3 ms·

As great as it is to see this kind of corporate responsibility and acknowledgement of the downsides of local growth, it's not clear to me how Microsoft is suppo

As great as it is to see this kind of corporate responsibility and acknowledgement of the downsides of local growth, it's not clear to me how Microsoft is supposed to help here. High housing costs are a nasty example of a particular social problem where throwing money at it just doesn't work, even if you're willing to completely take a loss on your investment. To my naïve analysis, if Microsoft just pledges money to build a bunch of housing units, then that throws a wrench in supply/demand, other people pull back on construction to match, and we end up right back where we started. I'm sure there are higher-order effects and the reality is more complicated than this, but I also don't think it changes the fundamental picture much. How is Microsoft supposed to help make more housing available without other developers just canning their own projects and leaving zero net change?

tfehring 8y ago
Nearly all of the regional variation in construction costs is attributable to differences in labor costs. This can create a self-reinforcing upward spiral in home prices [0]: > Inasmuch as it means that those working in the construction trades are better off, construction wage growth in the expensive coastal cities is a welcome development, which ought to be celebrated. > However, construction wage growth could also be part of a dangerous, self-reinforcing cycle. Rising construction costs tend to reduce the supply of new housing because they shift marginally-worthwhile residential development into the red.8 This helps raise housing costs, which in turn feeds back into construction wage growth for at least three reasons: > - When housing prices rise, workers require greater compensation to subsist. > -When housing prices rise and the supply of homes is smaller than it would be otherwise, it is harder for people to find suitable homes for sale (and to afford them). This creates a greater incentive for renovation, which exerts upward pressure on labor costs as suggested earlier. > -When housing prices rise, the pool of potential home buyers becomes more financially select, which likely corresponds to higher expectations with respect to homes’ level of finish.9 Once again, this means that more renovation is bound to take place (including home-flipping), exerting even more upward pressure on labor costs. A one-off influx of affordable housing could potentially break that cycle by enabling tradespeople to move to the area. I'm not sure that Microsoft's investment is significant enough to have that effect given the existing deficit in affordable housing in the Seattle area, but the theory's there. [0] https://www.buildzoom.com/blog/whats-up-with-construction-costs https://www.buildzoom.com/blog/whats-up-with-construction-co...

tfehring 8y ago

Nearly all of the regional variation in construction costs is attributable to differences in labor costs. This can create a self-reinforcing upward spiral in home prices [0]: > Inasmuch as it means that those working in the construction trades are better off, construction wage growth in the expensive coastal cities is a welcome development, which ought to be celebrated. > However, construction wage growth could also be part of a dangerous, self-reinforcing cycle. Rising construction costs tend to reduce the supply of new housing because they shift marginally-worthwhile residential development into the red.8 This helps raise housing costs, which in turn feeds back into construction wage growth for at least three reasons: > - When housing prices rise, workers require greater compensation to subsist. > -When housing prices rise and the supply of homes is smaller than it would be otherwise, it is harder for people to find suitable homes for sale (and to afford them). This creates a greater incentive for renovation, which exerts upward pressure on labor costs as suggested earlier. > -When housing prices rise, the pool of potential home buyers becomes more financially select, which likely corresponds to higher expectations with respect to homes’ level of finish.9 Once again, this means that more renovation is bound to take place (including home-flipping), exerting even more upward pressure on labor costs. A one-off influx of affordable housing could potentially break that cycle by enabling tradespeople to move to the area. I'm not sure that Microsoft's investment is significant enough to have that effect given the existing deficit in affordable housing in the Seattle area, but the theory's there. [0] https://www.buildzoom.com/blog/whats-up-with-construction-costs https://www.buildzoom.com/blog/whats-up-with-construction-co...