6 ms·

The free market wins again - supply and demand uber alles. If we can't build tons of new apartments, then 1/3 the city fleeing for the suburbs does the trick to

The free market wins again - supply and demand uber alles. If we can't build tons of new apartments, then 1/3 the city fleeing for the suburbs does the trick too!

jeffbee 6y ago
Rent is like a traffic jam. The market collapses on the margin. You don't need to remove 30% of the cars to reduce freeway congestion by 30%, and you don't need to remove 30% of the residents to lower asking rents by 30%, either.
- simonw 6y ago
  I hadn't heard "You don't need to remove 30% of the cars to reduce freeway congestion by 30%" before, any chance you could elaborate?
  - Cthulhu_ 6y ago
    Traffic jams are a quite sudden occurrence; 1000 cars / hour is no problem, but 1100 cars / hour and the whole system can suddenly collapse. https://getpocket.com/explore/item/why-a-traffic-flow-suddenly-turns-into-a-traffic-jam https://getpocket.com/explore/item/why-a-traffic-flow-sudden... is one source, I'm sure there's better ones out there.
    - bredren 6y ago
      This has similarity to rain storms that cause sewage to overflow into the river in Portland, Oregon. Portland uses a combined sewage overflow system (CSO). When there is a heavy rain, it used to be sewage would pour into the Willamette river. However, for the past 10 years the city has been installing rain gardens that contain water storage devices that allow flash rain to be collected like a capacitor and then slowly drain into the ground after. [1] These have had a big impact, not only in reducing or eliminated sewage spills into the river, but also reducing the amount of storm water being processed by sewage treatment plants. [1] https://www.portlandoregon.gov/bes/78921 https://www.portlandoregon.gov/bes/78921
      - justnotworthit 6y ago
        For your next wikipedia rabbit hole: https://en.wikipedia.org/wiki/Infiltration_basin https://en.wikipedia.org/wiki/Infiltration_basin As kids we'd boogie board and paddle in these.
  - krona 6y ago
    e.g., slowing cars can increase average throughput. https://en.wikipedia.org/wiki/Queueing_theory https://en.wikipedia.org/wiki/Queueing_theory
    - throwaway0a5e 6y ago
      Or making the slow cars faster. It's the interaction between the traffic of varying speeds that causes the problems (this goes for all sorts of queuing, not just vehicle traffic)
  - cft 6y ago
    When you thread a needle through a hole: when the needle becomes approximately equal to the hole diameter it becomes much harder, but before then it's easy.
  - jeffbee 6y ago
    Traffic jams are a catastrophe, not just in the qualitative sense but in the way that theoreticians mean: an abrupt shift from a desirable operating equilibrium to an undesirable equilibrium. That's why speed-flow curves are ⊃-shaped. Speeds are near maximum until a critical flow rate and then they collapse to zero after that one last car gets on the road.
  - AtlasBarfed 6y ago
    There's a limited tolerance/buffer (a literal buffer: the distance cars keep between themselves) for the compression waves caused by humans "overbraking". Once the buffer is gone, the whole system dramatically collapses to stop-go traffic jam. It's why (theoretically) automated highway driving can increase the car throughput: they can gain foreknowledge and better "system planning" via mesh communication and consensus (they are motivated because without consensus the system crashes to traffic jam), and probably/possibly follow each other much more closely to maximize the use of the concrete geography.
- jariel 6y ago
  1) 'Marginal buyers' could explain it - but it might be something else. There is a smaller group of buyers, investors, of the inelastic type - who if they run away, will cause a market to plummet. They are the opposite of price sensitive, they're maybe from overseas snapping up property at 'above asking' because they need to get $1M out of their countries and they're looking for any kind of return that's reasonable. Consider 1% interest rates in a foreign country (or region within the country) and possibly a government who may come and confiscate wealth? This is a risky proposition for the burgeoning international middle class. And of course, the cohort of 'IPO winners' who are less elastic in their acquisitions as well. These 'inelastic buyers' (local, regional, foreign) are important because they are 'strong signals' to the market for price validation. Consider that nobody knows objectively how much a home should be valued at. Everyone is 'looking down the street' to see how some other property sold which is used as a primary reference. In a 'sea of ambiguity' then the 'inelastic/confident' buyers will anchor the prices. And if they don't care (i.e. inelastic), then then prices go up, way up. The confluence of: a) Low interest rates b) Globalism c) The 'belief' that real estate will never go down d) Lack of capital controls and tons of corruption in one regime exporting to another with a different set of rules which creates huge asymmetries (really part of #2) e) Expanding local economy. Means real estate will go insane. The numbers for SF are 4-6% [1] which is actually quite high, similar numbers for Vancouver and Toronto - and this only includes international buyers, whereas in the Valley there is obviously a cohort of IPO Winners. It also means: there will be no local culture. Almost all citizens who were born and raised in an area will be pushed out over the course of their lives so local ideas, customs, language, norms etc. go away. This is not accounted for in our economic models. Edit: FYI the newcomers in the expanding economy won't be these 'inelastic buyers' who are a small cohort and may not be residents anyhow - newcomers will be regional/national/international workers, but the side effect is the same. The Silicon Valley is not a normal community, it's more like a 'workplace residence'. 2)The issue with the traffic analogy - is that some drivers are considerably more likely to cause problems than others. 2-3 break-heavy drivers who are slow to catch up can cause a backlog. [1] https://www.sfweekly.com/news/how-much-s-f-real-estate-do-wealthy-foreign-buyers-own/ https://www.sfweekly.com/news/how-much-s-f-real-estate-do-we... [2] https://phys.org/news/2020-09-foreign-homes-impact-prices.html https://phys.org/news/2020-09-foreign-homes-impact-prices.ht...
boulos 6y ago
Actually, while many units were built, they were almost all in tall buildings in Soma. Many of those are occupied by renters, and approximately everyone wanted out (100 unit building with a pair of elevators isn’t a covid friendly plan). Like jeffbee says below: if you take just a little supply or demand out of the system, it can massively swing. As an example, in addition to the flight of many renters, single-family homes are up year over year.
- baby 6y ago
  These were still insanely expensive.
- opportune 6y ago
  Yeah, the other issue with Soma is that most of the appeal is that it’s in/next to the areas with all the big tech offices, which has been made obsolete. That (in addition to being new construction) commanded a large premium that’s erased. And the homeless situation in parts of Soma has got worse to boot.

The free market wins again - supply and demand uber alles. If we can't build tons of new apartments, then 1/3 the city fleeing for the suburbs does the trick too!

jeffbee 6y ago

Rent is like a traffic jam. The market collapses on the margin. You don't need to remove 30% of the cars to reduce freeway congestion by 30%, and you don't need to remove 30% of the residents to lower asking rents by 30%, either.

simonw 6y ago
I hadn't heard "You don't need to remove 30% of the cars to reduce freeway congestion by 30%" before, any chance you could elaborate?
- Cthulhu_ 6y ago
  Traffic jams are a quite sudden occurrence; 1000 cars / hour is no problem, but 1100 cars / hour and the whole system can suddenly collapse. https://getpocket.com/explore/item/why-a-traffic-flow-suddenly-turns-into-a-traffic-jam https://getpocket.com/explore/item/why-a-traffic-flow-sudden... is one source, I'm sure there's better ones out there.
  - bredren 6y ago
    This has similarity to rain storms that cause sewage to overflow into the river in Portland, Oregon. Portland uses a combined sewage overflow system (CSO). When there is a heavy rain, it used to be sewage would pour into the Willamette river. However, for the past 10 years the city has been installing rain gardens that contain water storage devices that allow flash rain to be collected like a capacitor and then slowly drain into the ground after. [1] These have had a big impact, not only in reducing or eliminated sewage spills into the river, but also reducing the amount of storm water being processed by sewage treatment plants. [1] https://www.portlandoregon.gov/bes/78921 https://www.portlandoregon.gov/bes/78921
    - justnotworthit 6y ago
      For your next wikipedia rabbit hole: https://en.wikipedia.org/wiki/Infiltration_basin https://en.wikipedia.org/wiki/Infiltration_basin As kids we'd boogie board and paddle in these.
- krona 6y ago
  e.g., slowing cars can increase average throughput. https://en.wikipedia.org/wiki/Queueing_theory https://en.wikipedia.org/wiki/Queueing_theory
  - throwaway0a5e 6y ago
    Or making the slow cars faster. It's the interaction between the traffic of varying speeds that causes the problems (this goes for all sorts of queuing, not just vehicle traffic)
- cft 6y ago
  When you thread a needle through a hole: when the needle becomes approximately equal to the hole diameter it becomes much harder, but before then it's easy.
- jeffbee 6y ago
  Traffic jams are a catastrophe, not just in the qualitative sense but in the way that theoreticians mean: an abrupt shift from a desirable operating equilibrium to an undesirable equilibrium. That's why speed-flow curves are ⊃-shaped. Speeds are near maximum until a critical flow rate and then they collapse to zero after that one last car gets on the road.
- AtlasBarfed 6y ago
  There's a limited tolerance/buffer (a literal buffer: the distance cars keep between themselves) for the compression waves caused by humans "overbraking". Once the buffer is gone, the whole system dramatically collapses to stop-go traffic jam. It's why (theoretically) automated highway driving can increase the car throughput: they can gain foreknowledge and better "system planning" via mesh communication and consensus (they are motivated because without consensus the system crashes to traffic jam), and probably/possibly follow each other much more closely to maximize the use of the concrete geography.
jariel 6y ago
1) 'Marginal buyers' could explain it - but it might be something else. There is a smaller group of buyers, investors, of the inelastic type - who if they run away, will cause a market to plummet. They are the opposite of price sensitive, they're maybe from overseas snapping up property at 'above asking' because they need to get $1M out of their countries and they're looking for any kind of return that's reasonable. Consider 1% interest rates in a foreign country (or region within the country) and possibly a government who may come and confiscate wealth? This is a risky proposition for the burgeoning international middle class. And of course, the cohort of 'IPO winners' who are less elastic in their acquisitions as well. These 'inelastic buyers' (local, regional, foreign) are important because they are 'strong signals' to the market for price validation. Consider that nobody knows objectively how much a home should be valued at. Everyone is 'looking down the street' to see how some other property sold which is used as a primary reference. In a 'sea of ambiguity' then the 'inelastic/confident' buyers will anchor the prices. And if they don't care (i.e. inelastic), then then prices go up, way up. The confluence of: a) Low interest rates b) Globalism c) The 'belief' that real estate will never go down d) Lack of capital controls and tons of corruption in one regime exporting to another with a different set of rules which creates huge asymmetries (really part of #2) e) Expanding local economy. Means real estate will go insane. The numbers for SF are 4-6% [1] which is actually quite high, similar numbers for Vancouver and Toronto - and this only includes international buyers, whereas in the Valley there is obviously a cohort of IPO Winners. It also means: there will be no local culture. Almost all citizens who were born and raised in an area will be pushed out over the course of their lives so local ideas, customs, language, norms etc. go away. This is not accounted for in our economic models. Edit: FYI the newcomers in the expanding economy won't be these 'inelastic buyers' who are a small cohort and may not be residents anyhow - newcomers will be regional/national/international workers, but the side effect is the same. The Silicon Valley is not a normal community, it's more like a 'workplace residence'. 2)The issue with the traffic analogy - is that some drivers are considerably more likely to cause problems than others. 2-3 break-heavy drivers who are slow to catch up can cause a backlog. [1] https://www.sfweekly.com/news/how-much-s-f-real-estate-do-wealthy-foreign-buyers-own/ https://www.sfweekly.com/news/how-much-s-f-real-estate-do-we... [2] https://phys.org/news/2020-09-foreign-homes-impact-prices.html https://phys.org/news/2020-09-foreign-homes-impact-prices.ht...

boulos 6y ago

Actually, while many units were built, they were almost all in tall buildings in Soma. Many of those are occupied by renters, and approximately everyone wanted out (100 unit building with a pair of elevators isn’t a covid friendly plan). Like jeffbee says below: if you take just a little supply or demand out of the system, it can massively swing. As an example, in addition to the flight of many renters, single-family homes are up year over year.

baby 6y ago
These were still insanely expensive.
opportune 6y ago
Yeah, the other issue with Soma is that most of the appeal is that it’s in/next to the areas with all the big tech offices, which has been made obsolete. That (in addition to being new construction) commanded a large premium that’s erased. And the homeless situation in parts of Soma has got worse to boot.