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I’ve read a bunch of the literature on the topic, and I’m unconvinced that supply can bring about a price drop. Housing is inelastic and will climb to the top o

by afpx 8y ago

I’ve read a bunch of the literature on the topic, and I’m unconvinced that supply can bring about a price drop. Housing is inelastic and will climb to the top of what the people in the area can afford, given demand. So, there’d have to be a massive increase in housing to exceed the demand (probably millions of people wanting to move there). I mean, I’m all for giving it a try, but I think people’s expectations are way too high.

bigdubs 8y ago
there are a couple other things to throw into the mix, housing doesnt just appear if we will it, you have to make it cheaper to build in the first place, and have some type of land value tax to encourage density. density is the answer though, demand will always be there and is harder to control
repsilat 8y ago
An increase in long term interest rates will also bring house prices down. That won't make an 80% mortgage more affordable, but it'll make saving for a 20% deposit easier (and will make houses cheaper for people who pay a larger fraction in cash.) Long term interest rates have been pretty stagnant recently even as the Fed has been raising the short term rate steadily, but they've only just begun winding down their QE assets so if there isn't a recession in the next few years we should see house prices ease off.
stale2002 8y ago
> Housing is inelastic and will climb to the top of what the people in the area can afford, given demand. Thats the opposite of inelastic. Inelastic means that as one side increases, the other side does not respond much. Food, for example, has inelastic demand in the US. If food prices get cut in half, people aren't going to eat twice as much. But even if housing demand is elastic, thats a good thing, not a bad thing. That means that if we build lots of houses, then there are lots and lots of people out there who could benefit from moving here. These people want to move here, but are unable to do so right now. We could help them so much by giving people the opportunity to move to a place, that is apparently so amazing that lots of people want to come here.
- afpx 8y ago
  What? Let me give you an example. Gasoline has inelastic demand. If the supply of gasoline drops such that it’s below the amount demanded, then the price will rise to the maximum amount that people are able (not just willing) to pay, because there are few realistic alternatives for most people. Same goes for housing. And in San Francisco in particular. Unless supply meets demand (which it won’t for a very long time), prices will be pegged upward. I can’t see prices falling unless demand decreases, although I’m as hopeful as you.
  - stale2002 8y ago
    Yes, Gasoline has inelastic demand. That means that if supply drops, then price goes way up. Now think about the reverse direction. IE, if supply for gasoline goes up, what happens to the price? prices goes way down. Inelasticity of demand means that price will change a lot, if supply changes. Supply goes up, prices goes way down. Supply goes down, price goes way up. If housing has inelastic demand, that means that if we build a small amount of housing, then price would go down a lot immediately. People talk a lot about the idea of "pent up demand". "Pent up demand" is the idea that if price changes, then a bunch of people will move to SF to immediately live in those new homes. That is an example of elastic supply. Inelastic would be the idea that nobody at all would move to SF to live in those houses if we built them, and they would just sit empty.
    - afpx 8y ago
      Here’s a explanation of what inelastic demand is. https://www.quora.com/What-is-the-meaning-of-perfectly-inelastic-demand-and-perfectly-elastic-demand https://www.quora.com/What-is-the-meaning-of-perfectly-inela...
      - stale2002 8y ago
        Correct, this is exactly the explanation I gave. Here is a quote from one of the answers in the quora question that you posted, saying exactly what I stated: " If demand for a good is perfectly elastic in regards to price, the smallest change in price will change the amount demanded by an infinite value - if the price goes down a single cent, demand will grow to infinity (assuming a normal good whose demand is inversely correlated to price). If demand for a good is perfectly inelastic in regards to price, it means that no matter how the price changes, the demand will stay the same (if the price goes for 1 dollar to 1 million, the demand is the same)." IE, perfectly inelastic demand means that no matter how much supply/price changes, then demand doesn't change. If supply goes up, Nobody buys any more houses (because its inelastic). And price crashes. Inelastic demand applies to both the case of supply going up (therefore price goes down), and the case of supply going down (therefore prices going up). So if supply goes down, prices go way way up, and if supply goes up, then prices go way way down. Or in other words, if there is not enough of so
pascalxus 8y ago
sure, it may take some time, that doesn't mean we shouldn't start. It will take a lot of time and effort to reverse global warming, but it still must be done and as soon as possible. Same for replenishing the housing supply.

by afpx 8y ago

bigdubs 8y ago

there are a couple other things to throw into the mix, housing doesnt just appear if we will it, you have to make it cheaper to build in the first place, and have some type of land value tax to encourage density. density is the answer though, demand will always be there and is harder to control

repsilat 8y ago

An increase in long term interest rates will also bring house prices down. That won't make an 80% mortgage more affordable, but it'll make saving for a 20% deposit easier (and will make houses cheaper for people who pay a larger fraction in cash.) Long term interest rates have been pretty stagnant recently even as the Fed has been raising the short term rate steadily, but they've only just begun winding down their QE assets so if there isn't a recession in the next few years we should see house prices ease off.

stale2002 8y ago

> Housing is inelastic and will climb to the top of what the people in the area can afford, given demand. Thats the opposite of inelastic. Inelastic means that as one side increases, the other side does not respond much. Food, for example, has inelastic demand in the US. If food prices get cut in half, people aren't going to eat twice as much. But even if housing demand is elastic, thats a good thing, not a bad thing. That means that if we build lots of houses, then there are lots and lots of people out there who could benefit from moving here. These people want to move here, but are unable to do so right now. We could help them so much by giving people the opportunity to move to a place, that is apparently so amazing that lots of people want to come here.

afpx 8y ago
What? Let me give you an example. Gasoline has inelastic demand. If the supply of gasoline drops such that it’s below the amount demanded, then the price will rise to the maximum amount that people are able (not just willing) to pay, because there are few realistic alternatives for most people. Same goes for housing. And in San Francisco in particular. Unless supply meets demand (which it won’t for a very long time), prices will be pegged upward. I can’t see prices falling unless demand decreases, although I’m as hopeful as you.
- stale2002 8y ago
  Yes, Gasoline has inelastic demand. That means that if supply drops, then price goes way up. Now think about the reverse direction. IE, if supply for gasoline goes up, what happens to the price? prices goes way down. Inelasticity of demand means that price will change a lot, if supply changes. Supply goes up, prices goes way down. Supply goes down, price goes way up. If housing has inelastic demand, that means that if we build a small amount of housing, then price would go down a lot immediately. People talk a lot about the idea of "pent up demand". "Pent up demand" is the idea that if price changes, then a bunch of people will move to SF to immediately live in those new homes. That is an example of elastic supply. Inelastic would be the idea that nobody at all would move to SF to live in those houses if we built them, and they would just sit empty.
  - afpx 8y ago
    Here’s a explanation of what inelastic demand is. https://www.quora.com/What-is-the-meaning-of-perfectly-inelastic-demand-and-perfectly-elastic-demand https://www.quora.com/What-is-the-meaning-of-perfectly-inela...
    - stale2002 8y ago
      Correct, this is exactly the explanation I gave. Here is a quote from one of the answers in the quora question that you posted, saying exactly what I stated: " If demand for a good is perfectly elastic in regards to price, the smallest change in price will change the amount demanded by an infinite value - if the price goes down a single cent, demand will grow to infinity (assuming a normal good whose demand is inversely correlated to price). If demand for a good is perfectly inelastic in regards to price, it means that no matter how the price changes, the demand will stay the same (if the price goes for 1 dollar to 1 million, the demand is the same)." IE, perfectly inelastic demand means that no matter how much supply/price changes, then demand doesn't change. If supply goes up, Nobody buys any more houses (because its inelastic). And price crashes. Inelastic demand applies to both the case of supply going up (therefore price goes down), and the case of supply going down (therefore prices going up). So if supply goes down, prices go way way up, and if supply goes up, then prices go way way down. Or in other words, if there is not enough of so

pascalxus 8y ago

sure, it may take some time, that doesn't mean we shouldn't start. It will take a lot of time and effort to reverse global warming, but it still must be done and as soon as possible. Same for replenishing the housing supply.