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> Building new housing lowers prices for all preexisting housing This is not true in the US. Housing in the US is valued solely by the value of the housing aro

> Building new housing lowers prices for all preexisting housing This is not true in the US. Housing in the US is valued solely by the value of the housing around it (called 'comps' or 'comparables'). Building new luxury housing raises the price for all preexisting nearby housing, because your comparables will now be based on whatever the luxury housing prices are (even if your own house is very modest, even if your own house could never fetch a similar price, even if you never try to sell your house) This is one of the big reasons you see pushback by rational, logical, well-informed residents in the US. Luxury housing usually raises all non-luxury housing costs nearby, simply by proximity. Is is effectively a form of financial pollution. Some people's wealth is so obscene, that the mere fact it exists in a physical location, punishes everyone else in proximity to that location. This is what Gentrification looks like in non-California, non-coastal cities. Wealthy people artificially inflate the value of property in an area (which they can do, because there's never any limits or restrictions on construction of any kind, so they always build the highest-cost highest-margin property possible). And regular residents are now forced to bear that cost, forever. It is possible to continue this bubble, irregardless of any actual demand for the housing, long after all real humans have checked out of the system. (See 2008 Financial Crisis). This process was not primarily driven by real people's housing needs, but by private capital's desire to store or grow their wealth, so real people have little control over it. And, in non-Californian states like mine where property taxes are not locked in, but are recalculated constantly based on "market comparables", the bill for this financial pollution will hit you instantly on your next property tax invoice. Luxury condos go up on your block? Congrats, the tax bill for your old modest home is now doubled next year. Don't like it? Your only other option is to rent the unaffordable shitty luxury crap they just built.

JoshTko 7y ago
Any reference on this as it doesn't make sense intuitively. How does increasing supply increase price? I could see how this could have hyper local effects in UHCOL locations, where you attract foreign investment by virtue of showing a trend of increasing rent prices. This also probably happens only in locations where demand has far exceeded supply for a long time.
Nasrudith 7y ago
Gentrification is perfectly possible without new construction. Boston found apparently that luxury condos had a containing effect on gentrification overall - they reduced demand for other areas. Also wouldn't it be authentic inflation of value? The tax bill objection also strikes me as odd given that it is synonymous with a windfall to owners - the renters it makes perfect sense for.
- maxsilver 7y ago
  > synonymous with a windfall to owners It's not. It's just inflation. If I double your salary, but jack the price of everything up 50%, you "got a windfall", but have in real-world dollars earned nothing. If you own a house worth $100k, but a luxury condo goes up next door full of $600k/each units, and your old house is now "worth" $300k, have you really gotten a windfall? You still need somewhere to live, the windfall doesn't cover even half the new cost of housing. You could sell it, but there's no where safe for you to land nearby without doubling your mortgage (since your house went up, all nearby ones did too), and paying the extra on your mortgage just to remain housed is a destruction of wealth, not a windfall. You could get a home equity loan out of the new equity, but you'd just have to pay that all back with interest. It's technically a "windfall" on paper, but it's mostly fake wealth. You are now liable for this "windfall" and owe taxes on it anyway, despite it the fact that it's never physically existed in the real world, and is mostly unusable (except for a few specific scenarios, like cashing out your home to Gentrify some other poorer people out of their homes, in some other different place)
  - Nasrudith 7y ago
    You don't pay extra on your mortgage. A mortgage is a loan to buy the house with the title to the bank as collateral plus some bundling like insurance. Otherwise people wouldn't walk away from "underwater" mortgages. It may come with inconveniences of linked job changes and relocation but that is a real gain of wealth. The locational value has gone up - which is why they can even afford to "displace". Assuming that buying a home elsewhere will automatically have comparable price or displacing is also a bad assumption. Despite the rhetoric a single person with a collegd degree in a neighborhood won't cause appreciable rises in real estate value.
ummonk 7y ago
New luxury housing is not used as comps for older housing, at least in California. There is always a massive price premium for newer housing over older housing, contrary to your claims.
BurningFrog 7y ago
> Building new luxury housing raises the price for all preexisting nearby housing If this was true, you could create infinite wealth by just building more and more "luxury" housing. You will not find any economist agreeing with this "folk wisdom".
- maxsilver 7y ago
  > If this was true, you could create infinite wealth by just building more and more "luxury" housing. I mean, it works until the bubble bursts. But the last time that happened, the federal government bailed out everyone participating in it -- they carefully re-assembled the bubble, like nothing had ever happened. So, uh, until federal policy changes, this sort of does just create infinite wealth (on paper, at least).
  - BurningFrog 7y ago
    Then the government should just do that and replace a lot of taxes with this income source!
matchbok 7y ago
> Building new luxury housing raises the price for all preexisting nearby housing Based on this logic we should ban all new housing construction and ignore basic things like population growth. Hint: It's only "luxury" because the market can bear it.

JoshTko 7y ago

Any reference on this as it doesn't make sense intuitively. How does increasing supply increase price? I could see how this could have hyper local effects in UHCOL locations, where you attract foreign investment by virtue of showing a trend of increasing rent prices. This also probably happens only in locations where demand has far exceeded supply for a long time.

Nasrudith 7y ago

Gentrification is perfectly possible without new construction. Boston found apparently that luxury condos had a containing effect on gentrification overall - they reduced demand for other areas. Also wouldn't it be authentic inflation of value? The tax bill objection also strikes me as odd given that it is synonymous with a windfall to owners - the renters it makes perfect sense for.

maxsilver 7y ago
> synonymous with a windfall to owners It's not. It's just inflation. If I double your salary, but jack the price of everything up 50%, you "got a windfall", but have in real-world dollars earned nothing. If you own a house worth $100k, but a luxury condo goes up next door full of $600k/each units, and your old house is now "worth" $300k, have you really gotten a windfall? You still need somewhere to live, the windfall doesn't cover even half the new cost of housing. You could sell it, but there's no where safe for you to land nearby without doubling your mortgage (since your house went up, all nearby ones did too), and paying the extra on your mortgage just to remain housed is a destruction of wealth, not a windfall. You could get a home equity loan out of the new equity, but you'd just have to pay that all back with interest. It's technically a "windfall" on paper, but it's mostly fake wealth. You are now liable for this "windfall" and owe taxes on it anyway, despite it the fact that it's never physically existed in the real world, and is mostly unusable (except for a few specific scenarios, like cashing out your home to Gentrify some other poorer people out of their homes, in some other different place)
- Nasrudith 7y ago
  You don't pay extra on your mortgage. A mortgage is a loan to buy the house with the title to the bank as collateral plus some bundling like insurance. Otherwise people wouldn't walk away from "underwater" mortgages. It may come with inconveniences of linked job changes and relocation but that is a real gain of wealth. The locational value has gone up - which is why they can even afford to "displace". Assuming that buying a home elsewhere will automatically have comparable price or displacing is also a bad assumption. Despite the rhetoric a single person with a collegd degree in a neighborhood won't cause appreciable rises in real estate value.

ummonk 7y ago

New luxury housing is not used as comps for older housing, at least in California. There is always a massive price premium for newer housing over older housing, contrary to your claims.

BurningFrog 7y ago

> Building new luxury housing raises the price for all preexisting nearby housing If this was true, you could create infinite wealth by just building more and more "luxury" housing. You will not find any economist agreeing with this "folk wisdom".

maxsilver 7y ago
> If this was true, you could create infinite wealth by just building more and more "luxury" housing. I mean, it works until the bubble bursts. But the last time that happened, the federal government bailed out everyone participating in it -- they carefully re-assembled the bubble, like nothing had ever happened. So, uh, until federal policy changes, this sort of does just create infinite wealth (on paper, at least).
- BurningFrog 7y ago
  Then the government should just do that and replace a lot of taxes with this income source!

matchbok 7y ago

> Building new luxury housing raises the price for all preexisting nearby housing Based on this logic we should ban all new housing construction and ignore basic things like population growth. Hint: It's only "luxury" because the market can bear it.