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> Every year, we think that this cannot possibly continue, and every year it does. > Until now. As covid and wildfire smoke have atomized us all into whatever

> Every year, we think that this cannot possibly continue, and every year it does. > Until now. As covid and wildfire smoke have atomized us all into whatever living space we can afford, and into a grid of separate video boxes on a screen, the place as it was no longer exists. The forces that kept people here are temporarily gone. Through cratering rents San Francisco is finally proving to opponents of growth that supply and demand apply to housing too. Intelligent people will twist themselves in knots trying to disprove basic economics. I see long threads on HN all the time of brilliant people convinced that supply and demand is just "far too simple" or "totally disproved" etc. etc. This book is a classic https://www.amazon.com/Basic-Economics-Thomas-Sowell/dp/0465060730 https://www.amazon.com/Basic-Economics-Thomas-Sowell/dp/0465...

avgDev 6y ago
And I have another book to read, my book collection is starting to become like my steam collection.
closeparen 6y ago
It’s usually the “supply and” part that people don’t believe; “demand” is less controversial.
- rlanday 6y ago
  I’ve been trying to explain to YIMBY-type folks for years that while, yes, supply and demand are both important, it’s extremely rare that the price of an asset will crash due to increased supply. It’s almost always due to decreased demand. E.g. the price of taxicab medallions in New York did not fall because the government increased the number of medallions; it was because Uber and Lyft decreased the demand. People sometimes reply, “but that’s the same thing!” I don’t think it is though. Obviously if the number of available medallions went up, we might see a similar effect, but that’s not what actually happened: the political situation restricting the supply never went away.
  - ng12 6y ago
    What's the point? NYC could have issued more supply to reduce the price. The fact that they chose not to until the demand for them dropped has no bearing on the supply/demand relationship.
    - rlanday 6y ago
      > NYC could have issued more supply to reduce the price. Not really, taxi medallion owners are a powerful special interest group. Just like Bay Area homeowners. My other favorite YIMBY argument is that the Bay Area would have super cheap housing if only it were more like New York. New York has (had?) some of the most expensive housing in the entire world. Sure, there are zoning laws and regulations that could be changed to build even more housing, but the primary issue is not that New York has less housing than other parts of the country. To the contrary, the cheapest places to live in the US tend to be have the least dense housing. The issue is that there are not a fixed number of people who want to live in a given area; if there were, every new unit built would allow someone else in the area to either not be homeless or to live with fewer roommates. Really what happens in practice in a high-demand city (conceptually, at least) is the additional supply causes prices to drop by some amount, which attracts new residents attracted by the drop in prices until the housing costs almost as much as it did before. So it’s definitely getting more crowded, with the associated problems, but the effect on housing prices is fairly small in comparison. The fact that housing prices in the Bay Area create such a concentration of people who work in tech by driving everyone else out contributes to the region’s culture in important ways, some positively and some negatively. My favorite theory (from Date-onomics) is that this causes the local gender ratio to skew predominantly male, which causes the single straight men in the area (while this certainly does not describe the entire labor force, it describes a substantial portion) to work harder (both because they’re trying to stand out to attract a partner and also because they’re less distracted by dating).
      - closeparen 6y ago
        >is the additional supply causes prices to drop by some amount, which attracts new residents attracted by the drop in prices until the housing costs almost as much as it did before This is a description of supply and demand, not some kind of trump card against it. Notice that more people are getting their preferences satisfied. That's the point.
davidw 6y ago
There are areas of economics where it's more complicated than simply 'supply and demand'. Positive network externalities, things like that, but by and large supply and demand are a good place to start. And it is very applicable to housing.
- cylon13 6y ago
  Definitely a good place to start. It's astounding how many people you can find yourself in a discussion with who haven't gotten as far in economic understanding as grokking supply and demand, but are adamantly proposing what amounts to complex economic policies with many effects.
vaidhy 6y ago
While supply and demand is a good model, it is at the end of day, still just a model. Even as a model, it is not easy to apply to real-life situations. Measuring supply and demand is not easy. Constraints on supply and demand change all the time. Complements and supplements change all the time. Second and third order effects which take a long time to show, but have massive impact cannot be easily predicted and measured. Finally, the supply and demand logic requires a perfect market, which does not exist. It is great model when you have perfect information. I would like to present the Economics Anti-Textbook - https://www.amazon.com/Economics-Anti-Textbook-Critical-Thinkers-Microeconomics/dp/1842779397 https://www.amazon.com/Economics-Anti-Textbook-Critical-Thin... for a more nuanced approach. [Edited for missing a word]
mbesto 6y ago
> opponents of growth that supply and demand apply to housing too. Wait there are people who don't believe that supply and demand exists in housing? What does that even mean? This is easily provable...
- aidenn0 6y ago
  There are people who argue that housing is insufficiently fungible for an increased supply to lower prices.
  - stainforth 6y ago
    Developers or property owners will just wait out a recession/depression. They won't rent below a certain amount. They may just demolish their building.
- flurben 6y ago
  It is common among the general population to believe that: "When developers build new things it makes my home value and property taxes go up." It is VERY difficult to get them to understand that they have the cause-and-effect reversed : In fact, it was the increase in value that triggered the new development.
- stale2002 6y ago
  > there are people who don't believe that supply and demand exists in housing? What does that even mean? The most good faith, steel-manned way that I can interpret these types of statements, is to interpret it as "Supply and demand in one area of the market have little effect on other areas of the market, especially those areas that are currently subject to existing government regulation and programs". EX: If someone has been living in a rent controlled, or low income housing, for X number of years, it is correct to say that building a few more high end condos, is not going to reduce this person's rent (barring implausible situations, such as building hundreds of thousands of new housing units). Yes, it might reduce the rent of people renting high end apartments, but it is not going to effect the rent of people who are, by definition, not paying market price for apartments, due to rent control.
pydry 6y ago
>I see long threads on HN all the time of brilliant people convinced that supply and demand is just "far too simple" or "totally disproved" etc. etc. Then there are those who think econ 101 has all the answers. https://en.wikipedia.org/wiki/Veblen_good https://en.wikipedia.org/wiki/Veblen_good If they taught physics they wouldn't be teaching us the law of gravity. They'd be teaching us the law of "what goes up must come down".
- bgorman 6y ago
  Basic microeconomics teaches that demand is a schedule of what customers are willing to pay at various price points, and that businesses need to apply "marginal" analysis aka calculus to optimize profit. There is nothing about the basic building blocks of microeconomics that makes it incompatible for the analysis of luxury products. Most product are not luxury products and a large portion of the world lives in poverty, so naturally most Econ 101 discussions of microeconomics will deal with commodity products e.g. bread. Like anything worth learning, it is far more important to understand the basic principles of the subject than to learn details about specific applications. That is memorization over understanding.
- 8ytecoder 6y ago
  Market alone is almost never the solution. I know an angel investor living in a rent controlled apartment in the most desirable neighbourhood in SF. Put a cap on income for rent control. Allow market to function. Any property that follows planning rules, is in the right zone and follows rules for low income/below market rate housing, allow it to be built without delay. Fix stupid zoning laws that make building anything over two stories illegal in a huge swath of the city. (An example is using tradeable floor space index to regulate zones instead of fixed height based codes) You can do all of this and build public transit options to keep the quality of life stable. It’s possible. It requires will to execute and a multi year or even multi decade plan.
- sumtechguy 6y ago
  There are 2 curves in any market. The demand curve and the supply curve. The supply curve is usually fairly easy to figure out (borderline trivial). The demand curve on the other hand does very odd things and tries to measure things there is no measurement for. Even economies where there is no real price and there is only a monopoly has to conform to the two curves. Most economic policies fail because of poor forecasting of external items on changes in the demand curve. For example maybe I had an egg for breakfast and that made me feel full for lunch. So I do not want to eat a hamburger at any price for the rest of the week. Yet the demand curve would predict I would buy it at a particular price. Economics a lot of hand wavy predictions. It is good at saying what happened after the fact but usually makes poor predictions. Most sciences would say the model is broken. The Veblen good that you mention is one of those examples. Where raising the price creates a desirability that should not be there. That is because pricing is a signal of scarcity. Some people desire the idea they have something scarce and others dont. Which makes demand curves hard as even the price you pick changes the curve!
chewz 6y ago
> brilliant people convinced that supply and demand is just "far too simple" or "totally disproved" etc. etc. These silly people - Keynes, Marx, few Noble laureates...
- flurben 6y ago
  You have severely misunderstood Keynes and Marx, if you think they "disproved supply and demand."
m463 6y ago
A friend of mine once told me "Yes, the price of a house here is extremely expensive. But no matter what happens the prices might level off for a while, but they always resume and go up". He told me that in 1994 and it has been true. Even with massive apple layoffs in 1995. And when the bubble burst in 2000. and the housing crisis. I think people will move out of the bay area. But I think they will do it the way they always have - sell their house, cash out and retire elsewhere. The others will sit on their low prop 13 ponzi taxes and stay. And people will take their place because elsewhere winter sucks and humidity sucks and rain sucks and salaries suck and yes for some even their traffic sucks.
- beambot 6y ago
  Winter, humidity and rain may be unappealing, but you know what's even worse: months on end of choking smoke & ash. If that's the new normal due to climate change, I think you'll see a lot of permanent displacement.
  - m463 6y ago
    Are you talking about washington or oregon? :) (which had a half-dozen fires PLUS they get winter and rain and... )
    - elevenoh 6y ago
      Seattle / Portland / Vancouver do have notably better air quality
      - m463 6y ago
        Is it because the constant clouds filter the air? :)
        elevenoh 6y ago
        Yet still far more sunshine hours than most western european countries :)
birdyrooster 6y ago
Did you forget how miserable the rest of the country is to live year round? The Bay Area supplies the excellent weather and we demand it.

avgDev 6y ago

And I have another book to read, my book collection is starting to become like my steam collection.

closeparen 6y ago

It’s usually the “supply and” part that people don’t believe; “demand” is less controversial.

rlanday 6y ago
I’ve been trying to explain to YIMBY-type folks for years that while, yes, supply and demand are both important, it’s extremely rare that the price of an asset will crash due to increased supply. It’s almost always due to decreased demand. E.g. the price of taxicab medallions in New York did not fall because the government increased the number of medallions; it was because Uber and Lyft decreased the demand. People sometimes reply, “but that’s the same thing!” I don’t think it is though. Obviously if the number of available medallions went up, we might see a similar effect, but that’s not what actually happened: the political situation restricting the supply never went away.
- ng12 6y ago
  What's the point? NYC could have issued more supply to reduce the price. The fact that they chose not to until the demand for them dropped has no bearing on the supply/demand relationship.
  - rlanday 6y ago
    > NYC could have issued more supply to reduce the price. Not really, taxi medallion owners are a powerful special interest group. Just like Bay Area homeowners. My other favorite YIMBY argument is that the Bay Area would have super cheap housing if only it were more like New York. New York has (had?) some of the most expensive housing in the entire world. Sure, there are zoning laws and regulations that could be changed to build even more housing, but the primary issue is not that New York has less housing than other parts of the country. To the contrary, the cheapest places to live in the US tend to be have the least dense housing. The issue is that there are not a fixed number of people who want to live in a given area; if there were, every new unit built would allow someone else in the area to either not be homeless or to live with fewer roommates. Really what happens in practice in a high-demand city (conceptually, at least) is the additional supply causes prices to drop by some amount, which attracts new residents attracted by the drop in prices until the housing costs almost as much as it did before. So it’s definitely getting more crowded, with the associated problems, but the effect on housing prices is fairly small in comparison. The fact that housing prices in the Bay Area create such a concentration of people who work in tech by driving everyone else out contributes to the region’s culture in important ways, some positively and some negatively. My favorite theory (from Date-onomics) is that this causes the local gender ratio to skew predominantly male, which causes the single straight men in the area (while this certainly does not describe the entire labor force, it describes a substantial portion) to work harder (both because they’re trying to stand out to attract a partner and also because they’re less distracted by dating).
    - closeparen 6y ago
      >is the additional supply causes prices to drop by some amount, which attracts new residents attracted by the drop in prices until the housing costs almost as much as it did before This is a description of supply and demand, not some kind of trump card against it. Notice that more people are getting their preferences satisfied. That's the point.

davidw 6y ago

There are areas of economics where it's more complicated than simply 'supply and demand'. Positive network externalities, things like that, but by and large supply and demand are a good place to start. And it is very applicable to housing.

cylon13 6y ago
Definitely a good place to start. It's astounding how many people you can find yourself in a discussion with who haven't gotten as far in economic understanding as grokking supply and demand, but are adamantly proposing what amounts to complex economic policies with many effects.

vaidhy 6y ago

While supply and demand is a good model, it is at the end of day, still just a model. Even as a model, it is not easy to apply to real-life situations. Measuring supply and demand is not easy. Constraints on supply and demand change all the time. Complements and supplements change all the time. Second and third order effects which take a long time to show, but have massive impact cannot be easily predicted and measured. Finally, the supply and demand logic requires a perfect market, which does not exist. It is great model when you have perfect information. I would like to present the Economics Anti-Textbook - https://www.amazon.com/Economics-Anti-Textbook-Critical-Thinkers-Microeconomics/dp/1842779397 https://www.amazon.com/Economics-Anti-Textbook-Critical-Thin... for a more nuanced approach. [Edited for missing a word]

mbesto 6y ago

> opponents of growth that supply and demand apply to housing too. Wait there are people who don't believe that supply and demand exists in housing? What does that even mean? This is easily provable...

aidenn0 6y ago
There are people who argue that housing is insufficiently fungible for an increased supply to lower prices.
- stainforth 6y ago
  Developers or property owners will just wait out a recession/depression. They won't rent below a certain amount. They may just demolish their building.
flurben 6y ago
It is common among the general population to believe that: "When developers build new things it makes my home value and property taxes go up." It is VERY difficult to get them to understand that they have the cause-and-effect reversed : In fact, it was the increase in value that triggered the new development.
stale2002 6y ago
> there are people who don't believe that supply and demand exists in housing? What does that even mean? The most good faith, steel-manned way that I can interpret these types of statements, is to interpret it as "Supply and demand in one area of the market have little effect on other areas of the market, especially those areas that are currently subject to existing government regulation and programs". EX: If someone has been living in a rent controlled, or low income housing, for X number of years, it is correct to say that building a few more high end condos, is not going to reduce this person's rent (barring implausible situations, such as building hundreds of thousands of new housing units). Yes, it might reduce the rent of people renting high end apartments, but it is not going to effect the rent of people who are, by definition, not paying market price for apartments, due to rent control.

pydry 6y ago

>I see long threads on HN all the time of brilliant people convinced that supply and demand is just "far too simple" or "totally disproved" etc. etc. Then there are those who think econ 101 has all the answers. https://en.wikipedia.org/wiki/Veblen_good https://en.wikipedia.org/wiki/Veblen_good If they taught physics they wouldn't be teaching us the law of gravity. They'd be teaching us the law of "what goes up must come down".

bgorman 6y ago
Basic microeconomics teaches that demand is a schedule of what customers are willing to pay at various price points, and that businesses need to apply "marginal" analysis aka calculus to optimize profit. There is nothing about the basic building blocks of microeconomics that makes it incompatible for the analysis of luxury products. Most product are not luxury products and a large portion of the world lives in poverty, so naturally most Econ 101 discussions of microeconomics will deal with commodity products e.g. bread. Like anything worth learning, it is far more important to understand the basic principles of the subject than to learn details about specific applications. That is memorization over understanding.
8ytecoder 6y ago
Market alone is almost never the solution. I know an angel investor living in a rent controlled apartment in the most desirable neighbourhood in SF. Put a cap on income for rent control. Allow market to function. Any property that follows planning rules, is in the right zone and follows rules for low income/below market rate housing, allow it to be built without delay. Fix stupid zoning laws that make building anything over two stories illegal in a huge swath of the city. (An example is using tradeable floor space index to regulate zones instead of fixed height based codes) You can do all of this and build public transit options to keep the quality of life stable. It’s possible. It requires will to execute and a multi year or even multi decade plan.
sumtechguy 6y ago
There are 2 curves in any market. The demand curve and the supply curve. The supply curve is usually fairly easy to figure out (borderline trivial). The demand curve on the other hand does very odd things and tries to measure things there is no measurement for. Even economies where there is no real price and there is only a monopoly has to conform to the two curves. Most economic policies fail because of poor forecasting of external items on changes in the demand curve. For example maybe I had an egg for breakfast and that made me feel full for lunch. So I do not want to eat a hamburger at any price for the rest of the week. Yet the demand curve would predict I would buy it at a particular price. Economics a lot of hand wavy predictions. It is good at saying what happened after the fact but usually makes poor predictions. Most sciences would say the model is broken. The Veblen good that you mention is one of those examples. Where raising the price creates a desirability that should not be there. That is because pricing is a signal of scarcity. Some people desire the idea they have something scarce and others dont. Which makes demand curves hard as even the price you pick changes the curve!

chewz 6y ago

> brilliant people convinced that supply and demand is just "far too simple" or "totally disproved" etc. etc. These silly people - Keynes, Marx, few Noble laureates...

flurben 6y ago
You have severely misunderstood Keynes and Marx, if you think they "disproved supply and demand."

m463 6y ago

A friend of mine once told me "Yes, the price of a house here is extremely expensive. But no matter what happens the prices might level off for a while, but they always resume and go up". He told me that in 1994 and it has been true. Even with massive apple layoffs in 1995. And when the bubble burst in 2000. and the housing crisis. I think people will move out of the bay area. But I think they will do it the way they always have - sell their house, cash out and retire elsewhere. The others will sit on their low prop 13 ponzi taxes and stay. And people will take their place because elsewhere winter sucks and humidity sucks and rain sucks and salaries suck and yes for some even their traffic sucks.

beambot 6y ago
Winter, humidity and rain may be unappealing, but you know what's even worse: months on end of choking smoke & ash. If that's the new normal due to climate change, I think you'll see a lot of permanent displacement.
- m463 6y ago
  Are you talking about washington or oregon? :) (which had a half-dozen fires PLUS they get winter and rain and... )
  - elevenoh 6y ago
    Seattle / Portland / Vancouver do have notably better air quality
    - m463 6y ago
      Is it because the constant clouds filter the air? :)
      - elevenoh 6y ago
        Yet still far more sunshine hours than most western european countries :)

birdyrooster 6y ago

Did you forget how miserable the rest of the country is to live year round? The Bay Area supplies the excellent weather and we demand it.