5 ms·

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

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.
  - ng12 6y ago
    > Not really, taxi medallion owners are a powerful special interest group. Just like Bay Area homeowners. And YIMBY-type groups fight against these artificial restrictions on supply. That's not an argument that the fundamentals of supply and demand doesn't apply. > 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 That's the definition of demand: the number of people who would buy a good at a given price.
runako 6y ago
> extremely rare that the price of an asset will crash due to increased supply The history of commodities such as crude oil and natural gas are potent counterexamples. For that matter, semiconductors fit the bill as well.
- robotresearcher 6y ago
  and online music and movies, low-end smartphones, operating system software, ... Is it extremely rare for supply to crush prices? Or is it more that we stop thinking about valuable things once they become super cheap commodities?
  - sumtechguy 6y ago
    This is usually comes from a confusion of upfront costs and ongoing. For example a printing press. To use old tech as an example. The press itself is wildly expensive. So I will have to divide that price across all things I sell using that press. However once the press is paid off my marginal costs are little more than cost of paper, shipping it around, and paying someone to run/fix the press. Computer chips are made of silicon one of the cheaper materials to buy out there. The up front costs of setting up a foundry is akin to buying a printing press. An older tech foundry can still make marginal money as the big cost is already been paid for. Everything after is marginal.
    - rlanday 6y ago
      Books and computer chips aren’t really assets (unless they’re collectibles, I guess), they’re commercial products, so I’m not sure my argument really works.
      - sumtechguy 6y ago
        A large company would most certainly consider a computer an asset would they not? Until it is paid off and/or can no longer provide value to them? Your argument is with medallions is mostly correct. They had an artificial constraint on an environment. With the artificial constraint they act like assets and not permits. However once a good that was equivalent showed up the value of the asset value did fall. A market will tend towards MR=MC (marginal rev=marginal cost). However in the medallion case the supply was artificially constrained. So a floor was created. This moves the price people are willing to pay up the demand curve instead of lower near the usually lower mr=mc spot. In this case as the population grew but the number of allowed taxis did not the price went up because demand went up but supply did not. Once another good showed up that demand curve changed as less people were willing to pay that amount as well as more supply. This is the madness of economics. The demand curve always changes. Chips are mostly worthless because there are so many of them and better fab equipment exists and the capex of the machines to make them was paid off decades ago. So their depreciation is very quick (much like cars). Rarity does play into price as well. As some people do like the idea of owning a rare thing. You also have part of it with your comment here. Assets rarely 'hold' value for a long term. If you do not move the value around your total monetary value will depreciate. The medallion case was an artificial constraint so the value rose because demand remained high enough. Once a new supply came in the real price showed up. Housing can act like this too in artificially constrained environments. Rent control, poor tax structures, poor zoning, etc can all cause this. If you get a situation where the owners work with the gov (medallions and the taxi commission and the cities) they will write laws to artificially constrain growth to limit their asset depreciation. That is usually called regulatory capture. For these sorts of arguments I like to say 'if everyone suddenly had 1 billion dollars what would you pay for a loaf of bread?'. Most people would say '1-2 dollars'. But what about next week when the company realizes people will pay 1000 dollars for one? Would you still buy it? Would your friends? It usually shows that the demand curve is not static and value is a moving market in and of itself.
ch4s3 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 I don't think anyone in the YIMBY movement (as far as I'm aware) believes there would be a crash in prices. I think the position is that increased supply with help stem the rapid growth in prices.
- rlanday 6y ago
  I’ve seen people do things like compare Seattle and SF housing prices and say, “see, they’re growing more slowly in Seattle because they’re building more!” Even if that’s the case (possible, but there might be other factors at play as well)…that doesn’t solve housing affordability for anyone. It was still getting more expensive, just more slowly.
  - closeparen 6y ago
    Taking your boot off the patient’s windpipe might not heal her, but everything else you try is going to work better if she can breathe.
dnissley 6y ago
I think this is a fair counterpoint, but the counter-counterpoint would be that decreased housing prices are just one of an array of benefits that increasing housing supply would bring about.

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.
- ng12 6y ago
  > Not really, taxi medallion owners are a powerful special interest group. Just like Bay Area homeowners. And YIMBY-type groups fight against these artificial restrictions on supply. That's not an argument that the fundamentals of supply and demand doesn't apply. > 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 That's the definition of demand: the number of people who would buy a good at a given price.

runako 6y ago

> extremely rare that the price of an asset will crash due to increased supply The history of commodities such as crude oil and natural gas are potent counterexamples. For that matter, semiconductors fit the bill as well.

robotresearcher 6y ago
and online music and movies, low-end smartphones, operating system software, ... Is it extremely rare for supply to crush prices? Or is it more that we stop thinking about valuable things once they become super cheap commodities?
- sumtechguy 6y ago
  This is usually comes from a confusion of upfront costs and ongoing. For example a printing press. To use old tech as an example. The press itself is wildly expensive. So I will have to divide that price across all things I sell using that press. However once the press is paid off my marginal costs are little more than cost of paper, shipping it around, and paying someone to run/fix the press. Computer chips are made of silicon one of the cheaper materials to buy out there. The up front costs of setting up a foundry is akin to buying a printing press. An older tech foundry can still make marginal money as the big cost is already been paid for. Everything after is marginal.
  - rlanday 6y ago
    Books and computer chips aren’t really assets (unless they’re collectibles, I guess), they’re commercial products, so I’m not sure my argument really works.
    - sumtechguy 6y ago
      A large company would most certainly consider a computer an asset would they not? Until it is paid off and/or can no longer provide value to them? Your argument is with medallions is mostly correct. They had an artificial constraint on an environment. With the artificial constraint they act like assets and not permits. However once a good that was equivalent showed up the value of the asset value did fall. A market will tend towards MR=MC (marginal rev=marginal cost). However in the medallion case the supply was artificially constrained. So a floor was created. This moves the price people are willing to pay up the demand curve instead of lower near the usually lower mr=mc spot. In this case as the population grew but the number of allowed taxis did not the price went up because demand went up but supply did not. Once another good showed up that demand curve changed as less people were willing to pay that amount as well as more supply. This is the madness of economics. The demand curve always changes. Chips are mostly worthless because there are so many of them and better fab equipment exists and the capex of the machines to make them was paid off decades ago. So their depreciation is very quick (much like cars). Rarity does play into price as well. As some people do like the idea of owning a rare thing. You also have part of it with your comment here. Assets rarely 'hold' value for a long term. If you do not move the value around your total monetary value will depreciate. The medallion case was an artificial constraint so the value rose because demand remained high enough. Once a new supply came in the real price showed up. Housing can act like this too in artificially constrained environments. Rent control, poor tax structures, poor zoning, etc can all cause this. If you get a situation where the owners work with the gov (medallions and the taxi commission and the cities) they will write laws to artificially constrain growth to limit their asset depreciation. That is usually called regulatory capture. For these sorts of arguments I like to say 'if everyone suddenly had 1 billion dollars what would you pay for a loaf of bread?'. Most people would say '1-2 dollars'. But what about next week when the company realizes people will pay 1000 dollars for one? Would you still buy it? Would your friends? It usually shows that the demand curve is not static and value is a moving market in and of itself.

ch4s3 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 I don't think anyone in the YIMBY movement (as far as I'm aware) believes there would be a crash in prices. I think the position is that increased supply with help stem the rapid growth in prices.

rlanday 6y ago
I’ve seen people do things like compare Seattle and SF housing prices and say, “see, they’re growing more slowly in Seattle because they’re building more!” Even if that’s the case (possible, but there might be other factors at play as well)…that doesn’t solve housing affordability for anyone. It was still getting more expensive, just more slowly.
- closeparen 6y ago
  Taking your boot off the patient’s windpipe might not heal her, but everything else you try is going to work better if she can breathe.

dnissley 6y ago

I think this is a fair counterpoint, but the counter-counterpoint would be that decreased housing prices are just one of an array of benefits that increasing housing supply would bring about.