4 ms·

I don't understand the economics here in terms of a rational market. If housing is so inflated in value right now, wouldn't investors be pouring tons of capita

I don't understand the economics here in terms of a rational market. If housing is so inflated in value right now, wouldn't investors be pouring tons of capital into construction? If the cost to build is fixed but the sell price is continually increasing, then isn't that the greatest profit making opportunity you could ask for? So then why isn't the supply side of the market catching up with the increases?

Ccecil 6y ago
Material costs are up right now from my understanding. I assume that is part of the issue. In my area the issue was land to build on. The main undeveloped areas are either national forest or farmland the majority of which is owned by just a couple families who are not in a hurry to sell it off.
hinkley 6y ago
I don’t know about where you live but where I am I know of a project that can’t get built because construction companies are charging at a premium and their intention to provide median housing will instead jack up the averages in the neighborhood so much that several different interests have allied to fight it.
AshWolfy 6y ago
For one there isnt a single housing market, there are a lot of segmented housing markets that only partially overlap. In high demand areas, land is already limited. For another zoning restrictions are severe in the US, with most residential land zoned for single family housing with large lot sizes. With high upfront costs, limited land, and political issues, developers would rather build high end housing, which has led to over supply in the high end market, and under supply in the low end market
jjk166 6y ago
In any given area the amount of land is fixed, you might be able to slightly increase the supply with some land improvements like draining a marsh, but there's nothing that scales. To house more people, you need to build denser housing on the fixed supply of land. Most places have zoning laws that limit density. But beyond that, it's actually less expensive to build higher cost homes - a lot of small apartments require a lot of walls (more material) redundant plumbing and electrical (more labor) and you need to handle the sale or rental to more parties (more overhead). If they do build apartments, it's going to be samll 1 and 2 bedroom apartments because those are lower risk - you'll always find some young people who need a place and can get a parent to cosign a lease and who will let their landlords treat them like crap. 3 or 4 bedroom apartments appropriate for families are harder to move, so even though those tenants might be able to pay proportionally higher, the opportunity cost of vacancies makes them a non-starter.
closeparen 6y ago
It is broadly illegal to alter the character of a neighborhood.
Der_Einzige 6y ago
Construction costs are rising in lock-step with demand for housing. You can't escape this by just "building it yourself". Even home renovations or home adjascent industries (water heaters) are up 2 or 3x their pre-pandemic prices. Construction materials companies (e.g. lumber producers) would rather just raise prices than scale up production dramatically since there's a real risk of demand drying up when interest rates go up sometime after 2024. Same reason why crazy COVID demand for masks has not lead to huge increases in domestic mask manufacturing from small players.
asdff 6y ago
Restrictive zoning. Look at an old 1920s brick NYC-looking apartment building in a California city standing amongst single family homes. It might be 5-6 stories tall and lack parking. That sort of building is illegal today in that neighborhood, but it wasn't in the 1920s. A lot of good can be done if we reset California zoning ordinances to what used to be allowed, just as a start.

Ccecil 6y ago

Material costs are up right now from my understanding. I assume that is part of the issue. In my area the issue was land to build on. The main undeveloped areas are either national forest or farmland the majority of which is owned by just a couple families who are not in a hurry to sell it off.

hinkley 6y ago

I don’t know about where you live but where I am I know of a project that can’t get built because construction companies are charging at a premium and their intention to provide median housing will instead jack up the averages in the neighborhood so much that several different interests have allied to fight it.

AshWolfy 6y ago

For one there isnt a single housing market, there are a lot of segmented housing markets that only partially overlap. In high demand areas, land is already limited. For another zoning restrictions are severe in the US, with most residential land zoned for single family housing with large lot sizes. With high upfront costs, limited land, and political issues, developers would rather build high end housing, which has led to over supply in the high end market, and under supply in the low end market

jjk166 6y ago

In any given area the amount of land is fixed, you might be able to slightly increase the supply with some land improvements like draining a marsh, but there's nothing that scales. To house more people, you need to build denser housing on the fixed supply of land. Most places have zoning laws that limit density. But beyond that, it's actually less expensive to build higher cost homes - a lot of small apartments require a lot of walls (more material) redundant plumbing and electrical (more labor) and you need to handle the sale or rental to more parties (more overhead). If they do build apartments, it's going to be samll 1 and 2 bedroom apartments because those are lower risk - you'll always find some young people who need a place and can get a parent to cosign a lease and who will let their landlords treat them like crap. 3 or 4 bedroom apartments appropriate for families are harder to move, so even though those tenants might be able to pay proportionally higher, the opportunity cost of vacancies makes them a non-starter.

closeparen 6y ago

It is broadly illegal to alter the character of a neighborhood.

Der_Einzige 6y ago

Construction costs are rising in lock-step with demand for housing. You can't escape this by just "building it yourself". Even home renovations or home adjascent industries (water heaters) are up 2 or 3x their pre-pandemic prices. Construction materials companies (e.g. lumber producers) would rather just raise prices than scale up production dramatically since there's a real risk of demand drying up when interest rates go up sometime after 2024. Same reason why crazy COVID demand for masks has not lead to huge increases in domestic mask manufacturing from small players.

asdff 6y ago

Restrictive zoning. Look at an old 1920s brick NYC-looking apartment building in a California city standing amongst single family homes. It might be 5-6 stories tall and lack parking. That sort of building is illegal today in that neighborhood, but it wasn't in the 1920s. A lot of good can be done if we reset California zoning ordinances to what used to be allowed, just as a start.