5 ms·

The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. That’s it. The cost of building is not relevant in any way

by orev 5y ago

The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. That’s it. The cost of building is not relevant in any way to that. Nicer materials, better design, etc. can make people willing to pay more, but if it’s too much they won’t pay. The only one who the cost of materials matters to is the builder. If it costs them more to build than they can sell it for (within whatever % profit margin they want), then they simply won’t build it.

sbelskie 5y ago
Except how much someone is willing to pay for something depends on, among other things, prevailing market prices, which are influenced by marginal costs. I may be happy to buy a house for anything less than 200k but if all houses are selling for 100k, then that (or something like it) will be the amount I am actually willing to pay. If construction costs rise and now builders are only selling houses for 150k, I will now be willing to pay that price.
coldtea 5y ago
>The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. Which, as a catch-all condition, is next to useless to examing why the price of something is what it is. The question then moves to the next turtle: why are people willing to pay X for a house in area Y. >The cost of building is not relevant in any way to that. Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house).
- mrep 5y ago
  > Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house). Definitely true, just look at home prices in the south and midwest where there is plenty of land [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/
  - coldtea 5y ago
    >where there is plenty of land It's not about there being cheap land in the state in general, it's about being cheap land where people want to live. Or, inversely, sure, home prices in the south and midwest might be high in expensive areas (e.g. major city), but they're much lower where land is cheap.
joebob42 5y ago
Well, except that the cost affects how much people are willing to pay, because if people are not willing to pay more then the cost then there won't be enough supply -> it will cost more -> people will either pay more or go without.
- orev 5y ago
  You seem to be ignoring my second paragraph. Supply only goes down because the builder has decided it’s not worth it to build any more to sell. That’s the market force that equalizes the price to remain above cost. At that point, as prices begin to rise, the buyer’s decision is once again only related to “how much are they willing to pay”.

by orev 5y ago

sbelskie 5y ago

Except how much someone is willing to pay for something depends on, among other things, prevailing market prices, which are influenced by marginal costs. I may be happy to buy a house for anything less than 200k but if all houses are selling for 100k, then that (or something like it) will be the amount I am actually willing to pay. If construction costs rise and now builders are only selling houses for 150k, I will now be willing to pay that price.

coldtea 5y ago

>The price (of anything) is determined by one thing alone: how much someone is willing to pay for it. Which, as a catch-all condition, is next to useless to examing why the price of something is what it is. The question then moves to the next turtle: why are people willing to pay X for a house in area Y. >The cost of building is not relevant in any way to that. Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house).

mrep 5y ago
> Well, that's not true. In a place were land is plentiful and cheap, the price to get a house is dominated by the cost of building. Doesn't matter if there's an existing house that someone is willing to pay 100 for it. If people can trivially buy land and build for 20, that would be the cost to own a house in the area (note: a house, not THAT particular house). Definitely true, just look at home prices in the south and midwest where there is plenty of land [0]. [0]: https://www.supermoney.com/inflation-adjusted-home-prices/ https://www.supermoney.com/inflation-adjusted-home-prices/
- coldtea 5y ago
  >where there is plenty of land It's not about there being cheap land in the state in general, it's about being cheap land where people want to live. Or, inversely, sure, home prices in the south and midwest might be high in expensive areas (e.g. major city), but they're much lower where land is cheap.

joebob42 5y ago

Well, except that the cost affects how much people are willing to pay, because if people are not willing to pay more then the cost then there won't be enough supply -> it will cost more -> people will either pay more or go without.

orev 5y ago
You seem to be ignoring my second paragraph. Supply only goes down because the builder has decided it’s not worth it to build any more to sell. That’s the market force that equalizes the price to remain above cost. At that point, as prices begin to rise, the buyer’s decision is once again only related to “how much are they willing to pay”.