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Because there's no such thing as a "less-high-end" home. Person A leaves the housing unit they bought for $100k (back when housing had sane prices), to move in

Because there's no such thing as a "less-high-end" home. Person A leaves the housing unit they bought for $100k (back when housing had sane prices), to move into a $800k condo. Person B is trying to buy housing in a $200k neighborhood, where everything is currently priced at $600k. Person A's housing unit they just "left", gets listed for sale at $650k. By your perspective, you perceive this as a "less-high-end" home just opened up. But for 95% of everyone in the country, this is perceived as yet-another $50k jump in the market price. There is no such thing as "less-high-end" homes anymore. There is no such thing as trickle-down housing. Property values rise too fast (even in areas where construction outpaces population growth).

chii 7y ago
The condo is worth however much people will pay for. Presumably when person A's old condo is up for sale at 650k there's a buyer. Person A moved to condo B for 800k, and freed up condo A worth 650k, and there fore someone else with 650k can move in (which in turn frees up their old place). I dunno what's trickle down if this ain't it.
- jahewson 7y ago
  What if “someone else” doesn’t own “an old place” in the same housing market? Like say, all the new people moving to an area?
  - chii 7y ago
    If the area is attracting immigrants from other counties/states, then it means demand is increased. It doesn't change the fact that building an expensive condo will only decrease demand (even if it's the high-end demand). Unless the thesis is that high end condos themselves attract immigrants. I don't believe that to be the case.
martinald 7y ago
Ok. So you're agreeing that: Person A sells home for $650k into a 'luxury home' for $800k. Therefore a 650k home is available. Person B then sells a house for $400k to move into the $650k home. Person C then sells a $200k home to move into a $400k home. Therefore the $800k luxury home has created a new $200k home.
- diffeomorphism 7y ago
  I would question whether person C exists. This steady movement does not work if there is a discontinuity in the housing prices. For example say you have 1000 houses in the $200k to $250k range and 1000 houses in the $650k to $800k range. Now person A moves from a $650k house to an $800k house. That is irrelevant to person C in a $250k house, because while moving into a house that costs 10% more is realistic, moving into a house that costs more than twice as much is very much not. This discontinuity is what the debate is about and what "so many people" understand differently.
  - dwaltrip 7y ago
    I just moved, and am now paying 70% more rent than I was previously. And my previous rent wasn't something ridiculously cheap. I don't know how common this is, but it can't be that rare. I don't have any comment yet on the actual debate. It seems a bit complicated... Although, I am cautiously sympathetic to the idea that more housing should hopefully bring down prices.
  - martinald 7y ago
    I was using an example. In reality there will be some people that go from a $200k to $400k house (eg: getting married and having dual income to leverage for the mortgage). There will also be people going from $200 to $250. Or someone that goes from owning a $500k home to renting a $1000/month apartment off someone that bought it for $250k. Regardless, adding more inventory at the top definitely does help.
    - diffeomorphism 7y ago
      The disagreement is not whether it helps at all but how small the extent is. That is why I phrased this in terms of 1000 houses, but I should have expanded on this more. Say 200 people in the expensive houses move to even more expensive houses. Now only 50 families/couples are in the the life circumstances (marriage, promotion, inheritance...) to move form $250k at $650k+. How does this effect people in the $200k houses? On average for each new expensive house 0.25 affordable houses opened up. Furthermore, since the expensive houses are about three times more expensive, per million invested we only got 0.25/3=0.08 of the value of investing into cheap houses. So, it does help*0.08, which in discussion gets rounded down to "does not help at all". Admittedly, the discussion suffers due to this. So my criticism would perhaps be more accurately stated as that your last sentence should be Therefore the $800k luxury home has created a quarter of a new $200k home, which is a bad deal. In short: Unless you have a housing supply that matches the demand and assume additional constraints on the demand curve you lose quite a bit due mismatch/discontinuity/ lack of liquidity. For that reason adding expensive housing is a very ineffective option to help the masses of people looking for affordable housing.

chii 7y ago

The condo is worth however much people will pay for. Presumably when person A's old condo is up for sale at 650k there's a buyer. Person A moved to condo B for 800k, and freed up condo A worth 650k, and there fore someone else with 650k can move in (which in turn frees up their old place). I dunno what's trickle down if this ain't it.

jahewson 7y ago
What if “someone else” doesn’t own “an old place” in the same housing market? Like say, all the new people moving to an area?
- chii 7y ago
  If the area is attracting immigrants from other counties/states, then it means demand is increased. It doesn't change the fact that building an expensive condo will only decrease demand (even if it's the high-end demand). Unless the thesis is that high end condos themselves attract immigrants. I don't believe that to be the case.

martinald 7y ago

Ok. So you're agreeing that: Person A sells home for $650k into a 'luxury home' for $800k. Therefore a 650k home is available. Person B then sells a house for $400k to move into the $650k home. Person C then sells a $200k home to move into a $400k home. Therefore the $800k luxury home has created a new $200k home.

diffeomorphism 7y ago
I would question whether person C exists. This steady movement does not work if there is a discontinuity in the housing prices. For example say you have 1000 houses in the $200k to $250k range and 1000 houses in the $650k to $800k range. Now person A moves from a $650k house to an $800k house. That is irrelevant to person C in a $250k house, because while moving into a house that costs 10% more is realistic, moving into a house that costs more than twice as much is very much not. This discontinuity is what the debate is about and what "so many people" understand differently.
- dwaltrip 7y ago
  I just moved, and am now paying 70% more rent than I was previously. And my previous rent wasn't something ridiculously cheap. I don't know how common this is, but it can't be that rare. I don't have any comment yet on the actual debate. It seems a bit complicated... Although, I am cautiously sympathetic to the idea that more housing should hopefully bring down prices.
- martinald 7y ago
  I was using an example. In reality there will be some people that go from a $200k to $400k house (eg: getting married and having dual income to leverage for the mortgage). There will also be people going from $200 to $250. Or someone that goes from owning a $500k home to renting a $1000/month apartment off someone that bought it for $250k. Regardless, adding more inventory at the top definitely does help.
  - diffeomorphism 7y ago
    The disagreement is not whether it helps at all but how small the extent is. That is why I phrased this in terms of 1000 houses, but I should have expanded on this more. Say 200 people in the expensive houses move to even more expensive houses. Now only 50 families/couples are in the the life circumstances (marriage, promotion, inheritance...) to move form $250k at $650k+. How does this effect people in the $200k houses? On average for each new expensive house 0.25 affordable houses opened up. Furthermore, since the expensive houses are about three times more expensive, per million invested we only got 0.25/3=0.08 of the value of investing into cheap houses. So, it does help*0.08, which in discussion gets rounded down to "does not help at all". Admittedly, the discussion suffers due to this. So my criticism would perhaps be more accurately stated as that your last sentence should be Therefore the $800k luxury home has created a quarter of a new $200k home, which is a bad deal. In short: Unless you have a housing supply that matches the demand and assume additional constraints on the demand curve you lose quite a bit due mismatch/discontinuity/ lack of liquidity. For that reason adding expensive housing is a very ineffective option to help the masses of people looking for affordable housing.