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> cities restrict supply in the face of rising demand This isn't really a meaningful statement about the problem. Real estate and rent prices dramatically rose

> cities restrict supply in the face of rising demand This isn't really a meaningful statement about the problem. Real estate and rent prices dramatically rose in the US, even in the cities where supply far outstripped demand, and even in cities that lost population this past decade. While supply and demand are slightly an issue in a few specific metros (like San Francisco), US real estate in most metros is mostly a problem fueled by low interest rates and a ridiculous over-inflation in urban property values, as mentioned above.

jseliger 6y ago
"Real estate and rent prices dramatically rose in the US, even in the cities where supply far outstripped demand" [Citation needed] Prices being set by supply and demand can be seen in Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations (1776). More on our current predicament can be found here: https://www.theatlantic.com/business/archive/2012/03/the-rent-really-is-too-damn-high/254718 https://www.theatlantic.com/business/archive/2012/03/the-ren.... Increase supply and demand will be satiated.
- jonahbenton 6y ago
  A moment's study of NYC real estate over the last thirty or even 300 years is sufficient to disabuse one of the explanatory power of supply and demand, except in a very broad macro trend sense that ridiculously oversmoothes the actual data. Especially recently, right up to COVID times. There were hundreds of thousands of empty living spaces, even more vacant commercial spaces, and virtually no changes in prices. An important insight is that there are very few markets in the world. Most transactions take place in a context where the players have been playing for a very, very long time, and the game is optimized for the repeat participants. These are mostly cartel games, private contracts among the heavies. Not markets. In particular, real estate in New York is a subsidized game of capital and patience. It has been so since the 1700s. At this late stage there are only benefits and virtually no penalties for holding a property vacant. Property taxes are vanishingly low. Claims of loss from vacancy are used to reduce business taxes. I could go on but you really should do your own research. It astonishes me that people can be so convinced by a model, especially such a facile one, as to disregard actual data. Best wishes to you.
  - julianeon 6y ago
    This is an interesting perspective, thanks for sharing. It makes sense but I would've never guessed this on my own.
  - Consultant32452 6y ago
    Someone wanting to purchase and hold NYC real estate is still demand that would have to be outpaced in order to reduce prices. If you could somehow wave your magic wand and over night there could be 100x as many total units in NYC, do you believe prices would hold steady? Of course magic isn't real, it's just about questioning whether, in principle, there is some threshold past which the price would drop. If so, the model holds.
    - jonahbenton 6y ago
      Sure- in the framing of- all models are wrong, some are useful- that sort of model may even be right, but it would fail to be useful. Fair? I don't disagree in principle with supply and demand, my point was rather that as a model it explains very little about New York City real estate, and if one insists on it as an explanatory tool, one will have to throw out nearly all of the data, which what makes it interesting to study. Various accounting fictions drive a lot of asset pricing. Not fictions in the sense of being false, but rather in the sense of being complicated narratives woven for various purposes that, at the end of the day, are just made up. Real estate is absolutely FULL of these, and they tell a much richer pricing story. Taking the hypothesis of 100x increase in supply- if we are able to poke at that magical occurrence, put it into context, provide some facts and reasoning behind it- we can see circumstances under which it either lowers or raises prices. I mostly see ways in which it raises prices. If the increase in supply was executed by adding to the inventory of one of the monster private owners in NYC- you can be damn sure there would be no sudden drop in pricing of the rest of their inventory, and dollars will go into tuning the machine- tax and reporting rules, interesting ways of structuring new inventory into new assets- so as to allow them to reallocate their ownership in ways that they deemed most advantageous. If the supply increase were executed by magically growing the inventory of city-owned property- you would also probably not see much in the way of price decrease. Why? The city will have the additional burden of maintenance for an enormous new footprint, for water, sewer, public transportation, etc. Huge capital investment would be required, which would require more population, and some sales. But the city will not make that inventory available in any way that would impact prices for other owners. Fund it with debt, keep prices steady, set up special programs to grant the properties, locked in to prevent fast turnover, to new owners who have to move to the city, and look forward to growing flows in the economy in the future. A way in which it might lower prices is if magically ownership of these new properties was distributed among existing renters or small property owners. This is closest to the behavior of an actual market, which describes NYC less and less as more and more of the footprint is held by large interests. But individuals would be forced with a choice of- leave their current space, or shed this new space, both of which would lead to various price depressions. But in the scheme of things, I see this as least likely. Even genies are lazy, and would prefer one large transaction to millions of small ones. Cheers.
lend000 6y ago
One city can't "outstrip demand" by itself. If prices are cheaper in one city, demand will spillover from others. It's a national problem. Cities/states that do build have certainly done better, though. Compare the cost of living in Dallas and Houston to San Francisco and Los Angeles. This isn't to say easy money and certain tax policies (like California's 2% taxable growth limit) haven't contributed to the problem, on top of zoning.
- irrational 6y ago
  I would think it depends on the city. Portland Oregon is about 3 hours (at highway speeds) from Seattle, 7 hours from Boise, and about 9 hours from Sacramento (the next cities to the North, West and South). There is no demand spillover for cities that are as isolated as Portland.

jseliger 6y ago

"Real estate and rent prices dramatically rose in the US, even in the cities where supply far outstripped demand" [Citation needed] Prices being set by supply and demand can be seen in Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations (1776). More on our current predicament can be found here: https://www.theatlantic.com/business/archive/2012/03/the-rent-really-is-too-damn-high/254718 https://www.theatlantic.com/business/archive/2012/03/the-ren.... Increase supply and demand will be satiated.

jonahbenton 6y ago
A moment's study of NYC real estate over the last thirty or even 300 years is sufficient to disabuse one of the explanatory power of supply and demand, except in a very broad macro trend sense that ridiculously oversmoothes the actual data. Especially recently, right up to COVID times. There were hundreds of thousands of empty living spaces, even more vacant commercial spaces, and virtually no changes in prices. An important insight is that there are very few markets in the world. Most transactions take place in a context where the players have been playing for a very, very long time, and the game is optimized for the repeat participants. These are mostly cartel games, private contracts among the heavies. Not markets. In particular, real estate in New York is a subsidized game of capital and patience. It has been so since the 1700s. At this late stage there are only benefits and virtually no penalties for holding a property vacant. Property taxes are vanishingly low. Claims of loss from vacancy are used to reduce business taxes. I could go on but you really should do your own research. It astonishes me that people can be so convinced by a model, especially such a facile one, as to disregard actual data. Best wishes to you.
- julianeon 6y ago
  This is an interesting perspective, thanks for sharing. It makes sense but I would've never guessed this on my own.
- Consultant32452 6y ago
  Someone wanting to purchase and hold NYC real estate is still demand that would have to be outpaced in order to reduce prices. If you could somehow wave your magic wand and over night there could be 100x as many total units in NYC, do you believe prices would hold steady? Of course magic isn't real, it's just about questioning whether, in principle, there is some threshold past which the price would drop. If so, the model holds.
  - jonahbenton 6y ago
    Sure- in the framing of- all models are wrong, some are useful- that sort of model may even be right, but it would fail to be useful. Fair? I don't disagree in principle with supply and demand, my point was rather that as a model it explains very little about New York City real estate, and if one insists on it as an explanatory tool, one will have to throw out nearly all of the data, which what makes it interesting to study. Various accounting fictions drive a lot of asset pricing. Not fictions in the sense of being false, but rather in the sense of being complicated narratives woven for various purposes that, at the end of the day, are just made up. Real estate is absolutely FULL of these, and they tell a much richer pricing story. Taking the hypothesis of 100x increase in supply- if we are able to poke at that magical occurrence, put it into context, provide some facts and reasoning behind it- we can see circumstances under which it either lowers or raises prices. I mostly see ways in which it raises prices. If the increase in supply was executed by adding to the inventory of one of the monster private owners in NYC- you can be damn sure there would be no sudden drop in pricing of the rest of their inventory, and dollars will go into tuning the machine- tax and reporting rules, interesting ways of structuring new inventory into new assets- so as to allow them to reallocate their ownership in ways that they deemed most advantageous. If the supply increase were executed by magically growing the inventory of city-owned property- you would also probably not see much in the way of price decrease. Why? The city will have the additional burden of maintenance for an enormous new footprint, for water, sewer, public transportation, etc. Huge capital investment would be required, which would require more population, and some sales. But the city will not make that inventory available in any way that would impact prices for other owners. Fund it with debt, keep prices steady, set up special programs to grant the properties, locked in to prevent fast turnover, to new owners who have to move to the city, and look forward to growing flows in the economy in the future. A way in which it might lower prices is if magically ownership of these new properties was distributed among existing renters or small property owners. This is closest to the behavior of an actual market, which describes NYC less and less as more and more of the footprint is held by large interests. But individuals would be forced with a choice of- leave their current space, or shed this new space, both of which would lead to various price depressions. But in the scheme of things, I see this as least likely. Even genies are lazy, and would prefer one large transaction to millions of small ones. Cheers.

lend000 6y ago

One city can't "outstrip demand" by itself. If prices are cheaper in one city, demand will spillover from others. It's a national problem. Cities/states that do build have certainly done better, though. Compare the cost of living in Dallas and Houston to San Francisco and Los Angeles. This isn't to say easy money and certain tax policies (like California's 2% taxable growth limit) haven't contributed to the problem, on top of zoning.

irrational 6y ago
I would think it depends on the city. Portland Oregon is about 3 hours (at highway speeds) from Seattle, 7 hours from Boise, and about 9 hours from Sacramento (the next cities to the North, West and South). There is no demand spillover for cities that are as isolated as Portland.