15 ms·

For every 10% increase in the housing stock, rents decrease 1%

76 points by el_nahual 4y ago

el_nahual 4y ago
Key takeaway here: > evidence that for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet. In addition, I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties.
PaulHoule 4y ago
The consequences people derive from the amenity effect are horrifying. One would come to the conclusion that any improvement in a city at all is going to make the city unaffordable https://www.nature.com/articles/s41467-022-31572-1 https://www.nature.com/articles/s41467-022-31572-1 and you might even come to the conclusion that you should actively make life in a city worse to make it affordable to the poor.
- ortusdux 4y ago
  https://knowyourmeme.com/memes/firing-gunshots-to-keep-rent-down https://knowyourmeme.com/memes/firing-gunshots-to-keep-rent-...
  - deleted 4y ago
    [deleted]
- ethanbond 4y ago
  Well, it is the case that any improvement in your neighborhood gets absorbed by landlords. https://en.wikipedia.org/wiki/Henry_George_theorem?wprov=sfti1 https://en.wikipedia.org/wiki/Henry_George_theorem?wprov=sft...
  - el_nahual 4y ago
    The paper has evidence to the contrary: "I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties. "
    - ethanbond 4y ago
      Not really to the contrary. It’s possible for the aggregate rent to go up, the rent rate to go down (higher numerator over an even more-increased denominator), and the overall increased rent “cash flow” to still go to landlords.
- m463 4y ago
  I wonder about the opposite effect... Rent in some areas has become so high, that some businesses get priced out of the area. Probably not a big deal for huge efficient businesses, but what happens to necessary but low margin businesses like where you get a haircut?
  - foogazi 4y ago
    People either pay more for a haircut or don’t get a haircut
    - gwright 4y ago
      Or find a substitute instead of using a "professional", such as cutting their own hair, bartering with a friend to cut each other's hair, etc.
      - Gigachad 4y ago
        The people living in places with super high rents likely opt for paying more for a haircut over a free hack job at home.
    - dasudasu 4y ago
      Yea I just buzz since covid. Prices exploded.
  - JimmyAustin 4y ago
    Those low margin businesses stay low margin, but with higher prices to reflect their higher costs. I don't know of any city in the world that doesn't have a hairdresser, even if it's expensive (and in that case it's proportionate to the rent).
    - vkou 4y ago
      There are towns that don't have hairdressers. Think ski resort towns full of million dollar winter dachas that ban poor people housing, ending up full of vacationing millionaires who are wondering why the four-star steakhouse is now only open three days a week. (It's because nobody working there can afford to live in town. And because the vacationers are, for some reason, unwilling to man the grill. Or pay $120 for a steak.)
- pydry 4y ago
  Being a great teacher makes your school better which raises not only your rent but the cost to purchase a home in your area. Land ownership beyond the home you live in is effectively equivalent to a privatized, purchaseable license to tax others.
- BurningFrog 4y ago
  If adding housing supply actually increased the value of surrounding housing, you could generate unlimited wealth by building more and more housing in a city!
  - mnaei 4y ago
    Aren't network effects the whole idea behind cities?
    - BurningFrog 4y ago
      Sure, but this is not how they work. Each new building adds to the total value of the city, but also competes with the other buildings.
  - Aeolun 4y ago
    I think they made some attempts to prove that theory in China and the middle east.
  - nine_k 4y ago
    It sort of works (see Manhattan, and most downtowns), but proximity is limited. You can go upwards only so far, and building out more areas takes areas further and further away from other parts of the city. Density is limited. It does not necessarily make a large city split into a desirable "center" and less desirable "periphery" (see Tokyo), but avoiding that takes skill and determination which is not always there (see e.g. São Paulo).
  - twblalock 4y ago
    Obviously that would be ridiculous in a general sense, but it can definitely happen in certain neighborhoods. But it's not only the value of the existing housing that increases, it's the value of the land under it. Once the gentrification begins in an area, developers want to get in on the action to add amenities, renovate existing buildings, and replace older housing with newer, more expensive housing. However, if the newer housing is better than the older housing elsewhere in the city, which is usually the case, that older housing should become less attractive. An extreme historical example of that is the decay of urban cores caused by white flight to suburbs (which were often only a short drive away from the urban cores, and therefore part of the same overall housing market with the same pool of buyers) in the postwar period. Some of the areas now being gentrified in major cities are becoming desirable for the second time.
- twblalock 4y ago
  Gentrification is a real thing and it's why a lot of people with low incomes oppose new construction where they live. NIMBYism isn't just a suburban or homeowner phenomenon, it also happens when people are afraid of getting priced out of their rental housing. At the same time, gentrification is inevitable when neighborhoods become more desirable. Better housing, amenities, schools etc. will inevitably attract people who would not have previously wanted to live there. In cities without a lot of demand pressure on housing, building new housing makes the older housing less attractive. That can at least give displaced renters a place to go. But in cities where demand outstrips supply, it takes a lot of new housing to make a noticeable dent in rents. (I suspect this is where the impression comes from that new housing doesn't help with prices -- in places where demand outstrips supply by a lot, prices can go up even while new housing is being built -- but without that new housing the prices would have gone up even more!) There are not easy solutions to this. Rent control might appear to be a good solution but in the long term it makes things worse. Building new housing often does change the character of neighborhoods economically, demographically, etc. But if we let that stop us, nothing new will get built except on unused land.
  - panick21_ 4y ago
    Land value taxation is at least a way to hurt those more who have property that is not used well. Parking lots and other low value uses are hurt more.
    - twblalock 4y ago
      Housing was affordable in the past without land value taxes. I don't see why those are needed now either. Supply and demand really does work for housing. We are just in a massive backlog on supply, which has built up over decades, and it will take decades to build our way out of it. During that time it will look like the new building isn't helping very much -- but that's because of how bad the backlog is. For example, in the San Jose area tons of new housing is being built, on unused shopping centers like Cambrian Plaza and former industrial areas like Santa Clara Square. It's dense housing for the area too -- 3-5 story apartment blocks with their own underground parking, sometimes shops and restaurants on the first floor. Thousands of units are coming online. But I still expect rents and housing prices to increase next year. They would have increased even more if we hadn't built that housing, but the backlog is decades deep and demand is also still increasing.
- deleted 4y ago
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el_nahual 4y ago
Public facing working paper here: https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-Housing-Units-in-Your-Backyard-Raise-Your-Rents-Xiaodi-Li.pdf https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-...
raldi 4y ago
Clickbait antidote: “For every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.”
- el_nahual 4y ago
  I was under the impression that the submission title had to match the title of the linked page/paper. Agree this is a much more relevant summary/title.
  - raldi 4y ago
    From the guidelines: > please use the original title, unless it is misleading or linkbait I think it would be in keeping with that to change the title to, “New Housing Units in Your Backyard Lower Your Rent”, though I don’t mean to bite your head off for using the verbatim one.
- teruakohatu 4y ago
  Agreed, the title is very deceptive. From the abstract: > There is a growing debate about whether new housing units increase rents for immediately surrounding apartments... I provide event study evidence that within 500 ft, for every 10% increase in the housing stock, rents decrease by 1%; and for every 10% increase in the condo stock, condo sales prices decrease by 0.9%. In addition, I show that new high-rises attract new restaurant ... If a city added 10% more housing, it would be extremely surprising to see rents only decrease 1% assuming no other micro or macro economics changes. It is not very surprising that a new condo building next door only slightly decreases the rent of neighbors since people are usually willing to rent anywhere in a general area and not constrained to a specific 7 hectare area (500ft radius circle). Hopefully dang can change the title to the original "Do new housing units in your backyard raise your rents?"
  - raldi 4y ago
    That's what it had been. Dan changed it from that to the current de-linkbaited version.
dheera 4y ago
Landlords increase rents, not housing. If landlords wanted to collectively agree to keep prices low, in the interest of not taking money from the poor to line the pockets of the rich, they could. If I had a billion dollars, I'd totally be interested in spending $300 million of it creating a bunch of studio housing in Silicon Valley and renting it out at $500/month and watching neighboring greedy landlords cry. The current crop of billionaires are themselves greedy, though.
- pestatije 4y ago
  Obviously with those ideas you'll never have a billion dollars
  - henry2023 4y ago
    [flagged]
- deleted 4y ago
  [deleted]
- Enginerrrd 4y ago
  It's mostly not greed. If you had a billion dollars, and are willing to lose money on a housing project in support of the poor by operating it against market forces, I think that would be a noble thing to do if you would actually follow through. It's easier to say than do though, and I don't think it would work out the way you think it would. If you think about the evolutionary forces driving such a system, that type of philanthropy would be unsustainable and would have a tendency to die out. And eventually that housing would get taken over and become subject to normal market forces again. It's pretty hard to fight against the market consensus on value, no matter how good your intentions are, unless you could establish some sort of monopoly. In the absence of that, if you sell something for less than its value, you'll end up creating some weird dynamics. You'd invite scalpers, corruption as people compete for access to the resource, and people would probably create secondary markets anyway where they hold the lease and sublet for more than its cost. (Whether legal or illegal.) There's a reason why home prices in the form of a 30-year mortgage on a home historically have a monthly price close to, but slightly less than, the price of rents. Being a landlord involves financial risk, maintenance costs, liability, and work. That work, the willingness to take on the risk, etc. has a value. That value is approximately the monthly price of rent minus the monthly mortgage cost. ...And actually, historically, it's not even a great value. Renting, and investing spare cash that would otherwise be tied up on a down payment has in many cases been a better investment.
jostmey 4y ago
Could this simply be reflecting the popularity of a region? New housing will be constructed in response to more demand, and rents will also go up in respond to demand?
- BenFranklin100 4y ago
  This is almost certainly what is happening. All else being equal, developers choose to build new homes in areas that expect will high demand so the can charge the highest rents. There are reasons why developers don’t put up high rises in the middle of a Kansas cornfield miles from the nearest town.
- BurningFrog 4y ago
  Depends where you are. In California, housing will not be constructed in response to more demand.
JumpCrisscross 4y ago
Zero chance this is linear. A 20% increase would be expected to create more than a 2% decrease.
- jandrese 4y ago
  Seems like it must depend a lot on how much pent up demand there is for housing. Add 10% to the Bay Area and it's not going to make a dent. Add 10% in Detroit and you just add 10% more vacant units, but probably little change in rents because they're already bottomed out. They might actually increase the average rent in this case if you build more desirable units that have a mortgage to pay off.
  - jeffbee 4y ago
    I doubt your intuition. A 10% increase in supply in the Bay Area would radically lower rents. That would be as if we added 3 years of the whole state's construction, just to the Bay Area, with only 1/5th the state population. Or in other words, 15 years the typical recent pace of construction. In Berkeley we lost only 2% of the population but that knocked 10% off real-dollar rents.
- tedunangst 4y ago
  Only a 500% increase in supply to halve rents.
- spfzero 4y ago
  Exactly, came her to say this. It obviously can't be linear, its just the slope at a point, but that didn't stop the headline writer. For "every" 10%, really? I'm pretty certain that for even just the next adjacent 10%, rents wouldn't just fall 1%.
- hindsightbias 4y ago
  250K people with $250K incomes want to live near Mission Dolores Park. 0% of YIMBY plans plan for reality.
  - 4y ago
BenFranklin100 4y ago
This confirms earlier work by Evan Mast demonstrating new construction puts downward pricing pressure on existing rents: https://www.upjohn.org/research-highlights/new-apartment-buildings-low-income-areas-decrease-nearby-rents https://www.upjohn.org/research-highlights/new-apartment-bui... Intuitively this makes sense. People predominantly decide move to city/area because of a job, not because of a shiny new apartment building. New construction is a reflection of a high demand area, not a cause.
chadlavi 4y ago
Good, let's do it
richbell 4y ago
I wonder how this holds up in areas where there the majority of rentals are owned by a single company, or landlords collude to artificially drive up rental prices by keeping units vacant [0]. [0] https://news.ycombinator.com/item?id=33317414 https://news.ycombinator.com/item?id=33317414
steponlego 4y ago
I've looked through the Constitution and the entirety of US laws and I simply can't find where people have the "right" to live in the city center of fashionable mega-cities for cheap. I've looked and looked, and can't find this anywhere. Can anybody explain to me why they feel this is a right?
- ryeights 4y ago
  >I've looked through the Constitution and the entirety of US laws and I simply can't find where people have the "right" to afford to eat nutritious food instead of gruel and instant ramen. I've looked and looked, and can't find this anywhere. Can anybody explain to me why they feel this is a right? Not very insightful, yeah? Perhaps it would be good for things to be a certain way in our country without literally enshrining them in our Constitution. Cities are the economic backbones of modern nations, so it’s probably good for young people to be able to afford to live and work there.
  - steponlego 4y ago
    People don't want tenaments popping up in their nice single family neighborhoods. Why not create one of those magical 15 minute walkable cities from scratch? A brand new, carless EXTREME density city? If it's such a dream come true, people will be sure to move in. Right? It seems pretty obvious that the folks who own property in cities which exist now don't want ultra-dense housing in their nice quiet neighborhoods, so let's put the WEF dream city concept to the test and create one from scratch.
    - ryeights 4y ago
      “Just build an entirely new city from scratch bro. How hard can it be” Network effects is the answer. Anyway, not sure what this would prove. There is clearly enormous demand for existing cities to be densified, as demonstrated by our densest, most walkable cities (NYC, SF, etc) having by far the highest rents and property values in the country, as well as the greatest economic outputs. If you’re a free market economist, you should view it as a massive failure that regulatory capture and vested interests are able to prevent willing property sellers and developers from making this a reality.
crazygringo 4y ago
> I provide event study evidence that within 500 ft, for every 10% increase in the housing stock, rents decrease by 1%; and for every 10% increase in the condo stock, condo sales prices decrease by 0.9%. This is... a silly thing to examine. 500 ft is nothing. A 10% increase in a 500 ft area is a tiny, tiny, tiny increase in the NYC housing stock overall. The cause and effect between housing stock and rents operates at a combination of city level and large neighborhood level mainly. When people shop for an apartment they're usually considering lots of neighborhoods, not a tiny 500 ft area. Anything you observe at the 500 ft level is more likely than not to just be noise. Also the HN title is wrong, because it sounds like it's a universal law, when the study is meant to be about a certain snapshot of NYC only.
- dylan604 4y ago
  yeah, but in NYC, isn't 500ft considered a spacious 2-bedroom condo?
- tzs 4y ago
  Terminology: a "row" is the buildings on one side of 1 block of an ~E/W street in Manhattan. A 500 ft radius circle around an apartment building in the middle of a row in Manhattan includes about 6 full rows and and about half of 2 more rows, so about 7 rows worth of buildings total. That seems like it would include enough buildings to see more than just noise.
  - crazygringo 4y ago
    It's not about the number of apartments being sampled, it's about the cause and effect happening at a larger scale, not the local scale. In other words, rents changing in a 500 ft area is due to housing stock changing citywide. Not housing stock changing within 500 ft. The noise I referred to isn't the noise of statistical measurement, it's that housing stock within 500 ft is mostly random noise when compared to the change in stock citywide.
- foogazi 4y ago
  Isn’t real estate local ? How much housing stock increase do you get from a new condo building near the train station or the local elementary? Or multiple ADUs on a desirable neighborhood?
abeppu 4y ago
I'm kinda surprised that the evidence is for such a narrow radius. The abstract says NYC, not Manhattan, but 500 ft is like only 2 blocks north or south, and less than 1 block east or west. Depending on neighborhood, there may not even be that many new tenants during a period shortly following the completion of a new building, right? And I'm guessing very very few people can target so narrow a neighborhood when shopping for new housing. Overall I would have expected both the mechanism of the effect and the easiest means of measurement to be for a wider area.
dang 4y ago
"Please use the original title, unless it is misleading or linkbait; don't editorialize." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html If you want to say what you think is important about an article, that's fine, but do it by adding a comment to the thread. Then your view will be on a level playing field with everyone else's: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&sort=byDate&type=comment&query=%22level%20playing%20field%22%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so...
7e 4y ago
For every increase in the housing stock, the population increases 10% in the medium term and more than that in the long term. It’s the same with highways and traffic.
beefman 4y ago
Almost everyone has housing, and buildings aren't built unless they can be occupied. The notion that somehow increasing house "supply" will lower prices is absurd. Housing is a rivalrous good. People will generally pay as much as they can afford. Introduce 30-year mortgages? House prices will go up 50%. The best single predictor of house prices is population density. Building more units is likely to be a sign of rising prices. Case in point: Most people complaining about prices in the Bay area could have had cheaper housing back home but moved here instead.
- BurningFrog 4y ago
  Do you also think that demolishing existing housing would not raise rents in the remaining buildings?
jschveibinz 4y ago
I have read so many of these posts on HN, and invariably it turns into an argument between: A. Housing should be available for everyone in large cities at a price they can afford; and B. There is no right or economic solution to affordable housing for everyone who wants it, especially in a dense city. I don’t intend to choose a side in this argument, but here are the “facts” (or approximations) that must be considered in this argument: 1. Land in the U.S. is generally owned by individuals, or by businesses with shareholders (ie. people), not the government. 2. Individuals owning land and buildings are just regular people (or groups of regular people as investors) in many cases, not “bilyunares”. 3. How do regular people own property and buildings? There are three ways: a. People invest in Real Estate Investment Trusts (REIT) through their savings and/or 401k or other retirement accounts. b. People invest in banks, or deposit money in banks, which is used to create loans (mortgages) to purchase land and buildings. c. People pay taxes, and a portion of those taxes goes toward tax credits and Housing and Urban Development (HUD) Section-8 subsidies. The U.S. government spends $6 billion per year to finance new housing for qualifying people. 4. Rents and escalations are both market-based and contractual. The rent collected pays for the cost of upkeep and routine maintenance as well as the mortgage obligations and taxes. With inflation, the cost of everything goes up, and this must be reflected in rents. 5. The most desirable locations will have the highest land prices and correspondingly the highest rents. Desirability results from weather, safety, activities, travel or transportation options, and most importantly: work opportunities. It would be refreshing to see more of these “facts” (and many more I haven’t mentioned) included as part of the debate. Have fun and carry on!
deleted 4y ago
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76 points by el_nahual 4y ago

Key takeaway here: > evidence that for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet. In addition, I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties.

PaulHoule 4y ago

The consequences people derive from the amenity effect are horrifying. One would come to the conclusion that any improvement in a city at all is going to make the city unaffordable https://www.nature.com/articles/s41467-022-31572-1 https://www.nature.com/articles/s41467-022-31572-1 and you might even come to the conclusion that you should actively make life in a city worse to make it affordable to the poor.

ortusdux 4y ago
https://knowyourmeme.com/memes/firing-gunshots-to-keep-rent-down https://knowyourmeme.com/memes/firing-gunshots-to-keep-rent-...
- deleted 4y ago
  [deleted]
ethanbond 4y ago
Well, it is the case that any improvement in your neighborhood gets absorbed by landlords. https://en.wikipedia.org/wiki/Henry_George_theorem?wprov=sfti1 https://en.wikipedia.org/wiki/Henry_George_theorem?wprov=sft...
- el_nahual 4y ago
  The paper has evidence to the contrary: "I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties. "
  - ethanbond 4y ago
    Not really to the contrary. It’s possible for the aggregate rent to go up, the rent rate to go down (higher numerator over an even more-increased denominator), and the overall increased rent “cash flow” to still go to landlords.
m463 4y ago
I wonder about the opposite effect... Rent in some areas has become so high, that some businesses get priced out of the area. Probably not a big deal for huge efficient businesses, but what happens to necessary but low margin businesses like where you get a haircut?
- foogazi 4y ago
  People either pay more for a haircut or don’t get a haircut
  - gwright 4y ago
    Or find a substitute instead of using a "professional", such as cutting their own hair, bartering with a friend to cut each other's hair, etc.
    - Gigachad 4y ago
      The people living in places with super high rents likely opt for paying more for a haircut over a free hack job at home.
  - dasudasu 4y ago
    Yea I just buzz since covid. Prices exploded.
- JimmyAustin 4y ago
  Those low margin businesses stay low margin, but with higher prices to reflect their higher costs. I don't know of any city in the world that doesn't have a hairdresser, even if it's expensive (and in that case it's proportionate to the rent).
  - vkou 4y ago
    There are towns that don't have hairdressers. Think ski resort towns full of million dollar winter dachas that ban poor people housing, ending up full of vacationing millionaires who are wondering why the four-star steakhouse is now only open three days a week. (It's because nobody working there can afford to live in town. And because the vacationers are, for some reason, unwilling to man the grill. Or pay $120 for a steak.)
pydry 4y ago
Being a great teacher makes your school better which raises not only your rent but the cost to purchase a home in your area. Land ownership beyond the home you live in is effectively equivalent to a privatized, purchaseable license to tax others.
BurningFrog 4y ago
If adding housing supply actually increased the value of surrounding housing, you could generate unlimited wealth by building more and more housing in a city!
- mnaei 4y ago
  Aren't network effects the whole idea behind cities?
  - BurningFrog 4y ago
    Sure, but this is not how they work. Each new building adds to the total value of the city, but also competes with the other buildings.
- Aeolun 4y ago
  I think they made some attempts to prove that theory in China and the middle east.
- nine_k 4y ago
  It sort of works (see Manhattan, and most downtowns), but proximity is limited. You can go upwards only so far, and building out more areas takes areas further and further away from other parts of the city. Density is limited. It does not necessarily make a large city split into a desirable "center" and less desirable "periphery" (see Tokyo), but avoiding that takes skill and determination which is not always there (see e.g. São Paulo).
- twblalock 4y ago
  Obviously that would be ridiculous in a general sense, but it can definitely happen in certain neighborhoods. But it's not only the value of the existing housing that increases, it's the value of the land under it. Once the gentrification begins in an area, developers want to get in on the action to add amenities, renovate existing buildings, and replace older housing with newer, more expensive housing. However, if the newer housing is better than the older housing elsewhere in the city, which is usually the case, that older housing should become less attractive. An extreme historical example of that is the decay of urban cores caused by white flight to suburbs (which were often only a short drive away from the urban cores, and therefore part of the same overall housing market with the same pool of buyers) in the postwar period. Some of the areas now being gentrified in major cities are becoming desirable for the second time.
twblalock 4y ago
Gentrification is a real thing and it's why a lot of people with low incomes oppose new construction where they live. NIMBYism isn't just a suburban or homeowner phenomenon, it also happens when people are afraid of getting priced out of their rental housing. At the same time, gentrification is inevitable when neighborhoods become more desirable. Better housing, amenities, schools etc. will inevitably attract people who would not have previously wanted to live there. In cities without a lot of demand pressure on housing, building new housing makes the older housing less attractive. That can at least give displaced renters a place to go. But in cities where demand outstrips supply, it takes a lot of new housing to make a noticeable dent in rents. (I suspect this is where the impression comes from that new housing doesn't help with prices -- in places where demand outstrips supply by a lot, prices can go up even while new housing is being built -- but without that new housing the prices would have gone up even more!) There are not easy solutions to this. Rent control might appear to be a good solution but in the long term it makes things worse. Building new housing often does change the character of neighborhoods economically, demographically, etc. But if we let that stop us, nothing new will get built except on unused land.
- panick21_ 4y ago
  Land value taxation is at least a way to hurt those more who have property that is not used well. Parking lots and other low value uses are hurt more.
  - twblalock 4y ago
    Housing was affordable in the past without land value taxes. I don't see why those are needed now either. Supply and demand really does work for housing. We are just in a massive backlog on supply, which has built up over decades, and it will take decades to build our way out of it. During that time it will look like the new building isn't helping very much -- but that's because of how bad the backlog is. For example, in the San Jose area tons of new housing is being built, on unused shopping centers like Cambrian Plaza and former industrial areas like Santa Clara Square. It's dense housing for the area too -- 3-5 story apartment blocks with their own underground parking, sometimes shops and restaurants on the first floor. Thousands of units are coming online. But I still expect rents and housing prices to increase next year. They would have increased even more if we hadn't built that housing, but the backlog is decades deep and demand is also still increasing.
deleted 4y ago
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el_nahual 4y ago

Public facing working paper here: https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-Housing-Units-in-Your-Backyard-Raise-Your-Rents-Xiaodi-Li.pdf https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-...

raldi 4y ago

Clickbait antidote: “For every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.”

el_nahual 4y ago
I was under the impression that the submission title had to match the title of the linked page/paper. Agree this is a much more relevant summary/title.
- raldi 4y ago
  From the guidelines: > please use the original title, unless it is misleading or linkbait I think it would be in keeping with that to change the title to, “New Housing Units in Your Backyard Lower Your Rent”, though I don’t mean to bite your head off for using the verbatim one.
teruakohatu 4y ago
Agreed, the title is very deceptive. From the abstract: > There is a growing debate about whether new housing units increase rents for immediately surrounding apartments... I provide event study evidence that within 500 ft, for every 10% increase in the housing stock, rents decrease by 1%; and for every 10% increase in the condo stock, condo sales prices decrease by 0.9%. In addition, I show that new high-rises attract new restaurant ... If a city added 10% more housing, it would be extremely surprising to see rents only decrease 1% assuming no other micro or macro economics changes. It is not very surprising that a new condo building next door only slightly decreases the rent of neighbors since people are usually willing to rent anywhere in a general area and not constrained to a specific 7 hectare area (500ft radius circle). Hopefully dang can change the title to the original "Do new housing units in your backyard raise your rents?"
- raldi 4y ago
  That's what it had been. Dan changed it from that to the current de-linkbaited version.

dheera 4y ago

Landlords increase rents, not housing. If landlords wanted to collectively agree to keep prices low, in the interest of not taking money from the poor to line the pockets of the rich, they could. If I had a billion dollars, I'd totally be interested in spending $300 million of it creating a bunch of studio housing in Silicon Valley and renting it out at $500/month and watching neighboring greedy landlords cry. The current crop of billionaires are themselves greedy, though.

pestatije 4y ago
Obviously with those ideas you'll never have a billion dollars
- henry2023 4y ago
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Enginerrrd 4y ago
It's mostly not greed. If you had a billion dollars, and are willing to lose money on a housing project in support of the poor by operating it against market forces, I think that would be a noble thing to do if you would actually follow through. It's easier to say than do though, and I don't think it would work out the way you think it would. If you think about the evolutionary forces driving such a system, that type of philanthropy would be unsustainable and would have a tendency to die out. And eventually that housing would get taken over and become subject to normal market forces again. It's pretty hard to fight against the market consensus on value, no matter how good your intentions are, unless you could establish some sort of monopoly. In the absence of that, if you sell something for less than its value, you'll end up creating some weird dynamics. You'd invite scalpers, corruption as people compete for access to the resource, and people would probably create secondary markets anyway where they hold the lease and sublet for more than its cost. (Whether legal or illegal.) There's a reason why home prices in the form of a 30-year mortgage on a home historically have a monthly price close to, but slightly less than, the price of rents. Being a landlord involves financial risk, maintenance costs, liability, and work. That work, the willingness to take on the risk, etc. has a value. That value is approximately the monthly price of rent minus the monthly mortgage cost. ...And actually, historically, it's not even a great value. Renting, and investing spare cash that would otherwise be tied up on a down payment has in many cases been a better investment.

jostmey 4y ago

Could this simply be reflecting the popularity of a region? New housing will be constructed in response to more demand, and rents will also go up in respond to demand?

BenFranklin100 4y ago
This is almost certainly what is happening. All else being equal, developers choose to build new homes in areas that expect will high demand so the can charge the highest rents. There are reasons why developers don’t put up high rises in the middle of a Kansas cornfield miles from the nearest town.
BurningFrog 4y ago
Depends where you are. In California, housing will not be constructed in response to more demand.

JumpCrisscross 4y ago

Zero chance this is linear. A 20% increase would be expected to create more than a 2% decrease.

jandrese 4y ago
Seems like it must depend a lot on how much pent up demand there is for housing. Add 10% to the Bay Area and it's not going to make a dent. Add 10% in Detroit and you just add 10% more vacant units, but probably little change in rents because they're already bottomed out. They might actually increase the average rent in this case if you build more desirable units that have a mortgage to pay off.
- jeffbee 4y ago
  I doubt your intuition. A 10% increase in supply in the Bay Area would radically lower rents. That would be as if we added 3 years of the whole state's construction, just to the Bay Area, with only 1/5th the state population. Or in other words, 15 years the typical recent pace of construction. In Berkeley we lost only 2% of the population but that knocked 10% off real-dollar rents.
tedunangst 4y ago
Only a 500% increase in supply to halve rents.
spfzero 4y ago
Exactly, came her to say this. It obviously can't be linear, its just the slope at a point, but that didn't stop the headline writer. For "every" 10%, really? I'm pretty certain that for even just the next adjacent 10%, rents wouldn't just fall 1%.
hindsightbias 4y ago
250K people with $250K incomes want to live near Mission Dolores Park. 0% of YIMBY plans plan for reality.
- 4y ago

BenFranklin100 4y ago

This confirms earlier work by Evan Mast demonstrating new construction puts downward pricing pressure on existing rents: https://www.upjohn.org/research-highlights/new-apartment-buildings-low-income-areas-decrease-nearby-rents https://www.upjohn.org/research-highlights/new-apartment-bui... Intuitively this makes sense. People predominantly decide move to city/area because of a job, not because of a shiny new apartment building. New construction is a reflection of a high demand area, not a cause.

chadlavi 4y ago

Good, let's do it

richbell 4y ago

I wonder how this holds up in areas where there the majority of rentals are owned by a single company, or landlords collude to artificially drive up rental prices by keeping units vacant [0]. [0] https://news.ycombinator.com/item?id=33317414 https://news.ycombinator.com/item?id=33317414

steponlego 4y ago

I've looked through the Constitution and the entirety of US laws and I simply can't find where people have the "right" to live in the city center of fashionable mega-cities for cheap. I've looked and looked, and can't find this anywhere. Can anybody explain to me why they feel this is a right?

ryeights 4y ago
>I've looked through the Constitution and the entirety of US laws and I simply can't find where people have the "right" to afford to eat nutritious food instead of gruel and instant ramen. I've looked and looked, and can't find this anywhere. Can anybody explain to me why they feel this is a right? Not very insightful, yeah? Perhaps it would be good for things to be a certain way in our country without literally enshrining them in our Constitution. Cities are the economic backbones of modern nations, so it’s probably good for young people to be able to afford to live and work there.
- steponlego 4y ago
  People don't want tenaments popping up in their nice single family neighborhoods. Why not create one of those magical 15 minute walkable cities from scratch? A brand new, carless EXTREME density city? If it's such a dream come true, people will be sure to move in. Right? It seems pretty obvious that the folks who own property in cities which exist now don't want ultra-dense housing in their nice quiet neighborhoods, so let's put the WEF dream city concept to the test and create one from scratch.
  - ryeights 4y ago
    “Just build an entirely new city from scratch bro. How hard can it be” Network effects is the answer. Anyway, not sure what this would prove. There is clearly enormous demand for existing cities to be densified, as demonstrated by our densest, most walkable cities (NYC, SF, etc) having by far the highest rents and property values in the country, as well as the greatest economic outputs. If you’re a free market economist, you should view it as a massive failure that regulatory capture and vested interests are able to prevent willing property sellers and developers from making this a reality.

crazygringo 4y ago

> I provide event study evidence that within 500 ft, for every 10% increase in the housing stock, rents decrease by 1%; and for every 10% increase in the condo stock, condo sales prices decrease by 0.9%. This is... a silly thing to examine. 500 ft is nothing. A 10% increase in a 500 ft area is a tiny, tiny, tiny increase in the NYC housing stock overall. The cause and effect between housing stock and rents operates at a combination of city level and large neighborhood level mainly. When people shop for an apartment they're usually considering lots of neighborhoods, not a tiny 500 ft area. Anything you observe at the 500 ft level is more likely than not to just be noise. Also the HN title is wrong, because it sounds like it's a universal law, when the study is meant to be about a certain snapshot of NYC only.

dylan604 4y ago
yeah, but in NYC, isn't 500ft considered a spacious 2-bedroom condo?
tzs 4y ago
Terminology: a "row" is the buildings on one side of 1 block of an ~E/W street in Manhattan. A 500 ft radius circle around an apartment building in the middle of a row in Manhattan includes about 6 full rows and and about half of 2 more rows, so about 7 rows worth of buildings total. That seems like it would include enough buildings to see more than just noise.
- crazygringo 4y ago
  It's not about the number of apartments being sampled, it's about the cause and effect happening at a larger scale, not the local scale. In other words, rents changing in a 500 ft area is due to housing stock changing citywide. Not housing stock changing within 500 ft. The noise I referred to isn't the noise of statistical measurement, it's that housing stock within 500 ft is mostly random noise when compared to the change in stock citywide.
foogazi 4y ago
Isn’t real estate local ? How much housing stock increase do you get from a new condo building near the train station or the local elementary? Or multiple ADUs on a desirable neighborhood?

abeppu 4y ago

I'm kinda surprised that the evidence is for such a narrow radius. The abstract says NYC, not Manhattan, but 500 ft is like only 2 blocks north or south, and less than 1 block east or west. Depending on neighborhood, there may not even be that many new tenants during a period shortly following the completion of a new building, right? And I'm guessing very very few people can target so narrow a neighborhood when shopping for new housing. Overall I would have expected both the mechanism of the effect and the easiest means of measurement to be for a wider area.

dang 4y ago

"Please use the original title, unless it is misleading or linkbait; don't editorialize." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html If you want to say what you think is important about an article, that's fine, but do it by adding a comment to the thread. Then your view will be on a level playing field with everyone else's: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&sort=byDate&type=comment&query=%22level%20playing%20field%22%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so...

7e 4y ago

For every increase in the housing stock, the population increases 10% in the medium term and more than that in the long term. It’s the same with highways and traffic.

beefman 4y ago

Almost everyone has housing, and buildings aren't built unless they can be occupied. The notion that somehow increasing house "supply" will lower prices is absurd. Housing is a rivalrous good. People will generally pay as much as they can afford. Introduce 30-year mortgages? House prices will go up 50%. The best single predictor of house prices is population density. Building more units is likely to be a sign of rising prices. Case in point: Most people complaining about prices in the Bay area could have had cheaper housing back home but moved here instead.

BurningFrog 4y ago
Do you also think that demolishing existing housing would not raise rents in the remaining buildings?

jschveibinz 4y ago

I have read so many of these posts on HN, and invariably it turns into an argument between: A. Housing should be available for everyone in large cities at a price they can afford; and B. There is no right or economic solution to affordable housing for everyone who wants it, especially in a dense city. I don’t intend to choose a side in this argument, but here are the “facts” (or approximations) that must be considered in this argument: 1. Land in the U.S. is generally owned by individuals, or by businesses with shareholders (ie. people), not the government. 2. Individuals owning land and buildings are just regular people (or groups of regular people as investors) in many cases, not “bilyunares”. 3. How do regular people own property and buildings? There are three ways: a. People invest in Real Estate Investment Trusts (REIT) through their savings and/or 401k or other retirement accounts. b. People invest in banks, or deposit money in banks, which is used to create loans (mortgages) to purchase land and buildings. c. People pay taxes, and a portion of those taxes goes toward tax credits and Housing and Urban Development (HUD) Section-8 subsidies. The U.S. government spends $6 billion per year to finance new housing for qualifying people. 4. Rents and escalations are both market-based and contractual. The rent collected pays for the cost of upkeep and routine maintenance as well as the mortgage obligations and taxes. With inflation, the cost of everything goes up, and this must be reflected in rents. 5. The most desirable locations will have the highest land prices and correspondingly the highest rents. Desirability results from weather, safety, activities, travel or transportation options, and most importantly: work opportunities. It would be refreshing to see more of these “facts” (and many more I haven’t mentioned) included as part of the debate. Have fun and carry on!

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