7 ms·

I'm no economist, but I'm willing to bet in most markets, must of the time, an increase in supply is often followed by a decrease in cost. Not always of course

I'm no economist, but I'm willing to bet in most markets, must of the time, an increase in supply is often followed by a decrease in cost. Not always of course, and were talking about housing which has a bunch of other factors going on but it's usually helpful.

austincheney 5y ago
Supply/demand ratios don’t work against fixed assets. You can’t clone or replicate a geographic segment of Earth.
- irishloop 5y ago
  But you can build higher density housing which increases the overall number of living units in a region, thus increasing the supply.
  - zepto 5y ago
    For a short period of time you can increase the supply, but the demand will keep up with it.
    - Kalium 5y ago
      At the risk of being contentious, it may be worth considering that there is no place on earth where the demand to live there is truly infinite. This suggests that demand can be sated and prices brought down with sufficient supply. Of course, there is such a thing as induced demand for housing. Studies of it show that it's not so strong as to eliminate the effect of adding supply to a tight market. With these in mind, why would we not expect demand to eventually fall behind supply as California approaches something resembling a healthy housing market?
      - civilized 5y ago
        I will never understand why so many people are absolutely convinced, on the basis of seemingly no explainable evidence, that basic economics doesn't apply to housing.
        deleted 5y ago
        [deleted]
        zepto 5y ago
        Neither will I. The number of people who think you can build an infinite number of homes in a finite space of land, or who are unaware of network effects, is surprising.
        civilized 5y ago
        Apple can't build an infinite number of computers either. Chiquita can't grow an infinite number of bananas. And both of these companies are deeply networked in the global economy. So what will happen if Apple triples its computer production, or Chiquita triples its banana production? Does the price magically increase like housing does in NIMBY economics?
        missedthecue 5y ago
        This is the skyline of the Bay Area. https://cdn.vox-cdn.com/thumbor/q4QVkPZrTO8_USbDEe6nPfz8w8c=/0x0:3911x2690/1200x800/filters:focal(1542x1548:2166x2172)/cdn.vox-cdn.com/uploads/chorus_image/image/66469054/shutterstock_1264688284__1_.0.jpg https://cdn.vox-cdn.com/thumbor/q4QVkPZrTO8_USbDEe6nPfz8w8c=... This is the skyline of Hong Kong. https://images.squarespace-cdn.com/content/v1/59f3777b64b05fdbae7f32ac/1558551681929-3PF7WDQK4RLRC9WAQH54/HK.jpg https://images.squarespace-cdn.com/content/v1/59f3777b64b05f... Hong Kong has cheaper housing while also have 10x as many residents. Same goes for places like Tokyo, Singapore, and Shenzhen. No, you can't create more land, but you can create more housing.
        zepto 5y ago
        The argument that that the only reason shenzen housing is cheaper than SF is density is absurd on its face. If your argument is that we can increase SFs population by 10% to maybe get a 30% reduction in average home price, then I agree. But that doesn’t change affordability.
      - zepto 5y ago
        > with sufficient supply. You keep saying this as if supply can be increased arbitrarily. It simply can’t. You can increase density for short while until you hit limits, but network effects will keep demand increasing as you do. Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.
        Kalium 5y ago
        > You keep saying this as if supply can be increased arbitrarily. It simply can’t. True! You eventually run into physical limits of density and what we are capable of constructing. However, this naively seems likely to be far higher than we have now. Some back of the envelope math is in order, then. SF has a surface area of about 30,000 acres. Kowloon Walled City, a very dense place that actually existed, had between 33,000 and 50,000 people in 6.5 acres. Extrapolating, that puts SF at a possible maximum population of between 152 and 230 million people. That's using construction technology from the 60s and 70s, so we could perhaps do better today. With this in mind, it does seem likely that the density of the SF Bay specifically and California in general could be reasonably increased. There's quite a lot of room for opportunity to house people between SF's current population of 875000 and a population several times that of California. > You can increase density for a while, but network effects will keep demand increasing as you do. Sure! As I touched on previously, induced demand in housing is a very real effect. You're absolutely right. However "any induced demand effects are overwhelmed by the effect of increased supply". https://appam.confex.com/appam/2018/webprogram/Paper25811.html https://appam.confex.com/appam/2018/webprogram/Paper25811.ht... I believe, and please correct me if I am mistaken, that what is described here as induced demand is what you are referring to as network effects. > Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable. Expensive places have been made less exorbitantly expensive before. That seems like an excellent reason to suppose that a currently desirable place can be made affordable. I understand that this is a matter of opinion on which reasonable people might differ.
        zepto 5y ago
        > Expensive places have been made less exorbitantly expensive before. Places like SF? What examples are you thinking of? Manhattan is a lot like SF, but is 4x the density. It has done very little to prevent prices rising.
    - gumby 5y ago
      Cities have ways to increase the amount of living space per m2 of land: build up.
- civilized 5y ago
  I don't understand what this abstract terminology means. Do you believe it is impossible to build more housing in California? If so, why? If not, what are you talking about?
snidane 5y ago
Housing is a special story. It doesn't behave according to the standard economic theory of equalizing supply and demand like yogurts or bananas. Housing is strongly inelastic market, meaning you can't increase supply when there is demand easily The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. On top of that it has entered a bubble territory recently in which people buy, not based on their value judgment of the property, but because they expect to offload it to someone else in the future with a profit. Housing is not a 'supply and demand market dynamic, but a 'greater fool' market dynamic.
- resonantjacket5 5y ago
  Housing is not actually that special. It is true it doesn't behave according to the econ 101 model that most high schoolers learn in class, but in econ 201+ classes explain it. The main difference is that land is the limiting factor or more accurately legally buildable land in this case with zoning.
- koolba 5y ago
  Housing in CA is also unique in that the combination of refinance rates and Prop 13 make selling your home for the same house right next door a losing proposition. Most long term owners are deeply incentivized by CA’s property tax cap to never sell and if anything take an equity loan / rent it out. I can’t even imagine the total financial devastation if they suddenly ratcheted up the tax rates via reassessment. It’d be a fire sale for all but the top end of the income ladder.
- pcwalton 5y ago
  > The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. This theory fails to explain why housing prices in San Francisco fell during the dotcom bust. https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby https://www.bayareamarketreports.com/trend/3-recessions-2-bu...
- deleted 5y ago
  [deleted]
6gvONxR4sf7o 5y ago
The network effects of cities increase with density. The more people move there, the more incentive there is for people to move there. The cost of housing is a function of that marginal person who is on the verge of moving there. If I’m on the edge, then all my friends and all my employers move there, then I have even more reason to move there too. When you move there, I’m willing to pay more to move there too. In other words demand isn’t constant. As I understand it, it’s an open question as to whether more housing means lower prices via simple supply and demand, or higher prices via network effects.
- ItsMonkk 5y ago
  Exactly. Every person living in a city is a positive externality for the businesses. And every business is a positive externality for the residents. It's a network effect. The more people in a city, the better it is. The people who own empty lots contribute nothing, and their empty lot keeps going up in value. When you incentivize people to say no to housing because the more they say no, the higher the value of the house, they are going to say no. It doesn't matter how much the state demands. You don't want centralized forces creating a mess, you want decentralized forces. We need to stop swimming upstream. The only way out of this is to tax the land equal to those positive externalities. The only way out is a Land Value Tax. When you under tax the land, the price of the house balloons. Once you have a Land Value Tax in place and increased housing supply means lower taxes, all the NIMBY's will quickly convert to YIMBY's - it will be a breeze to get new housing built. Fix the incentives. Land Value Tax[0]. [0]: https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr...
  - 6gvONxR4sf7o 5y ago
    > the more they say no, the higher the value of the house Isn’t the argument we’re talking about saying the opposite? The more housing (i.e. the more they say yes), the higher the value of their house?
    - ItsMonkk 5y ago

austincheney 5y ago

Supply/demand ratios don’t work against fixed assets. You can’t clone or replicate a geographic segment of Earth.

irishloop 5y ago
But you can build higher density housing which increases the overall number of living units in a region, thus increasing the supply.
- zepto 5y ago
  For a short period of time you can increase the supply, but the demand will keep up with it.
  - Kalium 5y ago
    At the risk of being contentious, it may be worth considering that there is no place on earth where the demand to live there is truly infinite. This suggests that demand can be sated and prices brought down with sufficient supply. Of course, there is such a thing as induced demand for housing. Studies of it show that it's not so strong as to eliminate the effect of adding supply to a tight market. With these in mind, why would we not expect demand to eventually fall behind supply as California approaches something resembling a healthy housing market?
    - civilized 5y ago
      I will never understand why so many people are absolutely convinced, on the basis of seemingly no explainable evidence, that basic economics doesn't apply to housing.
      - deleted 5y ago
        [deleted]
      - zepto 5y ago
        Neither will I. The number of people who think you can build an infinite number of homes in a finite space of land, or who are unaware of network effects, is surprising.
        civilized 5y ago
        Apple can't build an infinite number of computers either. Chiquita can't grow an infinite number of bananas. And both of these companies are deeply networked in the global economy. So what will happen if Apple triples its computer production, or Chiquita triples its banana production? Does the price magically increase like housing does in NIMBY economics?
        missedthecue 5y ago
        This is the skyline of the Bay Area. https://cdn.vox-cdn.com/thumbor/q4QVkPZrTO8_USbDEe6nPfz8w8c=/0x0:3911x2690/1200x800/filters:focal(1542x1548:2166x2172)/cdn.vox-cdn.com/uploads/chorus_image/image/66469054/shutterstock_1264688284__1_.0.jpg https://cdn.vox-cdn.com/thumbor/q4QVkPZrTO8_USbDEe6nPfz8w8c=... This is the skyline of Hong Kong. https://images.squarespace-cdn.com/content/v1/59f3777b64b05fdbae7f32ac/1558551681929-3PF7WDQK4RLRC9WAQH54/HK.jpg https://images.squarespace-cdn.com/content/v1/59f3777b64b05f... Hong Kong has cheaper housing while also have 10x as many residents. Same goes for places like Tokyo, Singapore, and Shenzhen. No, you can't create more land, but you can create more housing.
        zepto 5y ago
        The argument that that the only reason shenzen housing is cheaper than SF is density is absurd on its face. If your argument is that we can increase SFs population by 10% to maybe get a 30% reduction in average home price, then I agree. But that doesn’t change affordability.
    - zepto 5y ago
      > with sufficient supply. You keep saying this as if supply can be increased arbitrarily. It simply can’t. You can increase density for short while until you hit limits, but network effects will keep demand increasing as you do. Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.
      - Kalium 5y ago
        > You keep saying this as if supply can be increased arbitrarily. It simply can’t. True! You eventually run into physical limits of density and what we are capable of constructing. However, this naively seems likely to be far higher than we have now. Some back of the envelope math is in order, then. SF has a surface area of about 30,000 acres. Kowloon Walled City, a very dense place that actually existed, had between 33,000 and 50,000 people in 6.5 acres. Extrapolating, that puts SF at a possible maximum population of between 152 and 230 million people. That's using construction technology from the 60s and 70s, so we could perhaps do better today. With this in mind, it does seem likely that the density of the SF Bay specifically and California in general could be reasonably increased. There's quite a lot of room for opportunity to house people between SF's current population of 875000 and a population several times that of California. > You can increase density for a while, but network effects will keep demand increasing as you do. Sure! As I touched on previously, induced demand in housing is a very real effect. You're absolutely right. However "any induced demand effects are overwhelmed by the effect of increased supply". https://appam.confex.com/appam/2018/webprogram/Paper25811.html https://appam.confex.com/appam/2018/webprogram/Paper25811.ht... I believe, and please correct me if I am mistaken, that what is described here as induced demand is what you are referring to as network effects. > Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable. Expensive places have been made less exorbitantly expensive before. That seems like an excellent reason to suppose that a currently desirable place can be made affordable. I understand that this is a matter of opinion on which reasonable people might differ.
        zepto 5y ago
        > Expensive places have been made less exorbitantly expensive before. Places like SF? What examples are you thinking of? Manhattan is a lot like SF, but is 4x the density. It has done very little to prevent prices rising.
  - gumby 5y ago
    Cities have ways to increase the amount of living space per m2 of land: build up.
civilized 5y ago
I don't understand what this abstract terminology means. Do you believe it is impossible to build more housing in California? If so, why? If not, what are you talking about?

snidane 5y ago

Housing is a special story. It doesn't behave according to the standard economic theory of equalizing supply and demand like yogurts or bananas. Housing is strongly inelastic market, meaning you can't increase supply when there is demand easily The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. On top of that it has entered a bubble territory recently in which people buy, not based on their value judgment of the property, but because they expect to offload it to someone else in the future with a profit. Housing is not a 'supply and demand market dynamic, but a 'greater fool' market dynamic.

resonantjacket5 5y ago
Housing is not actually that special. It is true it doesn't behave according to the econ 101 model that most high schoolers learn in class, but in econ 201+ classes explain it. The main difference is that land is the limiting factor or more accurately legally buildable land in this case with zoning.
koolba 5y ago
Housing in CA is also unique in that the combination of refinance rates and Prop 13 make selling your home for the same house right next door a losing proposition. Most long term owners are deeply incentivized by CA’s property tax cap to never sell and if anything take an equity loan / rent it out. I can’t even imagine the total financial devastation if they suddenly ratcheted up the tax rates via reassessment. It’d be a fire sale for all but the top end of the income ladder.
pcwalton 5y ago
> The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. This theory fails to explain why housing prices in San Francisco fell during the dotcom bust. https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby https://www.bayareamarketreports.com/trend/3-recessions-2-bu...
deleted 5y ago
[deleted]

6gvONxR4sf7o 5y ago

The network effects of cities increase with density. The more people move there, the more incentive there is for people to move there. The cost of housing is a function of that marginal person who is on the verge of moving there. If I’m on the edge, then all my friends and all my employers move there, then I have even more reason to move there too. When you move there, I’m willing to pay more to move there too. In other words demand isn’t constant. As I understand it, it’s an open question as to whether more housing means lower prices via simple supply and demand, or higher prices via network effects.

ItsMonkk 5y ago
Exactly. Every person living in a city is a positive externality for the businesses. And every business is a positive externality for the residents. It's a network effect. The more people in a city, the better it is. The people who own empty lots contribute nothing, and their empty lot keeps going up in value. When you incentivize people to say no to housing because the more they say no, the higher the value of the house, they are going to say no. It doesn't matter how much the state demands. You don't want centralized forces creating a mess, you want decentralized forces. We need to stop swimming upstream. The only way out of this is to tax the land equal to those positive externalities. The only way out is a Land Value Tax. When you under tax the land, the price of the house balloons. Once you have a Land Value Tax in place and increased housing supply means lower taxes, all the NIMBY's will quickly convert to YIMBY's - it will be a breeze to get new housing built. Fix the incentives. Land Value Tax[0]. [0]: https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty https://astralcodexten.substack.com/p/your-book-review-progr...
- 6gvONxR4sf7o 5y ago
  > the more they say no, the higher the value of the house Isn’t the argument we’re talking about saying the opposite? The more housing (i.e. the more they say yes), the higher the value of their house?
  - ItsMonkk 5y ago