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By the free market alone, letting everyone get a home sounds like a terrible decision. There's a finite number of people that need a home and by the point every

By the free market alone, letting everyone get a home sounds like a terrible decision. There's a finite number of people that need a home and by the point everyone gets their own home, your business is doomed. On the other side, letting housing to be crazy expensive, with few people capable of getting a new house, will always be profitable.

ZoomerCretin 4y ago
Builders aren't monoliths, and they're not part of any cartel. They are competitors. It is always advantageous for a builder to be the only one creating new housing; they benefit from supply restrictions that drive prices up, while selling new supply. It is always best for them to build as much as they possibly can, because no one builder can build enough to affect the market by very much.
space_fountain 4y ago
Only maybe if you imagine developers as one person. It would always make sense for some new greedy developer to build a bunch of extra housing to drive down the cost because they still make more money that way
im3w1l 4y ago
You could ensure that very-basic shacks are affordable without destroying demand for superior products.
milkey_mouse 4y ago
If the free market were one entity that could coordinate and say "nobody build more housing, let's squeeze as much money from what we have already", sure, that would be pretty profitable. But if there are enough participants in the marketplace (which depends on the barriers to entry to homebuilding, like regulatory capture, knowledge, capital, and permits) one will want to undercut the others and build houses marginally cheaper than the competition until their marginal profit is zero. Having everyone agree not to build houses and keep prices high is like the "nobody snitch" outcome of a prisoner's dilemma: it's not a stable state/Nash equilibrium. At least this is what I heard in Econ 101, I'm sure I'm missing much nuance here.
- ABCLAW 4y ago
  >At least this is what I heard in Econ 101 Yeah, and you probably also learned a laundry list of caveats which lead to the principle you're describing being non-applicable. Real estate is not a fully commodifiable good because it is non-fungible. A house in the middle of a city is not the same thing as a house 2 hours out of the city core. There is a limited amount of under-developed land to repurpose, and a limited amount of construction crews and machinery available at any given time to perform the work in question, so building production does not scale linearly with capital investment. Construction has ALWAYS prioritized high-margin upscale dense construction where possible - if you own a block of rundown downtown shacks, you put a tower on it the moment you can. This isn't the issue - no one's complaining about Canadian Real Estate's ability to build a Class 1 commercial building or a high-end condominium complex. Toronto has been literally the number one city by crane count by a MASSIVE margin for years. The issue is how we can get widespread construction of low margin projects, Low-rise residential complexes, affordable housing, etc.
  - milkey_mouse 4y ago
    Why does a giant condo building have to be high-end? Wouldn't that be the most efficient way to house people even if they weren't focused on profit?
    - ABCLAW 4y ago
      >Why does a giant condo building have to be high-end? Because the margins are higher and you can't put up infinite towers. >if they weren't focused on profit They are.
  - deleted 4y ago
    [deleted]
Enginerrrd 4y ago
>By the free market alone, letting everyone get a home sounds like a terrible decision Ah, but that's the thing about the free market. It doesn't care, for better or worse. If the barriers to building new houses are low and demand is high, new houses will get built and prices will drop until an equilibrium is reached. >On the other side, letting housing to be crazy expensive, with few people capable of getting a new house, will always be profitable. You seem to have conflated a free market with one consisting of too few people with a great deal of regulatory capture, where the criticisms you've mentioned here apply.
- dmix 4y ago
  Notably housing shortages are a new phenomenon, we weren't having this problem earlier in the century. The only difference between now and then is we have far, far more regulations and zoning rules in the way. Technically houses are cheaper to build than in the past, knowledge and building materials are more plentiful, and capital markets are more efficient with more banks offering mortgages. So by multiple measures housing should be less of a problem, not worse. This is the reality we've built by choice, people act like they don't know how we got here. If you go on Reddit they think if we all just became unionized and have more $$ we'd go back to the 1960s and all have houses again. But that problem with housing supply won't go away until we fix the root cause, throwing more wages (or gov money) at it without expanding supply will just increase prices further.
  - mthoms 4y ago
    >the only difference between now and then is we have far, far more regulations and zoning rules in the way. Some places have more or less run out of land. For example Vancouver is limited in it's north, west and south expansion by mountains, ocean, and an international border respectively. I believe there are similar issues in San Francisco, Seattle, New York, etc. Indeed, higher density is the answer... I'm just pointing out that the increase in regulations is not the "only" thing that's changed.
  - ABCLAW 4y ago
    >The only difference between now and then is we have far, far more regulations and zoning rules in the way. No, the only difference is that a metric fuckton of money which used to be parked in productive equity investments ran out of productive uses because the taps were never turned off and started to slush into the real estate market via REITs. The price of Toronto RE, for instance, has not tracked with regulatory costs - it has shot up shortly after the aftermath of 2008, when global capital watched Canada have one of the most stable real estate markets skip the fallout of the subprime mortgage crisis. Paired with the rock bottom cost of money, Canadian Real Estate was viewed as a particularly stable investment class, prompting both Foreign Investors and REITs to dump capital into the market. The value in the market is the fact that it WAS better regulated that the competition, but it's now a toxic asset class. No study that I can find indicates that the volume of regulatory costs associated with the Toronto or Vancouver housing markets can be attributed to the specific inflection points associated with our current pricing environment. Wages cannot support the volume of leverage in the Canadian housing market. The numbers on display as reported by RBC yearly indicate that the average house in Vancouver costs more than 100% of the gross wages of the average worker in the city. This number is typically 30-40% in most functioning RE markets. So if consumer demand literally cannot create the numbers we're seeing, then we need to look at other systemic changes in the demand profile for the asset. And it's pretty easy to see what's going on if you spend 2 hours calling brokers. Toronto condos aren't sold to people to live there; they're pre-marketed to block investors aiming to purchase groups of units for rentals and finance their purchases with rental cashflows - condominium sales come with rental guarantees for 3-5 years - even if the rental market crashes, even the speculative investors won't feel it until developers start to display counterparty risk issues to increasingly large groups of block investors. So why not leverage yourself to the tits? The entire market has to crater for your investment to fail to produce a return. The underlying cashflow supporting development of these units, rental dollars, don't actually need to exist for the investments to pay off (which makes sense, because they literally cannot as per the income/financing ratio described above). Beyond this, REITs have a tax advantaged position in respect of other cashflow positive investment classes The idea that regulatory burden is the cause of cost increases of this magnitude is lunacy.
jlawson 4y ago
In a free market, no actor has the ability to 'let housing be crazy expensive'. If you don't build, someone else will and they capture whatever profit is there. This is the core of how the free market works. People can only 'let housing be crazy expensive' when they can prevent others from supplying the market, which is only possible by wielding power, usually through the government. Which is what we have now.
cmdli 4y ago
Keep in mind that corporations are extremely focused on short term profits. Home builders would love to build every single person a home and make tons of money, even if it wasn’t a long term business. Add in the potential for convincing people to buy a new house every 20 years like cars and you’ve got a major profit center. Why aren’t they building these homes? How are they being stopped? Typically the thing that is stopping homes from being built is governmental restrictions on how many homes can be built (ie zoning laws).

ZoomerCretin 4y ago

Builders aren't monoliths, and they're not part of any cartel. They are competitors. It is always advantageous for a builder to be the only one creating new housing; they benefit from supply restrictions that drive prices up, while selling new supply. It is always best for them to build as much as they possibly can, because no one builder can build enough to affect the market by very much.

space_fountain 4y ago

Only maybe if you imagine developers as one person. It would always make sense for some new greedy developer to build a bunch of extra housing to drive down the cost because they still make more money that way

im3w1l 4y ago

You could ensure that very-basic shacks are affordable without destroying demand for superior products.

milkey_mouse 4y ago

If the free market were one entity that could coordinate and say "nobody build more housing, let's squeeze as much money from what we have already", sure, that would be pretty profitable. But if there are enough participants in the marketplace (which depends on the barriers to entry to homebuilding, like regulatory capture, knowledge, capital, and permits) one will want to undercut the others and build houses marginally cheaper than the competition until their marginal profit is zero. Having everyone agree not to build houses and keep prices high is like the "nobody snitch" outcome of a prisoner's dilemma: it's not a stable state/Nash equilibrium. At least this is what I heard in Econ 101, I'm sure I'm missing much nuance here.

ABCLAW 4y ago
>At least this is what I heard in Econ 101 Yeah, and you probably also learned a laundry list of caveats which lead to the principle you're describing being non-applicable. Real estate is not a fully commodifiable good because it is non-fungible. A house in the middle of a city is not the same thing as a house 2 hours out of the city core. There is a limited amount of under-developed land to repurpose, and a limited amount of construction crews and machinery available at any given time to perform the work in question, so building production does not scale linearly with capital investment. Construction has ALWAYS prioritized high-margin upscale dense construction where possible - if you own a block of rundown downtown shacks, you put a tower on it the moment you can. This isn't the issue - no one's complaining about Canadian Real Estate's ability to build a Class 1 commercial building or a high-end condominium complex. Toronto has been literally the number one city by crane count by a MASSIVE margin for years. The issue is how we can get widespread construction of low margin projects, Low-rise residential complexes, affordable housing, etc.
- milkey_mouse 4y ago
  Why does a giant condo building have to be high-end? Wouldn't that be the most efficient way to house people even if they weren't focused on profit?
  - ABCLAW 4y ago
    >Why does a giant condo building have to be high-end? Because the margins are higher and you can't put up infinite towers. >if they weren't focused on profit They are.
- deleted 4y ago
  [deleted]

Enginerrrd 4y ago

>By the free market alone, letting everyone get a home sounds like a terrible decision Ah, but that's the thing about the free market. It doesn't care, for better or worse. If the barriers to building new houses are low and demand is high, new houses will get built and prices will drop until an equilibrium is reached. >On the other side, letting housing to be crazy expensive, with few people capable of getting a new house, will always be profitable. You seem to have conflated a free market with one consisting of too few people with a great deal of regulatory capture, where the criticisms you've mentioned here apply.

dmix 4y ago
Notably housing shortages are a new phenomenon, we weren't having this problem earlier in the century. The only difference between now and then is we have far, far more regulations and zoning rules in the way. Technically houses are cheaper to build than in the past, knowledge and building materials are more plentiful, and capital markets are more efficient with more banks offering mortgages. So by multiple measures housing should be less of a problem, not worse. This is the reality we've built by choice, people act like they don't know how we got here. If you go on Reddit they think if we all just became unionized and have more $$ we'd go back to the 1960s and all have houses again. But that problem with housing supply won't go away until we fix the root cause, throwing more wages (or gov money) at it without expanding supply will just increase prices further.
- mthoms 4y ago
  >the only difference between now and then is we have far, far more regulations and zoning rules in the way. Some places have more or less run out of land. For example Vancouver is limited in it's north, west and south expansion by mountains, ocean, and an international border respectively. I believe there are similar issues in San Francisco, Seattle, New York, etc. Indeed, higher density is the answer... I'm just pointing out that the increase in regulations is not the "only" thing that's changed.
- ABCLAW 4y ago
  >The only difference between now and then is we have far, far more regulations and zoning rules in the way. No, the only difference is that a metric fuckton of money which used to be parked in productive equity investments ran out of productive uses because the taps were never turned off and started to slush into the real estate market via REITs. The price of Toronto RE, for instance, has not tracked with regulatory costs - it has shot up shortly after the aftermath of 2008, when global capital watched Canada have one of the most stable real estate markets skip the fallout of the subprime mortgage crisis. Paired with the rock bottom cost of money, Canadian Real Estate was viewed as a particularly stable investment class, prompting both Foreign Investors and REITs to dump capital into the market. The value in the market is the fact that it WAS better regulated that the competition, but it's now a toxic asset class. No study that I can find indicates that the volume of regulatory costs associated with the Toronto or Vancouver housing markets can be attributed to the specific inflection points associated with our current pricing environment. Wages cannot support the volume of leverage in the Canadian housing market. The numbers on display as reported by RBC yearly indicate that the average house in Vancouver costs more than 100% of the gross wages of the average worker in the city. This number is typically 30-40% in most functioning RE markets. So if consumer demand literally cannot create the numbers we're seeing, then we need to look at other systemic changes in the demand profile for the asset. And it's pretty easy to see what's going on if you spend 2 hours calling brokers. Toronto condos aren't sold to people to live there; they're pre-marketed to block investors aiming to purchase groups of units for rentals and finance their purchases with rental cashflows - condominium sales come with rental guarantees for 3-5 years - even if the rental market crashes, even the speculative investors won't feel it until developers start to display counterparty risk issues to increasingly large groups of block investors. So why not leverage yourself to the tits? The entire market has to crater for your investment to fail to produce a return. The underlying cashflow supporting development of these units, rental dollars, don't actually need to exist for the investments to pay off (which makes sense, because they literally cannot as per the income/financing ratio described above). Beyond this, REITs have a tax advantaged position in respect of other cashflow positive investment classes The idea that regulatory burden is the cause of cost increases of this magnitude is lunacy.

jlawson 4y ago

In a free market, no actor has the ability to 'let housing be crazy expensive'. If you don't build, someone else will and they capture whatever profit is there. This is the core of how the free market works. People can only 'let housing be crazy expensive' when they can prevent others from supplying the market, which is only possible by wielding power, usually through the government. Which is what we have now.

cmdli 4y ago

Keep in mind that corporations are extremely focused on short term profits. Home builders would love to build every single person a home and make tons of money, even if it wasn’t a long term business. Add in the potential for convincing people to buy a new house every 20 years like cars and you’ve got a major profit center. Why aren’t they building these homes? How are they being stopped? Typically the thing that is stopping homes from being built is governmental restrictions on how many homes can be built (ie zoning laws).