5 ms·

>Why choose austerity over abundance? Indeed, abundance is the way to go, then why bother investing? An anecdote - There was an oversupply of apartments in my

>Why choose austerity over abundance? Indeed, abundance is the way to go, then why bother investing? An anecdote - There was an oversupply of apartments in my city a few years ago, prices were dropping - oh no! So the response? Developers stopped building, there are foundations sitting around in a number of places that were planned to be built, but apartment development has basically stopped in the city. In a few years there'll be a shortage and no doubt the developers will start up again. The incentives are all screwed up, if they kept building then prices would drop, but the profit isn't there at the moment so they sit idle.

whatshisface 6y ago
Isn't that the system working? If a house costs more to build than anyone would pay for it, wouldn't it would be a bad idea to build it?
- chadcmulligan 6y ago
  not really - the apartments being built are expensive luxury apartments, mark up I'm told is around 100%. If they can't get the profit they move elsewhere and start construction there, holding costs are obviously low for undeveloped land. If the government desired cheap rental apartments then the incentives would be different.
  - epistasis 6y ago
    Markup is 100%? Which housing market is that?! I find that rather incredible, because construction is not usually that lucrative, anywhere, and if such profit margins were possible there would be a glut of people rushing in to do it. Construction loans mean that starting capital for such a project isn't super high. Another thing about "only luxury," that means there's a regulation failure that only allows luxury homes to be built. We have a market system that means that the rich get served first. So if it's cheap to build, but only super expensive units come on the market, those who approve or deny building are letting too few units be built. In expensive markets like California, profits are typically around 10%-25%, no more than a few year's worth of housing costs rise. Therefore it's far easier to make money by buying and holding in California than through construction; higher profits and less risk.
epistasis 6y ago
In my city, about 20% or more of building cost are impact fees to the city, because Prop 13 gives massive tax breaks to old wealth and the city is forced to depend on newcomers and new entrants to fund all city activities. A fairer tax scheme would mean that cheaper housing would get built. I 100% agree that incentives are all screwed up. But I think we should fix those incentives, rather than double down on a bad system by embracing austerity. Another problem is that construction productivity has been going down in our economy over the past few decades, while manufacturing productivity increases. A lot of that is the bad political process that cities use to block new housing with discretionary approvals, and the other half is the huge cycles of building and not building that gut the workforce, make it difficult to find steady employments, and cause huge swings in supply and demand. Personally, and I know this may not be a popular idea here, support a well-funded publicly owned housing developer to build social housing, that builds countercyclically to use the labor pool when there is lower demand, and build less when market forces suddenly pick up. Smoothing out this process will increase economic efficiency greatly, in addition to moving towards an abundance model rather than our austerity model, which is oddly embraced by both the right and the anti-development left.
- chadcmulligan 6y ago
  > a well-funded publicly owned housing developer to build social housing I've had similar thoughts, there was an overbuilding of these sorts of apartments in the 60's and 70's which resulted in inner city ghetto's though.
  - epistasis 6y ago
    I've read lots of problems with the US's past public housing programs, but I've never once heard somebody say that they were overbuilt. The problems were poor construction, lack of maintenance, poor citing away from any sort of economic opportunity, and perhaps most of all racial segregation. Any sort of modern effort would have to mirror Singapore or Vienna, where the housing is for people of all incomes, and wealthy people's rent cross subsidized lower incomes, and everybody lives together.

whatshisface 6y ago

Isn't that the system working? If a house costs more to build than anyone would pay for it, wouldn't it would be a bad idea to build it?

chadcmulligan 6y ago
not really - the apartments being built are expensive luxury apartments, mark up I'm told is around 100%. If they can't get the profit they move elsewhere and start construction there, holding costs are obviously low for undeveloped land. If the government desired cheap rental apartments then the incentives would be different.
- epistasis 6y ago
  Markup is 100%? Which housing market is that?! I find that rather incredible, because construction is not usually that lucrative, anywhere, and if such profit margins were possible there would be a glut of people rushing in to do it. Construction loans mean that starting capital for such a project isn't super high. Another thing about "only luxury," that means there's a regulation failure that only allows luxury homes to be built. We have a market system that means that the rich get served first. So if it's cheap to build, but only super expensive units come on the market, those who approve or deny building are letting too few units be built. In expensive markets like California, profits are typically around 10%-25%, no more than a few year's worth of housing costs rise. Therefore it's far easier to make money by buying and holding in California than through construction; higher profits and less risk.

epistasis 6y ago

In my city, about 20% or more of building cost are impact fees to the city, because Prop 13 gives massive tax breaks to old wealth and the city is forced to depend on newcomers and new entrants to fund all city activities. A fairer tax scheme would mean that cheaper housing would get built. I 100% agree that incentives are all screwed up. But I think we should fix those incentives, rather than double down on a bad system by embracing austerity. Another problem is that construction productivity has been going down in our economy over the past few decades, while manufacturing productivity increases. A lot of that is the bad political process that cities use to block new housing with discretionary approvals, and the other half is the huge cycles of building and not building that gut the workforce, make it difficult to find steady employments, and cause huge swings in supply and demand. Personally, and I know this may not be a popular idea here, support a well-funded publicly owned housing developer to build social housing, that builds countercyclically to use the labor pool when there is lower demand, and build less when market forces suddenly pick up. Smoothing out this process will increase economic efficiency greatly, in addition to moving towards an abundance model rather than our austerity model, which is oddly embraced by both the right and the anti-development left.

chadcmulligan 6y ago
> a well-funded publicly owned housing developer to build social housing I've had similar thoughts, there was an overbuilding of these sorts of apartments in the 60's and 70's which resulted in inner city ghetto's though.
- epistasis 6y ago
  I've read lots of problems with the US's past public housing programs, but I've never once heard somebody say that they were overbuilt. The problems were poor construction, lack of maintenance, poor citing away from any sort of economic opportunity, and perhaps most of all racial segregation. Any sort of modern effort would have to mirror Singapore or Vienna, where the housing is for people of all incomes, and wealthy people's rent cross subsidized lower incomes, and everybody lives together.