Japan as a whole, with Tokyo booming for at least 20 years now. Tokyo has been one of the fastest growing megacities in the world for those two decades, highlighting exactly how successful they've been at keeping rents flat. > That that goes unmentioned smacks of cherry picking. Kind of like how you point out how Houston's model could never work for San Francisco, but conveniently forget to mention Montreal's or Chicago's model while jumping directly to your preferred solution that would require the most dramatic shift in American politics that we have ever seen?
hunter23 8y ago
In the Bay Areas case I would put a definite yes. Specifically our city actually has a very normal amount of growth (there are many cities with higher amounts of growth that don't have enormous growth in housing prices). We absolutely have enough space for all the demand and induced demand if we raise restrictions of height and density to small European city levels (think Porto or Vienna not NYC or London). As much as we think there's a lot of jobs and growth in SF, it's actually not that high an amount. Also I think you might have the reasoning for why people come here off. I think most people come for jobs. As an engineer the main reason I live in Bay Area is for the jobs, not for the beauty. There are plenty of more affordable beautiful cities, they just lack technology jobs.
dsfyu404ed 8y ago
Roads (or any other high volume transit system) are like bandwidth. Peak demand times such as rush hour (for roads) or every windows machine updating at once (for bandwidth) will always use everything you've got, degrade the service and people will forgo trips (bad for quality of life) or not do their work because they can't access some cloud service well enough (bad for productivity). You don't add more roads or bandwidth with the expectation that service will not degrade but to reduce the length of time during which it's degraded. (Yes I know that MS does P2P updated and WSUS is a thing but this is just meant to be an example) The usage pattern for housing is totally different because everyone needs to use it and demand is basically constant per person over time.
paxy 8y ago
I think so. It is much harder to not to live in a city or move out than to decide not to drive. If a region's economy is good then housing demand is just going to go up indefinitely.
raldi 8y ago
"Seattle-area rents drop significantly for first time this decade as new apartments sit empty": https://www.seattletimes.com/business/real-estate/seattle-area-rents-drop-significantly-for-first-time-this-decade-as-new-apartments-sit-empty/ https://www.seattletimes.com/business/real-estate/seattle-ar... "New York City apartment market swoons on glut of new luxury construction" https://www.marketwatch.com/story/new-york-city-apartment-market-swoons-on-glut-of-new-luxury-construction-2018-04-03 https://www.marketwatch.com/story/new-york-city-apartment-ma...

inputcoffee 8y ago

Great question. In theory, jobs put an upper limit on housing usage. People almost always follow jobs. There are many beautiful cities in the world but only SF is near Silicon Valley. You can find cheap housing in nice areas if they don’t depend on jobs (college towns, retirement communities). People will present counter examples at the margins of course, but generally the relationship holds.

gascan 8y ago
But, also in theory, cost of living drives competitive salary, which in turn drives whether a company can afford to hire employees in a particular city. So if you build more housing, cost of living goes down, which attracts more companies to the city who were priced out of the labor pool before, which increases jobs in the city, which attracts people and increases housing usage...
- inputcoffee 8y ago
  The part of this logical chain that I don’t follow is the low cost of living attracting companies. I can see why low cost of living ought to attract companies but in practice the new companies seem to gravitate towards already high cost of living cities. This may be because the other considerations (workers, education, infrastructure etc) May outweigh low cost of living alone. Or there might be another reason I cannot think of.

lewis500 8y ago

Regarding roads, it's not true that building roads can't alleviate traffic congestion---although there are special cases where building roads makes travel times. It depends on the network. In general though we should expect building roads to reduce travel time. The fact that driving increases following road-building is evidence of this: why would driving increase if travel times between all origins and destinations stayed the same? Validated models of travel demand all depend on travel time, not the existence of roadspace. Just because driving increases upon building new roads does not mean it does so to the extent that travel times are unchanged. For the record, I do not support building many more roads. They have become very expensive to build and maintain, the maintenance backlog in some places is severe, and in a thick network like many US cities have they do little good. In some cases the pollution they create is severe and disproportionately impacts poor people. But I still feel compelled to nitpick this common misunderstanding about induced demand.

namlem 8y ago

Yes, Tokyo did it. Rent for a 1 bedroom apartment is like $1000/mo. It's a huge thriving mega city with affordable housing thanks to zoning that's managed by the national government.

TangoTrotFox 8y ago
I'd consider why housing prices are high. The reason is of course pretty simple - there's high demand at current prices driving prices even higher. Why is there high demand? Supply is certainly a part of the equation here, but in this case it's secondary to the primary reason. That being that the economy is in a crazy boom phase and there are lots of jobs paying disproportionately more than the rest of the nation. So what about Japan? I think the big way they 'solved' this problem was by going through a 30 year recession. I don't think realize how extreme Japan's decline has been. In 1995 Japan was still a tech behemoth that many thought was on track to become the world's leading economy. They had a skyrocketing GDP that was $5.5 trillion at the time, compared to the US' $7.7 trillion. Today Japan's GDP is $4.9 trillion, the US' is $20.4 trillion. They've had an ongoing problem with deflation that's more recently been met with extreme measures including very heavy handed quantitative easing. If the US economy just suddenly collapsed and stayed that way for decades, you'd also start to see the real cost of living stagnate or even decline, especially in areas that were being driven up previously by a sky-high economy.

darksaints 8y ago

Yes it is possible. http://www.sightline.org/2017/09/21/yes-you-can-build-your-way-to-affordable-housing/ http://www.sightline.org/2017/09/21/yes-you-can-build-your-w... As far as the roads situation, a lot of people confuse that phenomenon with induced demand, which is likely incorrect (and very hard to prove, even if it is correct). The much more likely scenarios is that because roads are underpriced (we don't make people pay their full costs for use), there will always be unmet demand. If people were paying $8-15/gallon for gas (approximately what the unsubsidized cost would be), it would be much easier to build a new road and actualize the intended effect of reducing congestion, because you wouldn't be trying to catch up to pent up subsidized demand.

smileysteve 8y ago
Induced demand is no longer true when there is capacity such that there is no demand based on negative externalities. Ie: Traffic isn't bad at 4am; building/opening more roads at 4am likely won't cause more traffic/time/etc to happen at 4am.
abalone 8y ago
Roads are literally the classic example of induced demand. The price is the opportunity cost of using them. You build more, you lower that cost, more people decide to start driving. Not that hard to understand. Perhaps a fair proxy for tech professionals who’d love to move to SF if only the price came down a bit — But way higher than what working class folks can afford. That article is not immune from criticism. The first example it gives is Houston which it directly notes solved affordability through “sprawl”. It is totally invalid in an SF context where we live on the tip of a peninsula. The second example is Tokyo. It is true that Tokyo is more liberal on building codes, but there are many other differences that go unmentioned. For example a massive, generation-defining pop of a real estate asset bubble and resulting 30 year recession. That that goes unmentioned smacks of cherry picking. A more successful example is Vienna where the government was heavily involved in housing.
- saosebastiao 8y ago
  > Roads are literally the classic example of induced demand. The price is the opportunity cost of using them. You build more, you lower that cost, more people decide to start driving. Not that hard to understand. Apparently it is hard to understand, because what you're describing isn't induced demand, it's the same exact supply and demand curve working as it always has done. Induced demand is where a shift in the supply curve shifts the demand curve, not simply adjusting to a new equilibrium on the existing demand curve (as would be expected for literally everything). We can prove this quite simply: in countries where driving is priced correctly, road expansions reduce congestion. And they don't reduce congestion in countries where driving is subsidized, like ours. > That article is not immune from criticism. The first example it gives is Houston which it directly notes solved affordability through “sprawl”. It is totally invalid in an SF context where we live on the tip of a peninsula. You didn't get the point of the article at all if you think that's a criticism of it. The whole point was that you can attack housing affordability in tons of different ways, but they all have something in common: they increase supply to meet demand. You can do it with sprawl, you can do it with tall density, you can do it with short density, you can do it with social housing, you can do it with market rate housing, etc. It doesn't matter, supply is the key factor. There isn't a single one size fits all solution to the housing crisis, but there are plenty of different ways to realize the goal of reducing rents via increasing supply. > For example a massive, generation-defining pop of a real estate asset bubble and resulting 30 year recession. Tokyo's economic reality has been different from Japan as a whole, with Tokyo booming for at least 20 years now. Tokyo has been one of the fastest growing megacities in the world for those two decades, highlighting exactly how successful they've been at keeping rents flat. > That that goes unmentioned smacks of cherry picking. Kind of like how you point out how Houston's model could never work for San Francisco, but conveniently forget to mention Montreal's or Chicago's model while jumping directly to your preferred solution that would require the most dramatic shift in American politics that we have ever seen?

hunter23 8y ago

In the Bay Areas case I would put a definite yes. Specifically our city actually has a very normal amount of growth (there are many cities with higher amounts of growth that don't have enormous growth in housing prices). We absolutely have enough space for all the demand and induced demand if we raise restrictions of height and density to small European city levels (think Porto or Vienna not NYC or London). As much as we think there's a lot of jobs and growth in SF, it's actually not that high an amount. Also I think you might have the reasoning for why people come here off. I think most people come for jobs. As an engineer the main reason I live in Bay Area is for the jobs, not for the beauty. There are plenty of more affordable beautiful cities, they just lack technology jobs.

dsfyu404ed 8y ago

Roads (or any other high volume transit system) are like bandwidth. Peak demand times such as rush hour (for roads) or every windows machine updating at once (for bandwidth) will always use everything you've got, degrade the service and people will forgo trips (bad for quality of life) or not do their work because they can't access some cloud service well enough (bad for productivity). You don't add more roads or bandwidth with the expectation that service will not degrade but to reduce the length of time during which it's degraded. (Yes I know that MS does P2P updated and WSUS is a thing but this is just meant to be an example) The usage pattern for housing is totally different because everyone needs to use it and demand is basically constant per person over time.

paxy 8y ago

I think so. It is much harder to not to live in a city or move out than to decide not to drive. If a region's economy is good then housing demand is just going to go up indefinitely.

raldi 8y ago

"Seattle-area rents drop significantly for first time this decade as new apartments sit empty": https://www.seattletimes.com/business/real-estate/seattle-area-rents-drop-significantly-for-first-time-this-decade-as-new-apartments-sit-empty/ https://www.seattletimes.com/business/real-estate/seattle-ar... "New York City apartment market swoons on glut of new luxury construction" https://www.marketwatch.com/story/new-york-city-apartment-market-swoons-on-glut-of-new-luxury-construction-2018-04-03 https://www.marketwatch.com/story/new-york-city-apartment-ma...