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Supply and Demand is too simplistic a model to think about housing costs because it fails to account for velocity of inventory vs. velocity of occupancy. It als

Supply and Demand is too simplistic a model to think about housing costs because it fails to account for velocity of inventory vs. velocity of occupancy. It also completely ignores the law of retailing which is “Charge what the market will bear”. Let’s also be honest about how opportunity growth drives demand for housing.

pchristensen 8y ago
How is "opportunity growth" not just a change in the demand curve? And how is "charge what the market will bear" not just higher demand intersecting fixed supply at a higher price point?
epistasis 8y ago
Could you explain how "charged what the market will bear" is ignored by "Supply and Demand"? The entire basis of supply and demand is that prices change based on people charging what the market will bear, and buyers paying as little as they can.
- nickstefan12 8y ago
  Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people. In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
  - AnthonyMouse 8y ago
    But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more... At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
    - function_seven 8y ago
      Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent. This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall. Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.
    - zjaffee 8y ago
      The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. It's not like other consumer goods where there aren't really many resource constraints. In turn, something needs to be done to drive down the incentive to speculate on land prices. Such tools can range from rent control which makes landlordism unprofitable to land value and vacancy taxes return lost value from lack of properly developed land back to the public. Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
      - AnthonyMouse 8y ago
        > The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. But it is on the market. There are no regions where land is unavailable at any price. The price may be high, but if it is, all the more money to be made by subdividing it into twenty times as many housing units that each sell for most of the original price. > In turn, something needs to be done to drive down the incentive to speculate on land prices. That thing is to eliminate zoning regulations that prohibit high density construction. > Such tools can range from rent control which makes landlordism unprofitable Economists almost universally agree that rent control is a terrible idea. What you end up with is ten apartment units that could be rebuilt into fifty condos, but the prerequisite to rent control functioning is that you can't kick out the tenants (and they will never want to leave), so that can never happen. It also makes new construction in general less profitable by removing all the landlords from the purchasing market, and makes all non-rent-controlled apartments scarce and outrageously overpriced. > land value and vacancy taxes return lost value from lack of properly developed land back to the public. Vacancy taxes are a spectacular idea in theory. Rich people would probably find various ways to avoid them, but they seem to have almost no downside. Particularly if you have sensible exceptions like for property that was occupied for more than 24 of the last 36 months. I'm not sure why they don't exist in all urban areas. But that only works on the vacant properties. Doesn't work when you have a bunch of occupied properties and the issue is the incumbents capturing the local government to keep rents high by preventing new construction. > Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it. This is a benefit. That cost has to be paid by the people owning but not using it, giving them the incentive to put it on the market (at any price they can get) so that someone who can use it will have it.
  - closeparen 8y ago
    There are rich people in most major cities. Why don’t they consume all the housing growth in Chicago or Omaha or Dallas? What’s special about SF?
    - dragonwriter 8y ago
      One obvious possibility: There are sufficient rich people outside of SF that want to be in SF to consume any reasonable housing growth. Many other major cities already have most of the rich people that want to live in them (and some that really would prefer to live elsewhere, like SF.)
      - closeparen 8y ago
        If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. This thread proposes that rich people consume many more homes than they can actually live in. So why don’t they draw some of those homes from other markets? (I suspect this is because NIMBY policies in the face of population growth make SF housing an especially great investment, and that this advantage would disappear with zoning liberalization. Returns on the level of SF’s real estate market are hard to find in the stock market, for example. Why wouldn’t they speculate on it?)
        dragonwriter 8y ago
        > If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. Globally, certainly; locally in particularly attractive areas? Probably not even if that were the case. > This thread proposes that rich people consume many more homes than they can actually live in. Which is obviously true, 2nd through nth homes that are kept idle most of the year, or even for years at a time, are a thing, and a person can't actually live in more than one at a time. > So why don’t they draw some of those homes from other markets? They do. But there's enough rich people that want to draw some of their consumption from SF to eat up quite a lot of expansion, until you actually make SF unattractive to rich people.
    - 8y ago

pchristensen 8y ago

How is "opportunity growth" not just a change in the demand curve? And how is "charge what the market will bear" not just higher demand intersecting fixed supply at a higher price point?

epistasis 8y ago

Could you explain how "charged what the market will bear" is ignored by "Supply and Demand"? The entire basis of supply and demand is that prices change based on people charging what the market will bear, and buyers paying as little as they can.

nickstefan12 8y ago
Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people. In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
- AnthonyMouse 8y ago
  But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more... At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
  - function_seven 8y ago
    Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent. This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall. Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.
  - zjaffee 8y ago
    The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. It's not like other consumer goods where there aren't really many resource constraints. In turn, something needs to be done to drive down the incentive to speculate on land prices. Such tools can range from rent control which makes landlordism unprofitable to land value and vacancy taxes return lost value from lack of properly developed land back to the public. Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
    - AnthonyMouse 8y ago
      > The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. But it is on the market. There are no regions where land is unavailable at any price. The price may be high, but if it is, all the more money to be made by subdividing it into twenty times as many housing units that each sell for most of the original price. > In turn, something needs to be done to drive down the incentive to speculate on land prices. That thing is to eliminate zoning regulations that prohibit high density construction. > Such tools can range from rent control which makes landlordism unprofitable Economists almost universally agree that rent control is a terrible idea. What you end up with is ten apartment units that could be rebuilt into fifty condos, but the prerequisite to rent control functioning is that you can't kick out the tenants (and they will never want to leave), so that can never happen. It also makes new construction in general less profitable by removing all the landlords from the purchasing market, and makes all non-rent-controlled apartments scarce and outrageously overpriced. > land value and vacancy taxes return lost value from lack of properly developed land back to the public. Vacancy taxes are a spectacular idea in theory. Rich people would probably find various ways to avoid them, but they seem to have almost no downside. Particularly if you have sensible exceptions like for property that was occupied for more than 24 of the last 36 months. I'm not sure why they don't exist in all urban areas. But that only works on the vacant properties. Doesn't work when you have a bunch of occupied properties and the issue is the incumbents capturing the local government to keep rents high by preventing new construction. > Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it. This is a benefit. That cost has to be paid by the people owning but not using it, giving them the incentive to put it on the market (at any price they can get) so that someone who can use it will have it.
- closeparen 8y ago
  There are rich people in most major cities. Why don’t they consume all the housing growth in Chicago or Omaha or Dallas? What’s special about SF?
  - dragonwriter 8y ago
    One obvious possibility: There are sufficient rich people outside of SF that want to be in SF to consume any reasonable housing growth. Many other major cities already have most of the rich people that want to live in them (and some that really would prefer to live elsewhere, like SF.)
    - closeparen 8y ago
      If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. This thread proposes that rich people consume many more homes than they can actually live in. So why don’t they draw some of those homes from other markets? (I suspect this is because NIMBY policies in the face of population growth make SF housing an especially great investment, and that this advantage would disappear with zoning liberalization. Returns on the level of SF’s real estate market are hard to find in the stock market, for example. Why wouldn’t they speculate on it?)
      - dragonwriter 8y ago
        > If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. Globally, certainly; locally in particularly attractive areas? Probably not even if that were the case. > This thread proposes that rich people consume many more homes than they can actually live in. Which is obviously true, 2nd through nth homes that are kept idle most of the year, or even for years at a time, are a thing, and a person can't actually live in more than one at a time. > So why don’t they draw some of those homes from other markets? They do. But there's enough rich people that want to draw some of their consumption from SF to eat up quite a lot of expansion, until you actually make SF unattractive to rich people.
  - 8y ago