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These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment cap

These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan market is now an international investment vehicle.

darawk 8y ago
> These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Huh? Let's talk about the rice market, rather than housing. Let's say you dump 1 trillion dollars into rice. What's going to happen? The price of rice rises, dramatically. However, rice farmers the world over see that price rise, and they start growing more rice. If you keep buying 1 trillion dollars worth of rice every year, the rice farmers will grow more rice in response, and the price will start to fall. You, being a rational rice investor, will see that happening. And unless you're an idiot, will stop dumping your money into the rice market. The only reason that houses are any different from rice is that housing is supply constrained, whereas rice is not. > Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan market is now an international investment vehicle. This question doesn't make any sense. You don't create homes so everyone can outperform the S&P. That's like asking "how many stocks do we need to create for everyone to be an early investor in a decacorn?". The question you're trying to ask is: How many houses do we need to build until the rate of return on buying property equals the rate of return of the stock market, adjusted by risk. To be precise, you want the number of homes that need to be built for the Sharpe ratio of the residential real estate market to equal the Sharpe ratio of the stock market. That question is going to vary by geography. Many housing markets already dramatically underperform the S&P. It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P.
- thaumaturgy 8y ago
  I think I'm getting your comments. I don't think you're getting mine. > What's going to happen? The price of rice rises, dramatically. Yes, which is what has been happening in housing. > However, rice farmers the world over see that price rise, and they start growing more rice. And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money. That's where my earlier comment came from: the amount of new housing required to satisfy this equation from the supply side would be enormous, as would be the environmental destruction it would cause. > And unless you're an idiot, will stop dumping your money into the rice market. Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles. > It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P. Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it.
  - darawk 8y ago
    > And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money. Well, you're using the word 'availability', but that sounds a lot like 'supply' to me. So, i'm not sure we really disagree here. Though I would add that for the most part, land supply is not the constraining variable in almost all major metropolitan areas (exception for places like Hong Kong). > Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles. Sure, so they bid it up until its risk-adjusted net-present-value equalizes with other assets. But all that is is restating the fact that these particular plots of land are worth a lot. It doesn't answer the question of why they are worth a lot. For that, you must look to supply constraints and network effects. > Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it. I'm not trying to deal with you dishonestly. I know you are talking about major metro areas. My point in pointing out the heterogeneity was to point out that we only know ex post that the particular areas you're thinking of have done well. If you were an investor in say, 2003, it may not have been such an easy call, and similarly, it may not be such an easy call now. Let's say you had $10 million to invest. Where would you put it? Would you chuck it into SF real estate in the current market? I'm not sure I would. I think the market is quite high, especially given the rising interest rates, and I think the anti-nimby movement has gained a lot of steam, and the bay area has a lot to lose from that, in terms of property values. If I were trying to park $10 million, I think i'd actually shy away from areas with sky high valuations that are built on such monocultural foundations (tech).

darawk 8y ago

> These replies to my comment are super weird. I'm reading them collectively as, "I don't see how the influx of millions and millions of dollars of investment capital would have an effect on housing prices." Huh? Let's talk about the rice market, rather than housing. Let's say you dump 1 trillion dollars into rice. What's going to happen? The price of rice rises, dramatically. However, rice farmers the world over see that price rise, and they start growing more rice. If you keep buying 1 trillion dollars worth of rice every year, the rice farmers will grow more rice in response, and the price will start to fall. You, being a rational rice investor, will see that happening. And unless you're an idiot, will stop dumping your money into the rice market. The only reason that houses are any different from rice is that housing is supply constrained, whereas rice is not. > Well, okay, I guess. How many houses do you think need to be built to satisfy the investment needs of everyone looking to outperform the S&P 500? For extra credit, realize that this means that every metropolitan market is now an international investment vehicle. This question doesn't make any sense. You don't create homes so everyone can outperform the S&P. That's like asking "how many stocks do we need to create for everyone to be an early investor in a decacorn?". The question you're trying to ask is: How many houses do we need to build until the rate of return on buying property equals the rate of return of the stock market, adjusted by risk. To be precise, you want the number of homes that need to be built for the Sharpe ratio of the residential real estate market to equal the Sharpe ratio of the stock market. That question is going to vary by geography. Many housing markets already dramatically underperform the S&P. It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P.

thaumaturgy 8y ago
I think I'm getting your comments. I don't think you're getting mine. > What's going to happen? The price of rice rises, dramatically. Yes, which is what has been happening in housing. > However, rice farmers the world over see that price rise, and they start growing more rice. And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money. That's where my earlier comment came from: the amount of new housing required to satisfy this equation from the supply side would be enormous, as would be the environmental destruction it would cause. > And unless you're an idiot, will stop dumping your money into the rice market. Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles. > It's only a very small number of them that perform better. In aggregate, housing already does underperform the S&P. Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it.
- darawk 8y ago
  > And here's where your analogy falls over, because (a) the availability of land for residential real estate is not infinite; (b) it requires a far, far greater capital outlay (and time-to-market) to build housing than to farm rice; (c) developers are incentivized to build expensive housing because that's where they make more money. Well, you're using the word 'availability', but that sounds a lot like 'supply' to me. So, i'm not sure we really disagree here. Though I would add that for the most part, land supply is not the constraining variable in almost all major metropolitan areas (exception for places like Hong Kong). > Only if there's a better place to park my wealth. That's where all this money is coming from: people with money, who want to make more money, and are dissatisfied with the returns available in a lot of other investment vehicles. Sure, so they bid it up until its risk-adjusted net-present-value equalizes with other assets. But all that is is restating the fact that these particular plots of land are worth a lot. It doesn't answer the question of why they are worth a lot. For that, you must look to supply constraints and network effects. > Oh, c'mon. Deal with me honestly here. We're not talking about BFE, Iowa, yeah? We're talking about housing in metropolitan areas, and I'm pretty sure I've been specific about that in my comments on the subject so far. Y'know, the areas where there is a lot of investment money -- demonstrably -- and where there are ridiculously high housing prices to go along with it. I'm not trying to deal with you dishonestly. I know you are talking about major metro areas. My point in pointing out the heterogeneity was to point out that we only know ex post that the particular areas you're thinking of have done well. If you were an investor in say, 2003, it may not have been such an easy call, and similarly, it may not be such an easy call now. Let's say you had $10 million to invest. Where would you put it? Would you chuck it into SF real estate in the current market? I'm not sure I would. I think the market is quite high, especially given the rising interest rates, and I think the anti-nimby movement has gained a lot of steam, and the bay area has a lot to lose from that, in terms of property values. If I were trying to park $10 million, I think i'd actually shy away from areas with sky high valuations that are built on such monocultural foundations (tech).