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Don’t know which state or country you are in, but here’s a good example where more construction definitely halted the rise of rents: http://www.ladowntownnews.c

Don’t know which state or country you are in, but here’s a good example where more construction definitely halted the rise of rents: http://www.ladowntownnews.com/development/much-ado-about-downtown-housing-vacancy/article_18af1292-aad7-11e7-b771-4bdf2fb7dbc3.html http://www.ladowntownnews.com/development/much-ado-about-dow... That’s a 2017 article. Now the fall is much greater because of COVID market shifts, but the rents really did slow or drop before in Downtown Los Angeles. Real estate in California’s two large metro areas (SF Bay and Greater LA) is a mess, largely thanks to regulation and NIMBYism. That’s not a normal market. Add to it Prop 13 that prevents property tax adjusting tax base to market value of housing, even for corporations and rentals, and you have the recipe for really constraint supply. As the result, prices remain high. Putting the burden on landlords will cause small-time landlords to exit and be either replaced by large corps that can afford the insurance-equivalent or the rentals will be sold to owner users and the people who have to rent will have even less supply to go around.

dredmorbius 6y ago
"Regulation", "NIMBYism" and "not a normal market" (it is a typical market, for assets --- the confusion is thinking that housing/real estate behave as supply-elastic commodities) generally are behaviours resulting from the dynamics I've described. Of the various corrective measures, a land value tax (tax on the unimproved value of property) is likely the most widely known, understood, and accepted by economists. Other issues are more difficult to address (see e.g., Mancur Olsen's Logic of Collective Action), but also arise and create dysfunctions through economic logic giving rise to pathologies. A reading of Adam Smith's sections on prices of various economic products and services suggests a set of differentiable behaviours by types: 1. Commodity goods. 2. Labour wages and services. Extended to include pleasantness, skill, training, constancy, success probability, and trust. 3. Natural resources (developed further by Ricardo, Grey, and Hotelling, though still fundamentally flawed). 4. Returns to stock. 5. Rents: monopoly and network services. 6. Assets and money (to Smith: gold and silver). 7. Interest. 8. Public goods. 9. Taxes. Each has distinct behavious, much explained by later concepts of the marginalists and political theorists (class and power), though these are suggested by Smith. There's some likely consolidation of these (rents, assets, and interest, say). Commodity goods follow laws of supply and demand as commonly understood, but only where goods are undifferentiated (no "luxury" branding, monopoly, or lock-in effects). Many of the others, for confounding reasons, deviate markedly some or much of the time. Smith was largely addressing these failures under merchantilism and politically-influential monopolists and classes.
- sologoub 6y ago
  Without going in to your level of economics nuance (close to unreadable for lay person), housing is absolutely elastic in that purchasing power plays a huge role. It is somewhat differentiated due to neighborhood amenities and other factors, but within those a house/condo are a commodity. The bigger issue is that you have land use lock-in due to the tax advantage and zoning. In simple terms, if you take 0.5 acre lot in Los Altos within close commute to Apple, Google, Facebook and Amazon. If taxes were market rate, then a lot more inventory would be available because these “assets” would be too expensive to just keep. If zoning was not a factor, then the lot prices would be even higher due to being able to cram in more shared use spaces (condos) into it. Of course, all these have extreme negative externalities (impacts) on those living around these lots and those living on them. That’s why we need some protections and middle ground between these as a society.

dredmorbius 6y ago

"Regulation", "NIMBYism" and "not a normal market" (it is a typical market, for assets --- the confusion is thinking that housing/real estate behave as supply-elastic commodities) generally are behaviours resulting from the dynamics I've described. Of the various corrective measures, a land value tax (tax on the unimproved value of property) is likely the most widely known, understood, and accepted by economists. Other issues are more difficult to address (see e.g., Mancur Olsen's Logic of Collective Action), but also arise and create dysfunctions through economic logic giving rise to pathologies. A reading of Adam Smith's sections on prices of various economic products and services suggests a set of differentiable behaviours by types: 1. Commodity goods. 2. Labour wages and services. Extended to include pleasantness, skill, training, constancy, success probability, and trust. 3. Natural resources (developed further by Ricardo, Grey, and Hotelling, though still fundamentally flawed). 4. Returns to stock. 5. Rents: monopoly and network services. 6. Assets and money (to Smith: gold and silver). 7. Interest. 8. Public goods. 9. Taxes. Each has distinct behavious, much explained by later concepts of the marginalists and political theorists (class and power), though these are suggested by Smith. There's some likely consolidation of these (rents, assets, and interest, say). Commodity goods follow laws of supply and demand as commonly understood, but only where goods are undifferentiated (no "luxury" branding, monopoly, or lock-in effects). Many of the others, for confounding reasons, deviate markedly some or much of the time. Smith was largely addressing these failures under merchantilism and politically-influential monopolists and classes.

sologoub 6y ago
Without going in to your level of economics nuance (close to unreadable for lay person), housing is absolutely elastic in that purchasing power plays a huge role. It is somewhat differentiated due to neighborhood amenities and other factors, but within those a house/condo are a commodity. The bigger issue is that you have land use lock-in due to the tax advantage and zoning. In simple terms, if you take 0.5 acre lot in Los Altos within close commute to Apple, Google, Facebook and Amazon. If taxes were market rate, then a lot more inventory would be available because these “assets” would be too expensive to just keep. If zoning was not a factor, then the lot prices would be even higher due to being able to cram in more shared use spaces (condos) into it. Of course, all these have extreme negative externalities (impacts) on those living around these lots and those living on them. That’s why we need some protections and middle ground between these as a society.