8 ms·

Repeat after me: building any new homes reduces housing costs for all

129 points by nabla9 3y ago

falcolas 3y ago
Housing builders don't want prices to fall. Nor do the investors who fund new construction and buy existing houses. In other words, the general public are not the ones you need to convince. EDIT: Nor do existing homeowners want to see their house prices fall. So anything that relies upon them voting to change the value of their homes is a non-starter too. Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.
- watwut 3y ago
  You kinda do, because the biggest obstacles are zoning laws and regulations.
  - falcolas 3y ago
    If there's one thing America has, it's space. There's plenty of land free of zoning laws and regulations right now. Also, NIMBY homeowners don't want the prices to go down either.
    - orangepurple 3y ago
      Certain social circles wants to live near each other. Moving away simply isn't an option in their head space. It would mean abandoning what they consider their family.
      - watwut 3y ago
        And it would also mean abandoning their jobs. People want and need to live where they can find jobs.
    - rqtwteye 3y ago
      A lot of US cities are already spread out a lot. But businesses don’t spread very much but concentrate in a few hot spots. That leads to very long commutes. If remote work doesn’t become much more common people can’t move into that empty space because there is no way to earn a living there.
    - HDThoreaun 3y ago
      There is absolutely not space where people want to be. If you want to move to bumfuck be my guest.
    - Beached 3y ago
      there is a surprisingly low volume of land free from zoning. most America want to.live in urban areas, which are loaded with stupid zoning laws
- jjoonathan 3y ago
  Competition means they don't have to want prices to fall for prices to fall. Come on, this is capitalism 101.
  - falcolas 3y ago
    Housing builders and investors are currently allowing 10% of the total house stock in the US sit vacant to keep the prices up. They're not competing, whether by silent agreement or individually acknowledging it's in their best interests to keep the status quo in place.
    - matchbok 3y ago
      Simply inaccurate. Apartments and houses are opening up all the time. That % is meaningless. Some amount of vacancy is necessary.
      - falcolas 3y ago
        Which part? That 10% of all houses in the US are vacant? A quick Google search shows that 10% is probably low. That they're not competing? What evidence is there of this? Prices aren't falling, after all.
        kemotep 3y ago
        A vacant 2 bed room 1 bath house in Mansfield Ohio does not help the family of 5 in San Francisco let alone Cleveland. Where the vacancy is and the “quality” so to speak matters a lot. Additionally, some percentage of homes have to be vacant to allow someone to move into it. You will need to provide evidence that the vacancy rate of a specific market is causing prices to go higher. Citing national statistics when talking about a local issue does not help.
        dingosity 3y ago
        Look at my post immediately previous to yours. It links to a Lending Tree study that indicates an inverse relationship between vacancy rate and median home price. Hawaii is an obvious outlier, but interestingly, so is New Jersey. (What's going on in Jersey?) The data in this study is broken down by state; SMSA would probably be better, but I didn't spend a lot of time digging up data.
- HPsquared 3y ago
  House builders aren't the deciding factor. It's property owners.
  - falcolas 3y ago
    The builders and the property owners are often the same entity. Speculative house building has been a thing since forever.
    - ethanbond 3y ago
      Builders only temporarily own property. They don’t have a long enough horizon for the land price to make much of a difference. The neighbors who have lived in the same place for 20-30 years trying to disrupt development though…
- _0ffh 3y ago
  No, but they want to profit from the existing prices, which they do by building new ones. Builders earn their money by building, not by gloating over the prices.
  - falcolas 3y ago
    They have 10% of their stock sitting empty, waiting for their asking prices. Builders earn their money by selling houses for what the market can bear. The act of building itself is merely a cost.
    - dingosity 3y ago
      Not to sound too much like a marxist, but @falcolas has a point here. If builders were offering a public service, they would likely sell their new homes (condos, townhomes, high-rises, etc.) for cost plus a reasonable percentage. But new homes go into a speculation market where the exchange value of the home factors in profit by the rentier class who add nothing to the value of the transaction.
      - gottorf 3y ago
        > the rentier class who add nothing to the value of the transaction I lived in one of the most expensive rental markets in the US for a while, so believe me, I'm not inclined to defend landlords, but the availability of rental units do serve a function. Even if we make the crazy assumption that a law forbidding the ownership of more than one residence would have resulted in a median home price one-third of what it actually was in my market, for half the time I lived there, I couldn't have afforded a down payment and a mortgage, and for the other half, I wouldn't have wanted to. There's a risk in tying up a significant chunk of your net worth in an illiquid asset. For what it's worth, I believe rent-seeking (in the economic sense) behavior should be heavily discouraged as a matter of public policy, and believe that a system of taxation that is centered around land-value tax is the best way to achieve that, at least for residences. > a public service [...] for cost plus a reasonable percentage This type of regulation only makes sense for natural monopolies like utilities and whatnot.
      - 3y ago
- tootie 3y ago
  Builders don't make money on the resale of existing homes. They want new homes to fetch the highest price, but they can also earn money on volume. Nothing built, nothing sold. Existing homeowners are the blocker. And increased construction doesn't mean home owner go underwater. That's a pretty extreme situation. Housing prices are unlikely to drop barring a disaster like 2007. Houses will become affordable even if the prices rise more slowly. Encouraging home ownership as a means to increase wealth really has to go away. It's the major contributing factor to the aforementioned reluctance of existing home owners.
- JohnFen 3y ago
  > Nor do existing homeowners want to see their house prices fall. In my area, people who own homes to live in (rather than as investments) love to see their house value fall because it reduces the amount they pay in property tax.
  - rqtwteye 3y ago
    I don’t think so. Once your house value falls, you can’t move anywhere else.
    - josefresco 3y ago
      If your home value increases, because regional home values increased, you also can't move!
    - HDThoreaun 3y ago
      Many(most?) people do not plan on ever moving.
    - Beached 3y ago
      why not? if my home value falls, presumably the one I'm going to move into fell as well.
    - JohnFen 3y ago
      That's only relevant if you intend on moving someplace else. Most people I know who own homes have no intent of ever vacating them.
    - bcrosby95 3y ago
      If my house value falls, broadly speaking, other ones fall. If my house value raises, broadly speaking, other ones raise. Buying a house means, generally speaking, I can kinda "guarantee" I can afford that "quality" of house. It's like having a housing share that I can exchange for another similar house.
- rqtwteye 3y ago
  “Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.” That’s a big problem. A lot of peoples retirement plans rely on the value of their house. I am one of them.
- sfvisser 3y ago
  Starting homeowners who might want to move into a bigger home do want prices to fall as well. The loss in return of your current home is being royally offset by reduction in price when buying.
- phmqk76 3y ago
  Seriously. So many people have a low-information understanding of the housing market, and think that homebuilders somehow aren't rational actors. Why would people who make their money building houses be into lowering their profit margins and causing pricing shocks for their existing stock of houses that are in construction? Developers are incentivized to charge what the market will bear. It is public policy's job to reform the incentives so other market players see opportunities to build lower-priced and lower-margin housing stock - I think the best way to do this is to make public lending corporations that will provide 3% construction loans, which are far more attractive than the 8% to 10% presently charged by institutional lenders. Couple that with expedited permitting for these projects, and tie them to affordability standards, and that's a market disruption that makes sense for most people. But simply deregulating and hoping that prices will fall never, ever works.
MostlyStable 3y ago
https://archive.ph/QNRlh https://archive.ph/QNRlh For anyone who just reads the headline, and doesn't get to the first paragraph: Yes, if the new housing you are building is an increase in total stock. (I doubt that it's very often not the case, but still an important caveat). If you tear down a high rise to build a mansion, no that won't decrease prices just because you built something new. Again, I realize that this probably almost never happens, but it's important to point out that the thing that matters is the change in stock, not the newness.
- aranw 3y ago
  I don't know if it's just me but for some strange reason I can never get past the captcha on archive.ph. It just refreshes the page and I can never access the archived version
  - archo 3y ago
    Change your DNS - Cloudflare and archive.today do not play nice - (think, David vs Goliath) Search; 2023:'public-dns' Take Control of your DNS - You may also try an archive.today mirror; https://archive.vn/QNRlh https://archive.vn/QNRlh - https://archive.li/QNRlh https://archive.li/QNRlh - https://archive.md/QNRlh https://archive.md/QNRlh - https://archive.is/QNRlh https://archive.is/QNRlh https://archive.fo/QNRlh https://archive.fo/QNRlh - https://archive.today/QNRlh https://archive.today/QNRlh - However, changing your DNS is the answer to this problem.
- dangus 3y ago
  Yes, great point here. Build all the luxury housing you want. My first cheap slumlord apartment started its life as a luxury building in the 1930s. The problem is when someone knocks down a 3-flat row house and builds a single family home in the same plot of land. Unless we have negative population growth that should never happen (and usually the places where knocking down a house and building an entirely new one makes sense are growing and desirable).
  - zbrozek 3y ago
HPsquared 3y ago
That people need this explained to them, readers of a financial newspaper no less, is a little concerning.
- ethanbond 3y ago
  Gotta overcome the cognitive biases induced by “most of my wealth is in the land beneath my house.”
- 0xDEF 3y ago
  The people who read a financial newspaper probably still have a lot of their networth tied up to their real-estate.
- snoman 3y ago
  I attribute this to the pervasive publishing model where anyone can submit an article to any publication, and as long as the topic lines up with current events, then the editor is just a bot that is checking for spelling and the headline being clickable.
- pesfandiar 3y ago
  Vancouver has one of the least affordable housing markets in North America and people have been concerned about it for years. 4 years ago, it was even a municipal election issue, yet most people who couldn't afford housing voted in some of the most NIMBY councillors, who in turn voted down any significant housing project. The reason? New units are expensive, so building them makes housing more expensive. Even some smart, educated people couldn't see past this.
jtode 3y ago
This is just absurd on its face. This kind of simplisticism is toxic af.
- recursive 3y ago
  Sounds pretty reasonable "on its face".
phkahler 3y ago
Maybe not if it's rental units. Maybe.
- belltaco 3y ago
  Why not?
Arcuru 3y ago
I know it's off-topic, but I can't help noticing Financial Times pricing model. It's $1 for 4 weeks, $69 a month for digital, but also $99 a year for print and digital? That's a wild pricing model. I long for the day that I can just pay XX cents to read a single article with minimal fuss, but at this point I don't see that happening.
- flutas 3y ago
  Looks almost like a typical "good better best" upsell to me, trying to get you to go for the "better" option. But they turned it into a variation to get you to accidentally subscribe to the "better" option by also having a cheap trial ($1 for 4 weeks).
hindsightbias 3y ago
Repeating a lie endlessly does not make it true. Repeat after me: building any new homes increases housing costs anywhere anyone on HN wants to live See: Austin, Frisco, Denver, Vail, Nashville, Miami, San Diego, SV, SF, Seattle
- yjftsjthsd-h 3y ago
  I'm open to believing you, but how? Why would building new homes increase housing costs anywhere?
  - aleign 3y ago
    It doesn't unless it is outpaced by the increase in demand for housing. This person makes it sound like they have a ton of brand new houses in Austin with nobody living in them because they're too expensive. I can tell you as a former Austinite, that couldn't be further from the truth.
  - the_gipsy 3y ago
    More people = more opportunities = more people attracted, and so on.
  - renewiltord 3y ago
    It's not inconceivable. There's obviously some agglomeration advantage. People are valuable to other people. For instance, I think if SF built sufficient new homes it would have a lot more young people and they'll make the place nicer and that will make it more valuable.
  - tpmoney 3y ago
    Induced demand, the same mechanism by which building more and wider roads doesn’t always mean less traffic. There’s still only so much land and space in a given area, and even in high density areas there are more and less desirable spots (e.g. a penthouse suite vs a basement apartment next to the furnace). As more people move into an area, more competition for those desirable spots has an increased pressure on the prices for those spots, which in turn increases prices for other less lucrative spots because the whole market window is shifted.
robot_no_421 3y ago
Article is subscription locked, so I just read the (patronizing and reductive) headline. The problem never has been lack of housing. The problem has always been lack of land. You can only build new homes on existing land and nobody wants to repurpose existing land to build new houses. Where exactly in NYC can we build new houses? And what houses are we talking about? Single family houses that are not a good use of land? Huge multifamily complexes that further stress the crumbling infrastructure? Housing costs are not my top priority for my QOL. Building more houses will likely impact me only in negative ways. And again, the article is subscription locked so all I can do is read the headline.
JohnFen 3y ago
I totally understand the rationale. My problem is that I don't see it happen in real life. Where I live, quite a lot of new high-end housing has been built, but it hasn't seemed to reduce housing costs at all. The people moving into the new housing aren't vacating lower-cost housing to do so. They're mostly people moving into the area for the first time. So housing costs for everybody, but mostly at the more affordable end, continue to rise faster than inflation.
- ericholscher 3y ago
  The point is that housing costs would have gone up more if that housing wasn't built, not that some amount of built housing automatically means prices grow slower than inflation.
  - deleted 3y ago
    [deleted]
  - JohnFen 3y ago
    That seems pretty speculative. But even if it's true, that means that just building a bunch of new housing isn't addressing the problem.
    - seryoiupfurds 3y ago
      It just means that we need to build even more new housing to keep up with the demand, and that the situation would have been even worse if we hadn't built what we have.
    - HDThoreaun 3y ago
      The problem is that there is not enough housing for the people who want to live there. Building more is the only way to address that problem other than exclusing people who want to live there.
      - JohnFen 3y ago
        But the problem is that there is little economic incentive to build more than is being built. The housing is being built for wealthy people. If most of those people aren't trading up from less expensive units, then that doesn't vacate any less expensive units. So, outside of the wealthy crowd, there is little downward price pressure in housing.
bryanlarsen 3y ago
Induced demand is real. Building a desirable house may cause somebody to move to a city that they wouldn't otherwise move to. But the article is more than its headline. It comes armed with data that shows that the induced demand effect is not significant in the markets studied.
- recursive 3y ago
  When you move into one place, you move out of a different place.
  - bryanlarsen 3y ago
    Housing is a local phenomenon. Some cities have a supply shortage and some don't.
  - dsr_ 3y ago
    Frequently leaving your parents or ex or roommates in the old place.
    - recursive 3y ago
      In that case, you had people co-habitating who didn't want to be. It's still an argument for more housing. Also, there's a limited number of times that a housing unit of n people can split up without leaving an un-occupied unit.
phmqk76 3y ago
Repeat after me - the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector. The housing market is red hot right now, and yet builders are loathe to invest in a major way, fearing a downturn that will impact their profit margins, even though they stand to make big bucks. But we somehow expect a building surge that will shift the market dynamics to make all housing worth less? The only way to incentive construction is to incentive construction. NYC HPD is an agency, for example, that has a history of providing low interest rate loans for approved projects to rehab old buildings. With borrowing costs hovering at 8%-10% for new construction projects, and with lenders tightening standards, this is the perfect time for state governments and the federal government to provide 3% construction loans, accessed in tranches after milestones are met, to facilitate not only housing on the cheaper end of the spectrum, but lower-margin housing projects that established developers and big lenders typically shy away from. Simply deregulating does not work, and it's foolish to think it would. Lower cost housing, made profitable by public lenders as a last resort, is a no-brainer that gets lost in the discussion. As is rent control, by the way. But that won't lead to the same cast of characters getting boffo bucks through deregulation, so neither option is taken seriously by Serious People.
- the88doctor 3y ago
  3% construction loans would majorly undermine the Fed's effort to fight inflation
  - soperj 3y ago
    How? It's not 3% for everyone, it's 3% for specific projects for low income housing.
    - Empact 3y ago
      The boom gets started with an expansion of credit. The fed sets rates low, are you starting to get it? That new money is confused for real loanable funds, but it’s just inflation that’s driving the ones who invest in new projects, like housing construction. The boom plants the seeds for its future destruction. The savings aren’t real, consumption’s up too! And the grasping for resources reveals there’s too few. https://youtu.be/d0nERTFo-Sk?si=mcHcwlGi-TPaf5q- https://youtu.be/d0nERTFo-Sk?si=mcHcwlGi-TPaf5q- The claim being that to back a loan with new “printed” money is necessarily inflationary. Loans backed with saved/invested funds are non-inflationary, because the saver gives up their ability to consume with those funds, in proportion with the consumption the borrower takes on.
purpleblue 3y ago
In Toronto, the number of condos that have been built is staggering. There must be hundreds of thousands of new condos in the last 20 years. The prices have only gone up. The idea that new housing reduces cost is insane. All of the condos being built are at the top of the price range. What needs to be done is NEW CITIES need to be created with business centers. Not adding more housing into already packed cities. I have been saying for a decade that large tech employers like Google and Facebook should have created offices in the middle of the US, which cheaper neighborhoods, better schools, etc. Create opportunities for families to move out from the tech areas and enrich other parts of the country. But they keep doubling, tripling and quadrupling down on the Bay Area. New cities need to be created with business centers, not new condos in old cities!
- vkou 3y ago
  If you build 8 new units to support 10 people moving in, prices will still go up. But not as much as if you didn't.
- jross225 3y ago
  I mean, imagine what housing in Toronto would cost if they didn't build those 100K+ condos? Pricing is composed of supply and demand, and the article is saying that holding demand constant, increasing supply lowers prices. Adding a marginal unit to the housing stock kinda has to result in lower or equal prices in the static case. Toronto is growing insanely quickly, and supply can't meet demand. New cities are great, but a large number of people want to move to big and established population centres.
  - purpleblue 3y ago
    We are in violent agreement. Creating new condos will still keep the prices increasing, but it will be better than the situation where no new housing is built. But the article specifically says "new homes reduce house prices." This is patently false. Toronto is growing because there's no real business centers outside of Toronto for the 1 million immigrants a year that are coming in. We need to create viable options by expanding business outside of Toronto in new land, so that housing demand lessens.
thedougd 3y ago
I think we're dealing with multiple overlapping issues in the housing sector. For example, where are we going to get enough skilled trades to build the houses? There are many reasons why trades are in short supply from lack of interest to immigration enforcement.
- chrstphrknwtn 3y ago
  Why would I go to trade school for a few years to make $60k forever?
  - thedougd 3y ago
    Wages are certainly part of the issue. The job certainly wouldn't interest me at that rate, forever. Skilled trades do better, however there's a lot standing in their way. Getting started, there are easier jobs with better _starting_ pay. Even before covid and the following inflation, there was a serious problem with brain drain in the industry. This Old House set aside time for every show to recruit younger participants.
- kipchak 3y ago
  I think lack of pay is a big issue as well. (most) everyone has a number where they'd get on a ladder and learn say roofing, but it's typically much higher than $22.50 an hour.
  - thedougd 3y ago
    I intended for low pay, dangerous conditions, abuse/hazing, etc to wrap up into lack of interest.
dsr_ 3y ago
If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. If you build a thousand new apartments in Sri Lanka, this has no practical effect on the cost of housing in Colombia. If a housing authority pays a contractor to build a dozen affordable, subsidized apartments, but the apartments are then discovered to be uninhabitable firetraps, the cost of housing can go up. Authoritatively making sweeping generalizations not only ignores the edge cases, it often sets policy in ways that enable more of those edge cases.
- amluto 3y ago
  > If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. That’s not necessarily true. If you build a $5m house where there was previously no house, and the multimillionaire buys it, then they’re not buying some other $4m house, and someone could buy that instead of something else, etc. For this to work, you need a situation where building n houses does not create demand for approximately n houses.
- HDThoreaun 3y ago
  > If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. There is not an infinite number of people looking for second homes. Build enough $5 million dollar homes and you'll run out eventually.
Tade0 3y ago
I'm having trouble reconciling this with the fact that in my corner of the world prices have been growing exponentially during the past decade despite the population remaining relatively stable and a record number of housing units being built. The only thing that changed in this period was investment demand, which skyrocketed. I have a building in my neighbourhood which consists solely of tiny studio apartments - the vast majority of which were already bought out back when the project was still a hole in the ground. Half of the lights are perpetually dark, because barely anyone lives there. Or better yet: there's a hole in the ground in my neighbourhood that was still the previous building back when they started selling apartments - the company went bankrupt during the pandemic and construction was only started when another company stepped in and bought everything. Bottom line is you can't fight exponential growth in demand with linear increase of supply.
- sokoloff 3y ago
  > in my corner of the world prices have been growing exponentially during the past decade Even steady inflation results in an exponential growth in prices.
  - Tade0 3y ago
    To the tune of 8-10% annually in a borderline deflationary economic environment - which was the case for most of the last decade? I don't think this increase can be attributed to inflation.
- 01100011 3y ago
  This. We're still in the midst of an asset bubble due to fiscal and monetary excess. Monetary policy changes haven't largely taken effect yet while we are still stimulating the economy on the fiscal side with deficit spending.
- akavi 3y ago
  What's your corner of the world? I'm sure we can find hard data on the population growth vs. new building rates which might be illuminatory.
fastaguy88 3y ago
Perhaps this is true on average over all housing classes, but in my university town, there has been a tremendous increase in supply (luxury appts for rich undergraduates) and no decrease in costs. And now there is a proposal to remove all R-1 (residential) zoning, so large appts can be build anywhere, all in the name of making housing more affordable. But past increases in supply have not made housing affordable, and the effect will be to convert older smaller (cheaper) single family homes into apartment complexes that are designed for students, not single families. It seems pretty clear that the up-zoning will not make housing affordable for the middle class. Perhaps it will be more affordable for less price sensitive students.
- HDThoreaun 3y ago
  You're assuming prices wouldn't have increased by even more if the apartments weren't built. I'm not sure why. Increasing supply has absolutely made housing more affordable relative to where it would be if supply hadn't expanded. You're just not expanding supply fast enough to see a decrease in cost.
  - fastaguy88 3y ago
    Perhaps more affordable on average, but if the apartments replace older smaller single family homes, then the supply demand thesis suggests that those single family homes would become less affordable. So yes, things become cheaper if everyone wants to live in an apartment. But for modest income folks in small old houses, up zoning means moving out of the community.
    - seryoiupfurds 3y ago
      By the pigeonhole principle not everyone who wants to live in a growing city can own a house. So long as houses are allocated economically (as opposed to submitting an application to join the queue at the People's Bureau of Housing or whatever) this will reveal itself as some people being unable to afford houses. So we can conclude that the affordability of single family homes in isolation isn't the problem we should focus on. > So yes, things become cheaper if everyone wants to live in an apartment. People make tradeoffs all the time. Lots of people would love to own a nice house in a nice neighborhood within walking distance to a forest and to downtown for not very much money. But too many people want to live there for them to all own houses. So some will choose to live in an apartment instead, and others will choose to move farther away to be able to own a house. Preventing upzoning will just mean that fewer people get to make the tradeoff to live in that neighborhood, and only the richest of them will be able to pay through the nose to do so. > But for modest income folks in small old houses, up zoning means moving out of the community. Well, nobody's forcing them to. After their house has been upzoned they can live in it for as long as they want, then sell it to a developer for millions of dollars when they want to move. The developer will use the land to build apartments, and sell them to people who don't have a million dollars to buy a house. Everybody wins.
coding123 3y ago
Well no, the demand is so high that your proposal makes no sense: 1. High demand on labor and materials from builders makes the cost of labor and materials go up 2. If the demand for the actual home reduces, and the cost of labor does not go down because those workers are now offered better prices as a Walmart worker, material costs may go down, but since materials are about 25% of the cost, it will make the price of the house go down very little. 3. The airbnb/landlord/second-and-third homes from Google stock holders demand seems to be insatiable. If that changes, the entire thing may then finally collapse. However that collapse is much more likely than builders being able to supply the housing with labor and material costs so high right now.
louwrentius 3y ago
The fundamental issue is that we allowed housing to be abused as an object of speculation. No wonder the people with tons of money started to buy up homes, only to rent them out to people who are then not able to buy a home for themselves. The rich get richer The poor get poorer If you’re young, what future is there to look forward to, I wonder.
staringback 3y ago
Repeat after me: building new lanes reduces traffic for all
ajkjk 3y ago
It can't be this simple. I know that at a strictly mathematical level it feels like it must be true, like the "Calories In = Calories Out" model of weight loss, and yet, like CICO, feels useless as a principle. (CICO's problem: as a mathematical relationship it has to be true, but it's too dumb to be helpful: what controls calories out? all of: exercise + resting metabolism + how many calories you hold onto + how much you exhale + how much you excrete, and most of these are regulated by your desire for exercise, eating, etc. -- so while it is the value of d(weight)/dt, it tells you nothing about the first-order term that you should actually control; it's a mix of terms of different orders.) Similarly, there are clearly multiple "first-order effects" at play that are producing the final housing costs. It's not the case that there is one first-order effect, supply and demand, and then a bunch of 2nd-order corrections. I wish I could clearly see what the full equation is though. My poorly-informed guess is that the actual first-order model looks like this: "real inflation" is actually much higher than the reported numbers and is best reflected in housing prices (and healthcare prices). The reported number of inflation is much lower because certain sectors --- electronics, food, and other mass-produced consumer goods --- have had their prices heavily suppressed by exploiting global economies or controlled by policy. So lower-income workers, because they can afford smartphones and food, don't feel as poor as they actually are. But housing prices are tracking money supply, which is mostly (incredibly disproportionately) going to high-earners, like many of the tech employees here and all the economic winners of the last fifty years; the incongruity explains why everything is so expensive. At the margin, more supply just gives the rich people more places to park their money -- because they have so much money. I expect that's the best model of e.g. Toronto and NYC. Put differently: if you took tech salaries and San Francisco rents and divided them both by four, they'd feel like reasonable numbers. Everyone else is getting burned by that.
- HDThoreaun 3y ago
  No. It really is that simple. There are x units and y people looking for units in an area. If we had enough housing it wouldn't be seen as investment because the returns would be terrible since landlords would be competing for renters instead of the other way around. Leaving housing vacant only makes sense if you've cornered the market or are a land speculator. Most American cities do not have a cornered rental market so we just need to stop land speculation.
dalbasal 3y ago
In the feisty spirit of this article: Balderdash! The basis for this articles' argument^ is not really empirical. It's theoretical. And rational in the sense that it models theory to create predictions... It is quite a cherry-picked collection of published studies, not a metastudy. Anyway, the crux of theoretical argument is "supply and demand... duh." This is often true, depending on the market, but... it really depends on the market. For real estate, "focusing on supply" often leads to understating the significant "out of theory" factors. For example, real estate "demand," is largely determined by mortgage availability. That's the source of funds. Besides this, British real estate is an investment class with prices affected by rates, performance of other asset classes, and such. These are big factors. Dublin city, not far, basically conducted an unscripted experiment in this space during 2008-2015. Lending collapsed. Demand collapsed. Lending was gradually restored, and median house values tracked median approved mortgage max outs. IE, if the average bank agreed to lend $X to the average applicant with an average income... that became the average price. Where the banks (CB, really) created subcategories with special rules (eg single bedroom apartments were mortgage disqualified for a while), those special rules dictated average prices for those categories.^^ This is not surprising when you consider the various leverages and flexibilities of the demand side, compared to the flaccid supply side of the equation. "When asked about the impact of a 10 per cent increase in regional housing supply, however, 40 per cent say prices and rents would rise, while only a third say they would fall." Sounds to me that most people just guess. But... this is a disingenuous frame. A 10% increase in (London) housing supply doesn't happen often. That's the point. When it does happen, it rarely happens unless prices hold up. There is no realistic scenario where London is exploding into the sky while a flood of supply crashes prices. This is tunnel-vision, model-only thinking. The supply "lever" he wants to crank is good for fractions of a percent, not 10%. None of this is to say not to build. If we don't build housing, we cant have more housing. But, house prices are not made in the the council's planning permission basement. This is fantasy. ^"Studies show" is a cop out. Make the argument yourself. Base your arguments on the studies, if convincing. Shots fired :-) ^^In Ireland, this has led to the opposite extreme, and equally erroneous belief that supply is always irrelevant to price.
FranchuFranchu 3y ago
The best solution to this problem is taxing land value instead of taxing property. Land value taxes have a lot of advantages. They incentivize construction, disincentivize vacant lots, and they also remove the profit that can be earned by being an idle landlord, which is unearned income. With property tax, improvements on your property are taxed. This makes construction less profitable / housing more expensive. With a land value tax, they aren't.
- HDThoreaun 3y ago
  LVT also encourages nimbyism from people who don't want to move. If the value of their land goes up they have to pay more taxes, so they're incentivized to ban anything new from being built.
solatic 3y ago
Not true if new housing stock is snapped up by speculators/investors/foreigners. Housing, like freeways, can suffer from induced demand, if the target market of the housing project is for people who do not live in the project's geographical region.

129 points by nabla9 3y ago

Housing builders don't want prices to fall. Nor do the investors who fund new construction and buy existing houses. In other words, the general public are not the ones you need to convince. EDIT: Nor do existing homeowners want to see their house prices fall. So anything that relies upon them voting to change the value of their homes is a non-starter too. Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.

watwut 3y ago
You kinda do, because the biggest obstacles are zoning laws and regulations.
- falcolas 3y ago
  If there's one thing America has, it's space. There's plenty of land free of zoning laws and regulations right now. Also, NIMBY homeowners don't want the prices to go down either.
  - orangepurple 3y ago
    Certain social circles wants to live near each other. Moving away simply isn't an option in their head space. It would mean abandoning what they consider their family.
    - watwut 3y ago
      And it would also mean abandoning their jobs. People want and need to live where they can find jobs.
  - rqtwteye 3y ago
    A lot of US cities are already spread out a lot. But businesses don’t spread very much but concentrate in a few hot spots. That leads to very long commutes. If remote work doesn’t become much more common people can’t move into that empty space because there is no way to earn a living there.
  - HDThoreaun 3y ago
    There is absolutely not space where people want to be. If you want to move to bumfuck be my guest.
  - Beached 3y ago
    there is a surprisingly low volume of land free from zoning. most America want to.live in urban areas, which are loaded with stupid zoning laws
jjoonathan 3y ago
Competition means they don't have to want prices to fall for prices to fall. Come on, this is capitalism 101.
- falcolas 3y ago
  Housing builders and investors are currently allowing 10% of the total house stock in the US sit vacant to keep the prices up. They're not competing, whether by silent agreement or individually acknowledging it's in their best interests to keep the status quo in place.
  - matchbok 3y ago
    Simply inaccurate. Apartments and houses are opening up all the time. That % is meaningless. Some amount of vacancy is necessary.
    - falcolas 3y ago
      Which part? That 10% of all houses in the US are vacant? A quick Google search shows that 10% is probably low. That they're not competing? What evidence is there of this? Prices aren't falling, after all.
      - kemotep 3y ago
        A vacant 2 bed room 1 bath house in Mansfield Ohio does not help the family of 5 in San Francisco let alone Cleveland. Where the vacancy is and the “quality” so to speak matters a lot. Additionally, some percentage of homes have to be vacant to allow someone to move into it. You will need to provide evidence that the vacancy rate of a specific market is causing prices to go higher. Citing national statistics when talking about a local issue does not help.
        dingosity 3y ago
        Look at my post immediately previous to yours. It links to a Lending Tree study that indicates an inverse relationship between vacancy rate and median home price. Hawaii is an obvious outlier, but interestingly, so is New Jersey. (What's going on in Jersey?) The data in this study is broken down by state; SMSA would probably be better, but I didn't spend a lot of time digging up data.
HPsquared 3y ago
House builders aren't the deciding factor. It's property owners.
- falcolas 3y ago
  The builders and the property owners are often the same entity. Speculative house building has been a thing since forever.
  - ethanbond 3y ago
    Builders only temporarily own property. They don’t have a long enough horizon for the land price to make much of a difference. The neighbors who have lived in the same place for 20-30 years trying to disrupt development though…
_0ffh 3y ago
No, but they want to profit from the existing prices, which they do by building new ones. Builders earn their money by building, not by gloating over the prices.
- falcolas 3y ago
  They have 10% of their stock sitting empty, waiting for their asking prices. Builders earn their money by selling houses for what the market can bear. The act of building itself is merely a cost.
  - dingosity 3y ago
    Not to sound too much like a marxist, but @falcolas has a point here. If builders were offering a public service, they would likely sell their new homes (condos, townhomes, high-rises, etc.) for cost plus a reasonable percentage. But new homes go into a speculation market where the exchange value of the home factors in profit by the rentier class who add nothing to the value of the transaction.
    - gottorf 3y ago
      > the rentier class who add nothing to the value of the transaction I lived in one of the most expensive rental markets in the US for a while, so believe me, I'm not inclined to defend landlords, but the availability of rental units do serve a function. Even if we make the crazy assumption that a law forbidding the ownership of more than one residence would have resulted in a median home price one-third of what it actually was in my market, for half the time I lived there, I couldn't have afforded a down payment and a mortgage, and for the other half, I wouldn't have wanted to. There's a risk in tying up a significant chunk of your net worth in an illiquid asset. For what it's worth, I believe rent-seeking (in the economic sense) behavior should be heavily discouraged as a matter of public policy, and believe that a system of taxation that is centered around land-value tax is the best way to achieve that, at least for residences. > a public service [...] for cost plus a reasonable percentage This type of regulation only makes sense for natural monopolies like utilities and whatnot.
    - 3y ago
tootie 3y ago
Builders don't make money on the resale of existing homes. They want new homes to fetch the highest price, but they can also earn money on volume. Nothing built, nothing sold. Existing homeowners are the blocker. And increased construction doesn't mean home owner go underwater. That's a pretty extreme situation. Housing prices are unlikely to drop barring a disaster like 2007. Houses will become affordable even if the prices rise more slowly. Encouraging home ownership as a means to increase wealth really has to go away. It's the major contributing factor to the aforementioned reluctance of existing home owners.
JohnFen 3y ago
> Nor do existing homeowners want to see their house prices fall. In my area, people who own homes to live in (rather than as investments) love to see their house value fall because it reduces the amount they pay in property tax.
- rqtwteye 3y ago
  I don’t think so. Once your house value falls, you can’t move anywhere else.
  - josefresco 3y ago
    If your home value increases, because regional home values increased, you also can't move!
  - HDThoreaun 3y ago
    Many(most?) people do not plan on ever moving.
  - Beached 3y ago
    why not? if my home value falls, presumably the one I'm going to move into fell as well.
  - JohnFen 3y ago
    That's only relevant if you intend on moving someplace else. Most people I know who own homes have no intent of ever vacating them.
  - bcrosby95 3y ago
    If my house value falls, broadly speaking, other ones fall. If my house value raises, broadly speaking, other ones raise. Buying a house means, generally speaking, I can kinda "guarantee" I can afford that "quality" of house. It's like having a housing share that I can exchange for another similar house.
rqtwteye 3y ago
“Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.” That’s a big problem. A lot of peoples retirement plans rely on the value of their house. I am one of them.
sfvisser 3y ago
Starting homeowners who might want to move into a bigger home do want prices to fall as well. The loss in return of your current home is being royally offset by reduction in price when buying.
phmqk76 3y ago
Seriously. So many people have a low-information understanding of the housing market, and think that homebuilders somehow aren't rational actors. Why would people who make their money building houses be into lowering their profit margins and causing pricing shocks for their existing stock of houses that are in construction? Developers are incentivized to charge what the market will bear. It is public policy's job to reform the incentives so other market players see opportunities to build lower-priced and lower-margin housing stock - I think the best way to do this is to make public lending corporations that will provide 3% construction loans, which are far more attractive than the 8% to 10% presently charged by institutional lenders. Couple that with expedited permitting for these projects, and tie them to affordability standards, and that's a market disruption that makes sense for most people. But simply deregulating and hoping that prices will fall never, ever works.

MostlyStable 3y ago

https://archive.ph/QNRlh https://archive.ph/QNRlh For anyone who just reads the headline, and doesn't get to the first paragraph: Yes, if the new housing you are building is an increase in total stock. (I doubt that it's very often not the case, but still an important caveat). If you tear down a high rise to build a mansion, no that won't decrease prices just because you built something new. Again, I realize that this probably almost never happens, but it's important to point out that the thing that matters is the change in stock, not the newness.

aranw 3y ago
I don't know if it's just me but for some strange reason I can never get past the captcha on archive.ph. It just refreshes the page and I can never access the archived version
- archo 3y ago
  Change your DNS - Cloudflare and archive.today do not play nice - (think, David vs Goliath) Search; 2023:'public-dns' Take Control of your DNS - You may also try an archive.today mirror; https://archive.vn/QNRlh https://archive.vn/QNRlh - https://archive.li/QNRlh https://archive.li/QNRlh - https://archive.md/QNRlh https://archive.md/QNRlh - https://archive.is/QNRlh https://archive.is/QNRlh https://archive.fo/QNRlh https://archive.fo/QNRlh - https://archive.today/QNRlh https://archive.today/QNRlh - However, changing your DNS is the answer to this problem.
dangus 3y ago
Yes, great point here. Build all the luxury housing you want. My first cheap slumlord apartment started its life as a luxury building in the 1930s. The problem is when someone knocks down a 3-flat row house and builds a single family home in the same plot of land. Unless we have negative population growth that should never happen (and usually the places where knocking down a house and building an entirely new one makes sense are growing and desirable).
- zbrozek 3y ago

HPsquared 3y ago

That people need this explained to them, readers of a financial newspaper no less, is a little concerning.

ethanbond 3y ago
Gotta overcome the cognitive biases induced by “most of my wealth is in the land beneath my house.”
0xDEF 3y ago
The people who read a financial newspaper probably still have a lot of their networth tied up to their real-estate.
snoman 3y ago
I attribute this to the pervasive publishing model where anyone can submit an article to any publication, and as long as the topic lines up with current events, then the editor is just a bot that is checking for spelling and the headline being clickable.
pesfandiar 3y ago
Vancouver has one of the least affordable housing markets in North America and people have been concerned about it for years. 4 years ago, it was even a municipal election issue, yet most people who couldn't afford housing voted in some of the most NIMBY councillors, who in turn voted down any significant housing project. The reason? New units are expensive, so building them makes housing more expensive. Even some smart, educated people couldn't see past this.

jtode 3y ago

This is just absurd on its face. This kind of simplisticism is toxic af.

recursive 3y ago
Sounds pretty reasonable "on its face".

phkahler 3y ago

Maybe not if it's rental units. Maybe.

belltaco 3y ago
Why not?

Arcuru 3y ago

I know it's off-topic, but I can't help noticing Financial Times pricing model. It's $1 for 4 weeks, $69 a month for digital, but also $99 a year for print and digital? That's a wild pricing model. I long for the day that I can just pay XX cents to read a single article with minimal fuss, but at this point I don't see that happening.

flutas 3y ago
Looks almost like a typical "good better best" upsell to me, trying to get you to go for the "better" option. But they turned it into a variation to get you to accidentally subscribe to the "better" option by also having a cheap trial ($1 for 4 weeks).

hindsightbias 3y ago

Repeating a lie endlessly does not make it true. Repeat after me: building any new homes increases housing costs anywhere anyone on HN wants to live See: Austin, Frisco, Denver, Vail, Nashville, Miami, San Diego, SV, SF, Seattle

yjftsjthsd-h 3y ago
I'm open to believing you, but how? Why would building new homes increase housing costs anywhere?
- aleign 3y ago
  It doesn't unless it is outpaced by the increase in demand for housing. This person makes it sound like they have a ton of brand new houses in Austin with nobody living in them because they're too expensive. I can tell you as a former Austinite, that couldn't be further from the truth.
- the_gipsy 3y ago
  More people = more opportunities = more people attracted, and so on.
- renewiltord 3y ago
  It's not inconceivable. There's obviously some agglomeration advantage. People are valuable to other people. For instance, I think if SF built sufficient new homes it would have a lot more young people and they'll make the place nicer and that will make it more valuable.
- tpmoney 3y ago
  Induced demand, the same mechanism by which building more and wider roads doesn’t always mean less traffic. There’s still only so much land and space in a given area, and even in high density areas there are more and less desirable spots (e.g. a penthouse suite vs a basement apartment next to the furnace). As more people move into an area, more competition for those desirable spots has an increased pressure on the prices for those spots, which in turn increases prices for other less lucrative spots because the whole market window is shifted.

robot_no_421 3y ago

Article is subscription locked, so I just read the (patronizing and reductive) headline. The problem never has been lack of housing. The problem has always been lack of land. You can only build new homes on existing land and nobody wants to repurpose existing land to build new houses. Where exactly in NYC can we build new houses? And what houses are we talking about? Single family houses that are not a good use of land? Huge multifamily complexes that further stress the crumbling infrastructure? Housing costs are not my top priority for my QOL. Building more houses will likely impact me only in negative ways. And again, the article is subscription locked so all I can do is read the headline.

JohnFen 3y ago

I totally understand the rationale. My problem is that I don't see it happen in real life. Where I live, quite a lot of new high-end housing has been built, but it hasn't seemed to reduce housing costs at all. The people moving into the new housing aren't vacating lower-cost housing to do so. They're mostly people moving into the area for the first time. So housing costs for everybody, but mostly at the more affordable end, continue to rise faster than inflation.

ericholscher 3y ago
The point is that housing costs would have gone up more if that housing wasn't built, not that some amount of built housing automatically means prices grow slower than inflation.
- deleted 3y ago
  [deleted]
- JohnFen 3y ago
  That seems pretty speculative. But even if it's true, that means that just building a bunch of new housing isn't addressing the problem.
  - seryoiupfurds 3y ago
    It just means that we need to build even more new housing to keep up with the demand, and that the situation would have been even worse if we hadn't built what we have.
  - HDThoreaun 3y ago
    The problem is that there is not enough housing for the people who want to live there. Building more is the only way to address that problem other than exclusing people who want to live there.
    - JohnFen 3y ago
      But the problem is that there is little economic incentive to build more than is being built. The housing is being built for wealthy people. If most of those people aren't trading up from less expensive units, then that doesn't vacate any less expensive units. So, outside of the wealthy crowd, there is little downward price pressure in housing.

bryanlarsen 3y ago

Induced demand is real. Building a desirable house may cause somebody to move to a city that they wouldn't otherwise move to. But the article is more than its headline. It comes armed with data that shows that the induced demand effect is not significant in the markets studied.

recursive 3y ago
When you move into one place, you move out of a different place.
- bryanlarsen 3y ago
  Housing is a local phenomenon. Some cities have a supply shortage and some don't.
- dsr_ 3y ago
  Frequently leaving your parents or ex or roommates in the old place.
  - recursive 3y ago
    In that case, you had people co-habitating who didn't want to be. It's still an argument for more housing. Also, there's a limited number of times that a housing unit of n people can split up without leaving an un-occupied unit.

phmqk76 3y ago

Repeat after me - the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector. The housing market is red hot right now, and yet builders are loathe to invest in a major way, fearing a downturn that will impact their profit margins, even though they stand to make big bucks. But we somehow expect a building surge that will shift the market dynamics to make all housing worth less? The only way to incentive construction is to incentive construction. NYC HPD is an agency, for example, that has a history of providing low interest rate loans for approved projects to rehab old buildings. With borrowing costs hovering at 8%-10% for new construction projects, and with lenders tightening standards, this is the perfect time for state governments and the federal government to provide 3% construction loans, accessed in tranches after milestones are met, to facilitate not only housing on the cheaper end of the spectrum, but lower-margin housing projects that established developers and big lenders typically shy away from. Simply deregulating does not work, and it's foolish to think it would. Lower cost housing, made profitable by public lenders as a last resort, is a no-brainer that gets lost in the discussion. As is rent control, by the way. But that won't lead to the same cast of characters getting boffo bucks through deregulation, so neither option is taken seriously by Serious People.

the88doctor 3y ago
3% construction loans would majorly undermine the Fed's effort to fight inflation
- soperj 3y ago
  How? It's not 3% for everyone, it's 3% for specific projects for low income housing.
  - Empact 3y ago
    The boom gets started with an expansion of credit. The fed sets rates low, are you starting to get it? That new money is confused for real loanable funds, but it’s just inflation that’s driving the ones who invest in new projects, like housing construction. The boom plants the seeds for its future destruction. The savings aren’t real, consumption’s up too! And the grasping for resources reveals there’s too few. https://youtu.be/d0nERTFo-Sk?si=mcHcwlGi-TPaf5q- https://youtu.be/d0nERTFo-Sk?si=mcHcwlGi-TPaf5q- The claim being that to back a loan with new “printed” money is necessarily inflationary. Loans backed with saved/invested funds are non-inflationary, because the saver gives up their ability to consume with those funds, in proportion with the consumption the borrower takes on.

purpleblue 3y ago

In Toronto, the number of condos that have been built is staggering. There must be hundreds of thousands of new condos in the last 20 years. The prices have only gone up. The idea that new housing reduces cost is insane. All of the condos being built are at the top of the price range. What needs to be done is NEW CITIES need to be created with business centers. Not adding more housing into already packed cities. I have been saying for a decade that large tech employers like Google and Facebook should have created offices in the middle of the US, which cheaper neighborhoods, better schools, etc. Create opportunities for families to move out from the tech areas and enrich other parts of the country. But they keep doubling, tripling and quadrupling down on the Bay Area. New cities need to be created with business centers, not new condos in old cities!

vkou 3y ago
If you build 8 new units to support 10 people moving in, prices will still go up. But not as much as if you didn't.
jross225 3y ago
I mean, imagine what housing in Toronto would cost if they didn't build those 100K+ condos? Pricing is composed of supply and demand, and the article is saying that holding demand constant, increasing supply lowers prices. Adding a marginal unit to the housing stock kinda has to result in lower or equal prices in the static case. Toronto is growing insanely quickly, and supply can't meet demand. New cities are great, but a large number of people want to move to big and established population centres.
- purpleblue 3y ago
  We are in violent agreement. Creating new condos will still keep the prices increasing, but it will be better than the situation where no new housing is built. But the article specifically says "new homes reduce house prices." This is patently false. Toronto is growing because there's no real business centers outside of Toronto for the 1 million immigrants a year that are coming in. We need to create viable options by expanding business outside of Toronto in new land, so that housing demand lessens.

thedougd 3y ago

I think we're dealing with multiple overlapping issues in the housing sector. For example, where are we going to get enough skilled trades to build the houses? There are many reasons why trades are in short supply from lack of interest to immigration enforcement.

chrstphrknwtn 3y ago
Why would I go to trade school for a few years to make $60k forever?
- thedougd 3y ago
  Wages are certainly part of the issue. The job certainly wouldn't interest me at that rate, forever. Skilled trades do better, however there's a lot standing in their way. Getting started, there are easier jobs with better _starting_ pay. Even before covid and the following inflation, there was a serious problem with brain drain in the industry. This Old House set aside time for every show to recruit younger participants.
kipchak 3y ago
I think lack of pay is a big issue as well. (most) everyone has a number where they'd get on a ladder and learn say roofing, but it's typically much higher than $22.50 an hour.
- thedougd 3y ago
  I intended for low pay, dangerous conditions, abuse/hazing, etc to wrap up into lack of interest.

dsr_ 3y ago

If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. If you build a thousand new apartments in Sri Lanka, this has no practical effect on the cost of housing in Colombia. If a housing authority pays a contractor to build a dozen affordable, subsidized apartments, but the apartments are then discovered to be uninhabitable firetraps, the cost of housing can go up. Authoritatively making sweeping generalizations not only ignores the edge cases, it often sets policy in ways that enable more of those edge cases.

amluto 3y ago
> If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. That’s not necessarily true. If you build a $5m house where there was previously no house, and the multimillionaire buys it, then they’re not buying some other $4m house, and someone could buy that instead of something else, etc. For this to work, you need a situation where building n houses does not create demand for approximately n houses.
HDThoreaun 3y ago
> If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone. There is not an infinite number of people looking for second homes. Build enough $5 million dollar homes and you'll run out eventually.

Tade0 3y ago

I'm having trouble reconciling this with the fact that in my corner of the world prices have been growing exponentially during the past decade despite the population remaining relatively stable and a record number of housing units being built. The only thing that changed in this period was investment demand, which skyrocketed. I have a building in my neighbourhood which consists solely of tiny studio apartments - the vast majority of which were already bought out back when the project was still a hole in the ground. Half of the lights are perpetually dark, because barely anyone lives there. Or better yet: there's a hole in the ground in my neighbourhood that was still the previous building back when they started selling apartments - the company went bankrupt during the pandemic and construction was only started when another company stepped in and bought everything. Bottom line is you can't fight exponential growth in demand with linear increase of supply.

sokoloff 3y ago
> in my corner of the world prices have been growing exponentially during the past decade Even steady inflation results in an exponential growth in prices.
- Tade0 3y ago
  To the tune of 8-10% annually in a borderline deflationary economic environment - which was the case for most of the last decade? I don't think this increase can be attributed to inflation.
01100011 3y ago
This. We're still in the midst of an asset bubble due to fiscal and monetary excess. Monetary policy changes haven't largely taken effect yet while we are still stimulating the economy on the fiscal side with deficit spending.
akavi 3y ago
What's your corner of the world? I'm sure we can find hard data on the population growth vs. new building rates which might be illuminatory.

fastaguy88 3y ago

Perhaps this is true on average over all housing classes, but in my university town, there has been a tremendous increase in supply (luxury appts for rich undergraduates) and no decrease in costs. And now there is a proposal to remove all R-1 (residential) zoning, so large appts can be build anywhere, all in the name of making housing more affordable. But past increases in supply have not made housing affordable, and the effect will be to convert older smaller (cheaper) single family homes into apartment complexes that are designed for students, not single families. It seems pretty clear that the up-zoning will not make housing affordable for the middle class. Perhaps it will be more affordable for less price sensitive students.

HDThoreaun 3y ago
You're assuming prices wouldn't have increased by even more if the apartments weren't built. I'm not sure why. Increasing supply has absolutely made housing more affordable relative to where it would be if supply hadn't expanded. You're just not expanding supply fast enough to see a decrease in cost.
- fastaguy88 3y ago
  Perhaps more affordable on average, but if the apartments replace older smaller single family homes, then the supply demand thesis suggests that those single family homes would become less affordable. So yes, things become cheaper if everyone wants to live in an apartment. But for modest income folks in small old houses, up zoning means moving out of the community.
  - seryoiupfurds 3y ago
    By the pigeonhole principle not everyone who wants to live in a growing city can own a house. So long as houses are allocated economically (as opposed to submitting an application to join the queue at the People's Bureau of Housing or whatever) this will reveal itself as some people being unable to afford houses. So we can conclude that the affordability of single family homes in isolation isn't the problem we should focus on. > So yes, things become cheaper if everyone wants to live in an apartment. People make tradeoffs all the time. Lots of people would love to own a nice house in a nice neighborhood within walking distance to a forest and to downtown for not very much money. But too many people want to live there for them to all own houses. So some will choose to live in an apartment instead, and others will choose to move farther away to be able to own a house. Preventing upzoning will just mean that fewer people get to make the tradeoff to live in that neighborhood, and only the richest of them will be able to pay through the nose to do so. > But for modest income folks in small old houses, up zoning means moving out of the community. Well, nobody's forcing them to. After their house has been upzoned they can live in it for as long as they want, then sell it to a developer for millions of dollars when they want to move. The developer will use the land to build apartments, and sell them to people who don't have a million dollars to buy a house. Everybody wins.

coding123 3y ago

Well no, the demand is so high that your proposal makes no sense: 1. High demand on labor and materials from builders makes the cost of labor and materials go up 2. If the demand for the actual home reduces, and the cost of labor does not go down because those workers are now offered better prices as a Walmart worker, material costs may go down, but since materials are about 25% of the cost, it will make the price of the house go down very little. 3. The airbnb/landlord/second-and-third homes from Google stock holders demand seems to be insatiable. If that changes, the entire thing may then finally collapse. However that collapse is much more likely than builders being able to supply the housing with labor and material costs so high right now.

louwrentius 3y ago

The fundamental issue is that we allowed housing to be abused as an object of speculation. No wonder the people with tons of money started to buy up homes, only to rent them out to people who are then not able to buy a home for themselves. The rich get richer The poor get poorer If you’re young, what future is there to look forward to, I wonder.

staringback 3y ago

Repeat after me: building new lanes reduces traffic for all

ajkjk 3y ago

It can't be this simple. I know that at a strictly mathematical level it feels like it must be true, like the "Calories In = Calories Out" model of weight loss, and yet, like CICO, feels useless as a principle. (CICO's problem: as a mathematical relationship it has to be true, but it's too dumb to be helpful: what controls calories out? all of: exercise + resting metabolism + how many calories you hold onto + how much you exhale + how much you excrete, and most of these are regulated by your desire for exercise, eating, etc. -- so while it is the value of d(weight)/dt, it tells you nothing about the first-order term that you should actually control; it's a mix of terms of different orders.) Similarly, there are clearly multiple "first-order effects" at play that are producing the final housing costs. It's not the case that there is one first-order effect, supply and demand, and then a bunch of 2nd-order corrections. I wish I could clearly see what the full equation is though. My poorly-informed guess is that the actual first-order model looks like this: "real inflation" is actually much higher than the reported numbers and is best reflected in housing prices (and healthcare prices). The reported number of inflation is much lower because certain sectors --- electronics, food, and other mass-produced consumer goods --- have had their prices heavily suppressed by exploiting global economies or controlled by policy. So lower-income workers, because they can afford smartphones and food, don't feel as poor as they actually are. But housing prices are tracking money supply, which is mostly (incredibly disproportionately) going to high-earners, like many of the tech employees here and all the economic winners of the last fifty years; the incongruity explains why everything is so expensive. At the margin, more supply just gives the rich people more places to park their money -- because they have so much money. I expect that's the best model of e.g. Toronto and NYC. Put differently: if you took tech salaries and San Francisco rents and divided them both by four, they'd feel like reasonable numbers. Everyone else is getting burned by that.

HDThoreaun 3y ago
No. It really is that simple. There are x units and y people looking for units in an area. If we had enough housing it wouldn't be seen as investment because the returns would be terrible since landlords would be competing for renters instead of the other way around. Leaving housing vacant only makes sense if you've cornered the market or are a land speculator. Most American cities do not have a cornered rental market so we just need to stop land speculation.

dalbasal 3y ago

In the feisty spirit of this article: Balderdash! The basis for this articles' argument^ is not really empirical. It's theoretical. And rational in the sense that it models theory to create predictions... It is quite a cherry-picked collection of published studies, not a metastudy. Anyway, the crux of theoretical argument is "supply and demand... duh." This is often true, depending on the market, but... it really depends on the market. For real estate, "focusing on supply" often leads to understating the significant "out of theory" factors. For example, real estate "demand," is largely determined by mortgage availability. That's the source of funds. Besides this, British real estate is an investment class with prices affected by rates, performance of other asset classes, and such. These are big factors. Dublin city, not far, basically conducted an unscripted experiment in this space during 2008-2015. Lending collapsed. Demand collapsed. Lending was gradually restored, and median house values tracked median approved mortgage max outs. IE, if the average bank agreed to lend $X to the average applicant with an average income... that became the average price. Where the banks (CB, really) created subcategories with special rules (eg single bedroom apartments were mortgage disqualified for a while), those special rules dictated average prices for those categories.^^ This is not surprising when you consider the various leverages and flexibilities of the demand side, compared to the flaccid supply side of the equation. "When asked about the impact of a 10 per cent increase in regional housing supply, however, 40 per cent say prices and rents would rise, while only a third say they would fall." Sounds to me that most people just guess. But... this is a disingenuous frame. A 10% increase in (London) housing supply doesn't happen often. That's the point. When it does happen, it rarely happens unless prices hold up. There is no realistic scenario where London is exploding into the sky while a flood of supply crashes prices. This is tunnel-vision, model-only thinking. The supply "lever" he wants to crank is good for fractions of a percent, not 10%. None of this is to say not to build. If we don't build housing, we cant have more housing. But, house prices are not made in the the council's planning permission basement. This is fantasy. ^"Studies show" is a cop out. Make the argument yourself. Base your arguments on the studies, if convincing. Shots fired :-) ^^In Ireland, this has led to the opposite extreme, and equally erroneous belief that supply is always irrelevant to price.

FranchuFranchu 3y ago

The best solution to this problem is taxing land value instead of taxing property. Land value taxes have a lot of advantages. They incentivize construction, disincentivize vacant lots, and they also remove the profit that can be earned by being an idle landlord, which is unearned income. With property tax, improvements on your property are taxed. This makes construction less profitable / housing more expensive. With a land value tax, they aren't.

HDThoreaun 3y ago
LVT also encourages nimbyism from people who don't want to move. If the value of their land goes up they have to pay more taxes, so they're incentivized to ban anything new from being built.

solatic 3y ago

Not true if new housing stock is snapped up by speculators/investors/foreigners. Housing, like freeways, can suffer from induced demand, if the target market of the housing project is for people who do not live in the project's geographical region.