2 ms·

It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants

It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants. Any new stock you add increases supply, which leads to lower prices across the board. [edit] and btw, I think builders aren't tripping over their shoelaces to service the low end of the market because they know the city is so aggressively capping how much they can build. This means they will only build the most profitable units, the high end today. But once the high end is saturated, the low end ones will be the profitable ones anyways.

seanmcdirmid 5y ago
> It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants. Only if the old housing stock isn't torn down to make room for the new housing stock. Thankfully property taxes aren't driven in the potential value of land (rather, they are tied to actual value), but most small scale landlords of affordable housing right in it are in it for property appreciation, not rents. Their exit plans are often to sell to a developer as tear downs. > This means they will only build the most profitable units, the high end today. There are costs are too high (to acquire property and build) to justify anything but going after the highest end of the market. Once the high end is say satisfied, money (investment) could simply move away from housing if it can't make any money there. Money chases the highest returns between all of the markets, not just one market.
- wan23 5y ago
  > Only if the old housing stock isn't torn down to make room for the new housing stock This is about zoning too. Normally, if the demand is there for it a smart land owner would build more housing on the same plot, e.g. turning a single family into a two family, but of course that is illegal in many places.
  - seanmcdirmid 5y ago
    Yes, that is exactly what is happening in Ballard (Seattle area) right now. Those cheap 100 year old low income housing complexes (one or two stories) are being raised for a bunch fo three story townhomes, smart developers can sell each of those town homes for $1 million each, and they could get much less if they kept it as a hotel-like complex. I just bought one of those town homes, so I'm not going to complain too much, but I'm self aware about what is going on here. So poor people are still getting screwed. My daily walk to the grocery store passes by a few places that are pretty shabby (so low income) and right across the street they are building a bunch of luxury town homes. It doesn't take a rocket scientist to figure out what will happen to those shabby places in a year or so.
  - jjav 5y ago
    > a smart land owner would build more housing on the same plot This is an uncomfortably extremist position, should maximizing revenue per investment be the one and only consideration society takes into account? I do many things that provide joy in life in other ways, even if I know they don't maximize revenue or savings. I wouldn't want to go through life thinking about nothing else than ROI for every action.
- lmm 5y ago
  > Thankfully property taxes aren't driven in the potential value of land (rather, they are tied to actual value) That's not a thankful thing at all, it incentivises using the limited land in wasteful (low-value) ways. > Once the high end is say satisfied, money (investment) could simply move away from housing if it can't make any money there. Money chases the highest returns between all of the markets, not just one market. Available capital is practically unlimited these days, anything that's profitable and legal to build will get built.
  - imtringued 5y ago
    >Available capital is practically unlimited these days, anything that's profitable and legal to build will get built. And it's mostly chasing monopolies like location.
- imtringued 5y ago
  >property taxes aren't driven in the potential value of land (rather, they are tied to actual value) That means multifamily properties have higher tax bills for absolutely no reason. Expensive locations need to provide more housing per area so charging a fixed fee based on the value of the land is a much better approach. You get to build a single family home and pay through the nose or split the bill with a multi family home.
  - seanmcdirmid 5y ago
    > That means multifamily properties have higher tax bills for absolutely no reason. Not true: most localities use a significant portion of property taxes to fund public schools, and more families = more kids.
saghm 5y ago
> It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants. Any new stock you add increases supply, which leads to lower prices across the board I could definitely see that being how it works in a lot of cases, but it seems like a stretch to assume that's some sort of natural law of prices. If I have a market of ten potential buyers, the first who has $1, the second who has $2, and so forth until the tenth buyer has $10, I could put an infinite number of goods for $10 for sale, and none beyond the first would be able to be purchased. Sure, you could argue that it would be silly of me to price in that way, and you would be right, but in reality you don't know the exact financial details of every potential buyer of your whole market. GP is hypothesizing that basically this exact scenario is happening with housing, and I don't know if they're right or not, but your rebuttal doesn't seem very convincing that this is an impossibility.
- pigscantfly 5y ago
  The price of a house is not fixed. Likewise, in your example, you would have to lower the price from $10 to sell your goods.
  - sokoloff 5y ago
    If they priced at $6, they’d sell 5 units for $30 and 5 people would still be unable to afford to buy housing while the seller held onto 5 more units waiting for another person to come along with $6. If they priced at $7, they’d sell 4 units for $28, which still might be better for them. This might not be that far off from what’s happening.
  - saghm 5y ago
    My point is that it's at least mathematically possible for a scenario to exist where the assertion I was responding true does not happen. If the idea is that _in practice_ people always lower the prices, then it seems more direct to just say that rather than claim some sort of law of economics that doesn't actually have any mathematical proof.
pfranz 5y ago
I hear this repeated a lot. In practice, at least in the cities I've lived in, I've only seen housing go downmarket when there's an explicit exodus. The reason is that housing is built for a specific living space size. Los Angeles has so many single family houses that it's impossible to cater to people downmarket...unless houses are torn down and multi-unit housing is built. You could rip those down and build upscale, large apartments, but I feel like I see them sitting vacant instead of moving downmarket. The bust sucks for everyone and the boom (gentrification) sucks for the less well off. Maybe we're saying the same thing, but instead of gradually reaching a equilibrium like you're describing I see a dramatic boom bust cycle--both are held back by lack of building.

seanmcdirmid 5y ago

> It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants. Only if the old housing stock isn't torn down to make room for the new housing stock. Thankfully property taxes aren't driven in the potential value of land (rather, they are tied to actual value), but most small scale landlords of affordable housing right in it are in it for property appreciation, not rents. Their exit plans are often to sell to a developer as tear downs. > This means they will only build the most profitable units, the high end today. There are costs are too high (to acquire property and build) to justify anything but going after the highest end of the market. Once the high end is say satisfied, money (investment) could simply move away from housing if it can't make any money there. Money chases the highest returns between all of the markets, not just one market.

wan23 5y ago
> Only if the old housing stock isn't torn down to make room for the new housing stock This is about zoning too. Normally, if the demand is there for it a smart land owner would build more housing on the same plot, e.g. turning a single family into a two family, but of course that is illegal in many places.
- seanmcdirmid 5y ago
  Yes, that is exactly what is happening in Ballard (Seattle area) right now. Those cheap 100 year old low income housing complexes (one or two stories) are being raised for a bunch fo three story townhomes, smart developers can sell each of those town homes for $1 million each, and they could get much less if they kept it as a hotel-like complex. I just bought one of those town homes, so I'm not going to complain too much, but I'm self aware about what is going on here. So poor people are still getting screwed. My daily walk to the grocery store passes by a few places that are pretty shabby (so low income) and right across the street they are building a bunch of luxury town homes. It doesn't take a rocket scientist to figure out what will happen to those shabby places in a year or so.
- jjav 5y ago
  > a smart land owner would build more housing on the same plot This is an uncomfortably extremist position, should maximizing revenue per investment be the one and only consideration society takes into account? I do many things that provide joy in life in other ways, even if I know they don't maximize revenue or savings. I wouldn't want to go through life thinking about nothing else than ROI for every action.
lmm 5y ago
> Thankfully property taxes aren't driven in the potential value of land (rather, they are tied to actual value) That's not a thankful thing at all, it incentivises using the limited land in wasteful (low-value) ways. > Once the high end is say satisfied, money (investment) could simply move away from housing if it can't make any money there. Money chases the highest returns between all of the markets, not just one market. Available capital is practically unlimited these days, anything that's profitable and legal to build will get built.
- imtringued 5y ago
  >Available capital is practically unlimited these days, anything that's profitable and legal to build will get built. And it's mostly chasing monopolies like location.
imtringued 5y ago
>property taxes aren't driven in the potential value of land (rather, they are tied to actual value) That means multifamily properties have higher tax bills for absolutely no reason. Expensive locations need to provide more housing per area so charging a fixed fee based on the value of the land is a much better approach. You get to build a single family home and pay through the nose or split the bill with a multi family home.
- seanmcdirmid 5y ago
  > That means multifamily properties have higher tax bills for absolutely no reason. Not true: most localities use a significant portion of property taxes to fund public schools, and more families = more kids.

saghm 5y ago

> It doesn't really matter if you add new stock at the top end or at the bottom end, people from the bottom move up, and make space at the bottom for new entrants. Any new stock you add increases supply, which leads to lower prices across the board I could definitely see that being how it works in a lot of cases, but it seems like a stretch to assume that's some sort of natural law of prices. If I have a market of ten potential buyers, the first who has $1, the second who has $2, and so forth until the tenth buyer has $10, I could put an infinite number of goods for $10 for sale, and none beyond the first would be able to be purchased. Sure, you could argue that it would be silly of me to price in that way, and you would be right, but in reality you don't know the exact financial details of every potential buyer of your whole market. GP is hypothesizing that basically this exact scenario is happening with housing, and I don't know if they're right or not, but your rebuttal doesn't seem very convincing that this is an impossibility.

pigscantfly 5y ago
The price of a house is not fixed. Likewise, in your example, you would have to lower the price from $10 to sell your goods.
- sokoloff 5y ago
  If they priced at $6, they’d sell 5 units for $30 and 5 people would still be unable to afford to buy housing while the seller held onto 5 more units waiting for another person to come along with $6. If they priced at $7, they’d sell 4 units for $28, which still might be better for them. This might not be that far off from what’s happening.
- saghm 5y ago
  My point is that it's at least mathematically possible for a scenario to exist where the assertion I was responding true does not happen. If the idea is that _in practice_ people always lower the prices, then it seems more direct to just say that rather than claim some sort of law of economics that doesn't actually have any mathematical proof.

pfranz 5y ago

I hear this repeated a lot. In practice, at least in the cities I've lived in, I've only seen housing go downmarket when there's an explicit exodus. The reason is that housing is built for a specific living space size. Los Angeles has so many single family houses that it's impossible to cater to people downmarket...unless houses are torn down and multi-unit housing is built. You could rip those down and build upscale, large apartments, but I feel like I see them sitting vacant instead of moving downmarket. The bust sucks for everyone and the boom (gentrification) sucks for the less well off. Maybe we're saying the same thing, but instead of gradually reaching a equilibrium like you're describing I see a dramatic boom bust cycle--both are held back by lack of building.