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It’s called Induced Demand, a very common phenomenon in everything from traffic to housing https://en.m.wikipedia.org/wiki/Induced_demand https://en.m.wikipedi

It’s called Induced Demand, a very common phenomenon in everything from traffic to housing https://en.m.wikipedia.org/wiki/Induced_demand https://en.m.wikipedia.org/wiki/Induced_demand Advocates of “more housing” in the Bay Area, for example, will be dismayed to see that tons of housing and higher density did not work in NYC, prices will remain high, so more housing is not the solution.

spikels 7y ago
This is incorrect. The impact of supply on housing prices has been shown over and over again in the real estate economics literature. The concept of induced demand in real estate is quite different than in transportation. The theoretical mechanism involves increased amenities induced by higher density above and beyond normal supply and demand interactions. It is likely to be a much smaller effect if it even exists at all. There is no solid research showing it is a significant in practice. Here’s a recent presentation on the issue: https://appam.confex.com/appam/2018/webprogram/Paper25811.html https://appam.confex.com/appam/2018/webprogram/Paper25811.ht...
- AnthonyMouse 7y ago
  "Induced demand" leads to wrong conclusions in general, analogous to confusing the local maxima produced by a hill climbing algorithm with a global one. It's possible to build enough of anything to satisfy all the demand, even roads. The real problem with roads is the opportunity cost. There are alternative, better ways of satisfying that demand -- like building more housing, so people can live closer to where they work and don't have to drive as far. So what's the alternative, better way of satisfying demand for housing? Nobody has one? Then we ought to build more housing, even if we have to plow through some induced demand (which may or may not even be present) in order to satisfy the full demand.
- swant56 7y ago
  I’m glad people understand that building more housing does NOT work
- swant56 7y ago
  Not really. Induced demand applies to housing.
repolfx 7y ago
Tons of housing and higher density appears to be working on London though. https://www.forbes.com/sites/garybarker/2019/07/18/london-house-prices-suffer-worst-plunge-in-10-years-but-is-it-all-doom-and-gloom/#39ff97012857 https://www.forbes.com/sites/garybarker/2019/07/18/london-ho... London has seen extremely high levels of house and apartment building. The market is being flooded with supply, and now prices have fallen 4.4% in the last year. So apparently it's definitely possible for even big global cities to get ahead of demand. Before someone says this is related to Brexit and not the huge increase in supply, bear in mind that: • For the whole country prices are still going up. • That's because in regions outside of London they're going up above inflation, e.g. in the north west they went up 3.4%. But Brexit affects the whole country, so it doesn't work as an explanation. • Prior claims about "uncertainty" affecting prices didn't pan out. Government economists claimed in 2016 that "uncertainty" would be such a strong effect it would cause a massive recession, instead the economy grew at a strong rate and unemployment hit record lows. So it seems pretty clear to me that the simple, well understood economic explanation of supply and demand is sufficient to explain these results. New York could probably achieve the same thing if it built enough homes.
- GlennS 7y ago
  It seems plausible to me that Brexit would cause lower house prices in London without affecting the rest of the country. 1. London has (had?) a lot of immigration from the EU. 2. London's economy is very connected to the EU. Lots of European companies use London's financial and business services. Don't want to argue against your overall point, however.
- verbify 7y ago
  It might be that London house prices were already overinflated - look at a comparison between London house prices and the rest of the UK: https://d1btnptfa0r0eu.cloudfront.net/wp-content/uploads/2016/01/160125-house-prices.png https://d1btnptfa0r0eu.cloudfront.net/wp-content/uploads/201... I don't disagree with the substance of your point, but London is far from a watertight argument.
JMTQp8lwXL 7y ago
China has built ghost cities that are sparsely occupied, so I think the supply-demand concept holds for even housing. Just because the housing was built doesn't mean people wanted it, simply because it existed.

spikels 7y ago

This is incorrect. The impact of supply on housing prices has been shown over and over again in the real estate economics literature. The concept of induced demand in real estate is quite different than in transportation. The theoretical mechanism involves increased amenities induced by higher density above and beyond normal supply and demand interactions. It is likely to be a much smaller effect if it even exists at all. There is no solid research showing it is a significant in practice. Here’s a recent presentation on the issue: https://appam.confex.com/appam/2018/webprogram/Paper25811.html https://appam.confex.com/appam/2018/webprogram/Paper25811.ht...

AnthonyMouse 7y ago
"Induced demand" leads to wrong conclusions in general, analogous to confusing the local maxima produced by a hill climbing algorithm with a global one. It's possible to build enough of anything to satisfy all the demand, even roads. The real problem with roads is the opportunity cost. There are alternative, better ways of satisfying that demand -- like building more housing, so people can live closer to where they work and don't have to drive as far. So what's the alternative, better way of satisfying demand for housing? Nobody has one? Then we ought to build more housing, even if we have to plow through some induced demand (which may or may not even be present) in order to satisfy the full demand.
swant56 7y ago
I’m glad people understand that building more housing does NOT work
swant56 7y ago
Not really. Induced demand applies to housing.

repolfx 7y ago

Tons of housing and higher density appears to be working on London though. https://www.forbes.com/sites/garybarker/2019/07/18/london-house-prices-suffer-worst-plunge-in-10-years-but-is-it-all-doom-and-gloom/#39ff97012857 https://www.forbes.com/sites/garybarker/2019/07/18/london-ho... London has seen extremely high levels of house and apartment building. The market is being flooded with supply, and now prices have fallen 4.4% in the last year. So apparently it's definitely possible for even big global cities to get ahead of demand. Before someone says this is related to Brexit and not the huge increase in supply, bear in mind that: • For the whole country prices are still going up. • That's because in regions outside of London they're going up above inflation, e.g. in the north west they went up 3.4%. But Brexit affects the whole country, so it doesn't work as an explanation. • Prior claims about "uncertainty" affecting prices didn't pan out. Government economists claimed in 2016 that "uncertainty" would be such a strong effect it would cause a massive recession, instead the economy grew at a strong rate and unemployment hit record lows. So it seems pretty clear to me that the simple, well understood economic explanation of supply and demand is sufficient to explain these results. New York could probably achieve the same thing if it built enough homes.

GlennS 7y ago
It seems plausible to me that Brexit would cause lower house prices in London without affecting the rest of the country. 1. London has (had?) a lot of immigration from the EU. 2. London's economy is very connected to the EU. Lots of European companies use London's financial and business services. Don't want to argue against your overall point, however.
verbify 7y ago
It might be that London house prices were already overinflated - look at a comparison between London house prices and the rest of the UK: https://d1btnptfa0r0eu.cloudfront.net/wp-content/uploads/2016/01/160125-house-prices.png https://d1btnptfa0r0eu.cloudfront.net/wp-content/uploads/201... I don't disagree with the substance of your point, but London is far from a watertight argument.

JMTQp8lwXL 7y ago

China has built ghost cities that are sparsely occupied, so I think the supply-demand concept holds for even housing. Just because the housing was built doesn't mean people wanted it, simply because it existed.