5 ms·

“Luxury” construction causes high rents like umbrellas cause rain

66 points by throw0101b 4y ago

johnea 4y ago
[flagged]
croisillon 4y ago
[flagged]
acc_297 4y ago
I don't think it is unreasonable to claim that there exist feedback loops +ve or -ve in a neighborhood between the price of new housing being built, the kinds of employers opening new firms, the kinds of services & hospitality moving into storefronts, the price of childcare... the list goes on... The comparison to umbrellas and rain - two variables with obviously no causal dependency - feels like a big stretch no matter what side of this argument you fall on.
- deleted 4y ago
  [deleted]
- Ilverin 4y ago
  It's unreasonable because the large majority of the research has shown it to be wrong, like mentioned in the article.
- AbrahamParangi 4y ago
  It’s unreasonable because increased supply reduces price almost always. That it may increase price by increasing the value of the local economy is an edge case that generally speaking you should be very happy to have happen.
  - fatfingerd 4y ago
    It's not necessarily increasing supply though. When my neighborhood got new fancy apartments, surrounding apartments were converted to please the same price insensitive tenants that apparently wanted to afford 4k+ living alone. There are far less total tenants now. Rooms are twice as big, in some cases apartments are twice as big, halving the number of units. These people probably would have stayed outside of the downtown if large units weren't created.
  - bsder 4y ago
    > It’s unreasonable because increased supply reduces price almost always. Except that it doesn't because of the nature of the financing agreements on these kinds of apartment complexes. "Missing rent" can be tacked onto the end of the financial agreement. "Lower rent" requires you to recapitalize your financing--which is absolutely NEVER going to happen with the interest rates having gone up. Therefore, apartments will sit empty for years rather than allow rent to go down. That benefits nobody. Lots of various places would need to implement a "lack of occupancy tax" in order to force the rents to come down.
- throw0101b 4y ago
  > I don't think it is unreasonable to claim that there exist feedback loops +ve or -ve in a neighborhood between the price of new housing being built Per the article: > The alternative to induced demand is called “filtering” — or as I like to call it, the “yuppie fishtank theory”.[1] Basically, this says that when you build a big glass tower full of nice new apartments, it draws high-earning people away from working-class neigborhoods. Yuppies would probably rather go live in a nice new tower with other yuppies than go around bidding up the price of 40-year-old apartments in working-class neighborhoods. So if you build those “luxury” apartments, they’ll draw the yuppies away and stop them from pricing out the working class. The article [1] in question: > In 2018, I wrote a post[2] about why building market-rate housing in gentrifying cities helps relieve rent pressure on long-time working-class residents. I dubbed this kind of housing “yuppie fishtanks”, and I tried to explain why they help without resorting to the theory of supply and demand. Later, someone made a TikTok video about the concept. Anyway, with people moving back to the big cities after Covid, and housing construction still lagging, I thought it would be a good time to re-up my original post. * https://noahpinion.substack.com/p/yuppie-fishtanks-yimbyism-explained https://noahpinion.substack.com/p/yuppie-fishtanks-yimbyism-... * [2] http://noahpinionblog.blogspot.com/2018/07/yimbyism-explained-without-supply-and.html http://noahpinionblog.blogspot.com/2018/07/yimbyism-explaine... Going back to this article, increasing housing stock in general is generally good: > What you should notice here is that Gopal and Clark only briefly mention the “growing body of research” that supports the filtering effect, choosing only to specifically name the 2019 paper by Asquith et al. They do not mention Li (2019), who finds that “for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.”
  - 908B64B197 4y ago
    I'm always impressed at the mental gymnastics around disproving supply and demand. Especially around housing, there seems to be a thousand models that don't work to solve the housing crisis, while there's only one that's been proven again and again to work: build more.
- kragen 4y ago
  the article says this and rebuts your argument very convincingly
harimau777 4y ago
In a situation where there is already too little affordable housing and relatively finite construction infrastructure or land, then it seems plausible that an increase in the construction of luxury housing will result in a decrease in the construction of affordable housing.
- jolux 4y ago
  That assumes that construction of affordable housing is happening, which it isn’t in most cases.
- avalys 4y ago
  The wealthy people demanding luxury housing are the ones driving housing prices up. They’re going to buy a house no matter what - would you rather they “overpay” for an existing house in an established neighborhood and drive gentrification, or move into new construction? If you meet their demand with new housing, the demand and price pressure on existing housing inventory will decrease, even if you don’t build any new “affordable” housing.
  - 1letterunixname 4y ago
    The Bay Area is a perfect example. NIMBYs don't want new construction of anything. They might look the other way if it were luxury construction away from them, but cannot have affordable homes anywhere. The rich from all over the world will continue to be attracted to the area, compete with less well-off people already there who are priced out of the market. This is why there are so many homeless and people living vehicles who cannot afford housing. I make $300k but cannot afford to buy my grandparents' home that is $2.5M now but was $30k in 1968 ($260k in today's money, an order-of-magnitude increase in price. $50k is the average income today but it was $74.5k ($8.6k) in today's money then. That's 3.5x housing/income to 50x.).
  - derefr 4y ago
    > would you rather they “overpay” for an existing house in an established neighborhood and drive gentrification, or move into new construction? How are those the two options? Aren't you forgetting about new construction in established neighbourhoods? I.e. buying up two or three low-density lots, or a older/decrepit low-land-value condo building, to replace these lot(s) with a modern, high-density mixed-use condo building, composed mostly of high-sqft condos that cost more than most SFHs? There are more units on the new lot than there were on the old lot(s), so the people buying these units are definitely "moving into new construction"; but at the same time, the creation of these units displaced previous low-cost rentals. This is 99% of what people in my city (Vancouver) are complaining about when they talk about gentrification through "luxury construction": being priced out of a neighbourhood they previously rented in, as buildings containing low-price rental units are torn down and replaced by buildings containing only high-price rental units.
1letterunixname 4y ago
What a stupid and fraudulent metaphor. Comparables and greedy corporations inflate the inventory of expensive housing while affordable housing shrinks to nothing.
- AbrahamParangi 4y ago
  You know what “greedy corporations” would really hate? More housing being built that reduces the value of the assets they already own.
- throw0101b 4y ago
  If you want more "affordable housing" build more housing in general: > Now, if you cornered Gopal and Clark — or the “small group of academics” they cite — you could probably get them to admit that if we built 10 market-rate (“luxury”) apartments for every resident of Austin, most of them wouldn’t get filled, and landlords would be forced to slash prices, and regular folks would have cheap apartments to live in. An apartment’s price is not built into its walls and floors; “luxury” is just a marketing buzzword, and most of the apartments that are affordable today went for market rate when they were built. More housing in general is generally good: > What you should notice here is that Gopal and Clark only briefly mention the “growing body of research” that supports the filtering effect, choosing only to specifically name the 2019 paper by Asquith et al. They do not mention Li (2019), who finds that “for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.” Want rents to decrease? Have vacancy rate of 10%. Renters can jump ship at any point and have an option available, which will incentivize landlords to not be assholes. If vacancy rates are ~0%, then landlords can do whatever they want, and renters have to to take it.
lukas099 4y ago
Today's luxury housing is tomorrow's affordable housing.
- ipqk 4y ago
  Especially all these new 5-over-1 complexes that are marketed as "luxury" these days. They're hardly luxury, and in 20 years time, they're just going to be mid-class apartments.
- kragen 4y ago
  the article says this
elzbardico 4y ago
It's a bit more complicated because markets are not perfectly rational, but also because of rational expectations and speculative movements. When there is an expectation that zoning laws will be changed to allow higher density, or when there's an expectation that there will be a growing market for high-end real estate, the ask price from land owners usually rises. The markets are not 100% efficient in the real world, outside of the simplest economic models.
etempleton 4y ago
I’ve been saying this for years: Build housing; any housing. Low income, medium income, high income—it doesn’t matter. If there becomes an over supply the price of housing will eventually go down. Somehow we have to complicate it or abstract it to make it an issue it isn’t.

66 points by throw0101b 4y ago

johnea 4y ago

[flagged]

croisillon 4y ago

[flagged]

acc_297 4y ago

I don't think it is unreasonable to claim that there exist feedback loops +ve or -ve in a neighborhood between the price of new housing being built, the kinds of employers opening new firms, the kinds of services & hospitality moving into storefronts, the price of childcare... the list goes on... The comparison to umbrellas and rain - two variables with obviously no causal dependency - feels like a big stretch no matter what side of this argument you fall on.

deleted 4y ago
[deleted]
Ilverin 4y ago
It's unreasonable because the large majority of the research has shown it to be wrong, like mentioned in the article.
AbrahamParangi 4y ago
It’s unreasonable because increased supply reduces price almost always. That it may increase price by increasing the value of the local economy is an edge case that generally speaking you should be very happy to have happen.
- fatfingerd 4y ago
  It's not necessarily increasing supply though. When my neighborhood got new fancy apartments, surrounding apartments were converted to please the same price insensitive tenants that apparently wanted to afford 4k+ living alone. There are far less total tenants now. Rooms are twice as big, in some cases apartments are twice as big, halving the number of units. These people probably would have stayed outside of the downtown if large units weren't created.
- bsder 4y ago
  > It’s unreasonable because increased supply reduces price almost always. Except that it doesn't because of the nature of the financing agreements on these kinds of apartment complexes. "Missing rent" can be tacked onto the end of the financial agreement. "Lower rent" requires you to recapitalize your financing--which is absolutely NEVER going to happen with the interest rates having gone up. Therefore, apartments will sit empty for years rather than allow rent to go down. That benefits nobody. Lots of various places would need to implement a "lack of occupancy tax" in order to force the rents to come down.
throw0101b 4y ago
> I don't think it is unreasonable to claim that there exist feedback loops +ve or -ve in a neighborhood between the price of new housing being built Per the article: > The alternative to induced demand is called “filtering” — or as I like to call it, the “yuppie fishtank theory”.[1] Basically, this says that when you build a big glass tower full of nice new apartments, it draws high-earning people away from working-class neigborhoods. Yuppies would probably rather go live in a nice new tower with other yuppies than go around bidding up the price of 40-year-old apartments in working-class neighborhoods. So if you build those “luxury” apartments, they’ll draw the yuppies away and stop them from pricing out the working class. The article [1] in question: > In 2018, I wrote a post[2] about why building market-rate housing in gentrifying cities helps relieve rent pressure on long-time working-class residents. I dubbed this kind of housing “yuppie fishtanks”, and I tried to explain why they help without resorting to the theory of supply and demand. Later, someone made a TikTok video about the concept. Anyway, with people moving back to the big cities after Covid, and housing construction still lagging, I thought it would be a good time to re-up my original post. * https://noahpinion.substack.com/p/yuppie-fishtanks-yimbyism-explained https://noahpinion.substack.com/p/yuppie-fishtanks-yimbyism-... * [2] http://noahpinionblog.blogspot.com/2018/07/yimbyism-explained-without-supply-and.html http://noahpinionblog.blogspot.com/2018/07/yimbyism-explaine... Going back to this article, increasing housing stock in general is generally good: > What you should notice here is that Gopal and Clark only briefly mention the “growing body of research” that supports the filtering effect, choosing only to specifically name the 2019 paper by Asquith et al. They do not mention Li (2019), who finds that “for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.”
- 908B64B197 4y ago
  I'm always impressed at the mental gymnastics around disproving supply and demand. Especially around housing, there seems to be a thousand models that don't work to solve the housing crisis, while there's only one that's been proven again and again to work: build more.
kragen 4y ago
the article says this and rebuts your argument very convincingly

harimau777 4y ago

In a situation where there is already too little affordable housing and relatively finite construction infrastructure or land, then it seems plausible that an increase in the construction of luxury housing will result in a decrease in the construction of affordable housing.

jolux 4y ago
That assumes that construction of affordable housing is happening, which it isn’t in most cases.
avalys 4y ago
The wealthy people demanding luxury housing are the ones driving housing prices up. They’re going to buy a house no matter what - would you rather they “overpay” for an existing house in an established neighborhood and drive gentrification, or move into new construction? If you meet their demand with new housing, the demand and price pressure on existing housing inventory will decrease, even if you don’t build any new “affordable” housing.
- 1letterunixname 4y ago
  The Bay Area is a perfect example. NIMBYs don't want new construction of anything. They might look the other way if it were luxury construction away from them, but cannot have affordable homes anywhere. The rich from all over the world will continue to be attracted to the area, compete with less well-off people already there who are priced out of the market. This is why there are so many homeless and people living vehicles who cannot afford housing. I make $300k but cannot afford to buy my grandparents' home that is $2.5M now but was $30k in 1968 ($260k in today's money, an order-of-magnitude increase in price. $50k is the average income today but it was $74.5k ($8.6k) in today's money then. That's 3.5x housing/income to 50x.).
- derefr 4y ago
  > would you rather they “overpay” for an existing house in an established neighborhood and drive gentrification, or move into new construction? How are those the two options? Aren't you forgetting about new construction in established neighbourhoods? I.e. buying up two or three low-density lots, or a older/decrepit low-land-value condo building, to replace these lot(s) with a modern, high-density mixed-use condo building, composed mostly of high-sqft condos that cost more than most SFHs? There are more units on the new lot than there were on the old lot(s), so the people buying these units are definitely "moving into new construction"; but at the same time, the creation of these units displaced previous low-cost rentals. This is 99% of what people in my city (Vancouver) are complaining about when they talk about gentrification through "luxury construction": being priced out of a neighbourhood they previously rented in, as buildings containing low-price rental units are torn down and replaced by buildings containing only high-price rental units.

1letterunixname 4y ago

What a stupid and fraudulent metaphor. Comparables and greedy corporations inflate the inventory of expensive housing while affordable housing shrinks to nothing.

AbrahamParangi 4y ago
You know what “greedy corporations” would really hate? More housing being built that reduces the value of the assets they already own.
throw0101b 4y ago
If you want more "affordable housing" build more housing in general: > Now, if you cornered Gopal and Clark — or the “small group of academics” they cite — you could probably get them to admit that if we built 10 market-rate (“luxury”) apartments for every resident of Austin, most of them wouldn’t get filled, and landlords would be forced to slash prices, and regular folks would have cheap apartments to live in. An apartment’s price is not built into its walls and floors; “luxury” is just a marketing buzzword, and most of the apartments that are affordable today went for market rate when they were built. More housing in general is generally good: > What you should notice here is that Gopal and Clark only briefly mention the “growing body of research” that supports the filtering effect, choosing only to specifically name the 2019 paper by Asquith et al. They do not mention Li (2019), who finds that “for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet.” Want rents to decrease? Have vacancy rate of 10%. Renters can jump ship at any point and have an option available, which will incentivize landlords to not be assholes. If vacancy rates are ~0%, then landlords can do whatever they want, and renters have to to take it.

lukas099 4y ago

Today's luxury housing is tomorrow's affordable housing.

ipqk 4y ago
Especially all these new 5-over-1 complexes that are marketed as "luxury" these days. They're hardly luxury, and in 20 years time, they're just going to be mid-class apartments.
kragen 4y ago
the article says this

elzbardico 4y ago

It's a bit more complicated because markets are not perfectly rational, but also because of rational expectations and speculative movements. When there is an expectation that zoning laws will be changed to allow higher density, or when there's an expectation that there will be a growing market for high-end real estate, the ask price from land owners usually rises. The markets are not 100% efficient in the real world, outside of the simplest economic models.

etempleton 4y ago

I’ve been saying this for years: Build housing; any housing. Low income, medium income, high income—it doesn’t matter. If there becomes an over supply the price of housing will eventually go down. Somehow we have to complicate it or abstract it to make it an issue it isn’t.