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I am thinking more in terms of lagging responses. For instance, suppose we increased supply 10% today, and prices immidietly fall. Seeing the lower prices, bus

I am thinking more in terms of lagging responses. For instance, suppose we increased supply 10% today, and prices immidietly fall. Seeing the lower prices, bussiness begin making plans to open in the new city to take advantage of the lower COL workforce. In total, these plans would increase the demand for labor by 20% and take 5 years to be implemented. At some point in those 5 years, people will have moved into the new housing driving the costs back up to their original levels. In an ideal market, bussiness would stop moving in, as their original motivation to do so is gone. However, the market is not ideal. Plans had already been written, and the moving has already begun, so the demand for labor will increase even further, encouraging more people to move in, driving up the costs of housing.

Eridrus 8y ago
I mean, rents won't immediately fall. We're incapable of producing that much housing quickly. We're limited by all sorts of construction infrastructure. It's going to take a decade to crawl out of this hole in the best case. This also assumes that these hypothetical employers would be paying the same amount as the employers who were there before. Which is unlikely because the existing employers were already there paying increased wages, vs the new employers who waited for falling CoL/salaries to move in. Also, raising salaries is often not enough to offset CoL expenses, since not all employees have the same CoL expenses, e.g. families, and those with higher CoL expenses will again move away / won't come to these jobs. Also, in practice, the amount of jobs is not the binding factor in, e.g. the bay area. There are plenty of jobs out there, people are just a lot less willing to move there due to the insane CoL/shitty commute. You could have some perfect storm where the induced demand perfectly offsets the new housing, but if you assume there is some elasticity at all points in the system, I think the default assumption should be that increased supply will drive down prices for everyone.

Eridrus 8y ago

I mean, rents won't immediately fall. We're incapable of producing that much housing quickly. We're limited by all sorts of construction infrastructure. It's going to take a decade to crawl out of this hole in the best case. This also assumes that these hypothetical employers would be paying the same amount as the employers who were there before. Which is unlikely because the existing employers were already there paying increased wages, vs the new employers who waited for falling CoL/salaries to move in. Also, raising salaries is often not enough to offset CoL expenses, since not all employees have the same CoL expenses, e.g. families, and those with higher CoL expenses will again move away / won't come to these jobs. Also, in practice, the amount of jobs is not the binding factor in, e.g. the bay area. There are plenty of jobs out there, people are just a lot less willing to move there due to the insane CoL/shitty commute. You could have some perfect storm where the induced demand perfectly offsets the new housing, but if you assume there is some elasticity at all points in the system, I think the default assumption should be that increased supply will drive down prices for everyone.