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I don’t think higher density decreases prices. On the contrary a plot of land that previously could only have a single family home but now can have a six story

I don’t think higher density decreases prices. On the contrary a plot of land that previously could only have a single family home but now can have a six story apartment building is more valuable. The homeowners just don’t want to live next to the apartment building or move.

hiAndrewQuinn 3y ago
But a six story apartment can now house six families. If a city has 10,000 families and 10,000 single family houses, and just 1,000 of those single family houses become 6 story apartments, there are now 15,000 living places people can choose between. That is called "an increase in quantity supplied", and the supply curve slopes downward. You see where I'm going with this.
- Spivak 3y ago
  It's less rosy than this because those 6 story apartments are built on credit where the valuation of the building is based off the market rents. If rent goes down the bank comes-a-calling telling you that your LTV dropped and you have to put up more collateral. The building owners just straight up can't afford to do this so they're stuck between keeping rents high and accepting vacancies which limits their revenue and foreclosure. The spice must flow, property valuations must go up or the whole thing collapses. It's why non-SF-esque cities only allow expansion in-line with population growth or a little less because they will immediately be tarred and feathered if they make everyone's mortgage underwater. To be clear this isn't a good thing, but no one wants to blink first and start another 2008.
  - hiAndrewQuinn 3y ago
    I'm not sure I follow. If the building owner lowered their rent, wouldn't they find it easier to fill that vacancy? Or if you're saying the bank decides to take one of the units as extra collateral, why wouldn't the bank then rent out the unit?
    - rokkitmensch 3y ago
      Owners frequently have loan covenants that mandate bank approval for rents below a threshold. You've securitized the cashflow from the property, so if that cashflow dips, the lender has an assurance they can reprice the security in line with your new cashflow story. Even if you cover the shortfall in cashflow out of pocket, this is better for both you and the bank because you don't have to admit that the market rates at which you got your loan have changed.
      - hiAndrewQuinn 3y ago
        Oh, okay. So you've been offered a loan partly _on the basis_ of that future cashflow, and probably wouldn't have been able to get one on equally good terms if it was "just" to build a building? Yeah. I can see how that would create perverse incentives downstream.
        rokkitmensch 3y ago
        Same reason no working schmucks go to their mortgage servicer when they lose a job. They don't even want to know!
  - NeuNeurosis 3y ago
    Thanks for the extra context from the credit holders. It seems that this is completely overlooked in the solutions proposed to solve the housing crisis. Seems like there is an argument to be made that we need new policies to change this calculation at either the state or federal level. Wouldn't public private partnership funding help with this?
ryukafalz 3y ago
Sibling comment covers this, but to expand: it decreases the overall price of units of housing, not of land. Which is ultimately what matters here, because we live in houses or apartments or condos, not in square feet of land. I could not have afforded the plot of land my first city apartment was on, but I could afford an apartment in the building!
- bradleyjg 3y ago
  But the incumbent single family homeowners that are so opposed to upzoning currently own both land and a housing unit. While upzoning might make the value of their housing unit go down the value of their land will go up.
  - hiAndrewQuinn 3y ago
    For this reason it would be best to allow single family homeowners to be able to vote on the zoning policies of whichever side of the city is exactly opposite and ideally non-adjacent to them. Single family homes for me, affordable high rises for thee. (The dead center can be rezoned to high scale commercial as a kind of urban Switzerland.)
Izikiel43 3y ago
> I don’t think higher density decreases prices. https://www.investopedia.com/terms/l/law-of-supply-demand.asp https://www.investopedia.com/terms/l/law-of-supply-demand.as...

hiAndrewQuinn 3y ago

But a six story apartment can now house six families. If a city has 10,000 families and 10,000 single family houses, and just 1,000 of those single family houses become 6 story apartments, there are now 15,000 living places people can choose between. That is called "an increase in quantity supplied", and the supply curve slopes downward. You see where I'm going with this.

Spivak 3y ago
It's less rosy than this because those 6 story apartments are built on credit where the valuation of the building is based off the market rents. If rent goes down the bank comes-a-calling telling you that your LTV dropped and you have to put up more collateral. The building owners just straight up can't afford to do this so they're stuck between keeping rents high and accepting vacancies which limits their revenue and foreclosure. The spice must flow, property valuations must go up or the whole thing collapses. It's why non-SF-esque cities only allow expansion in-line with population growth or a little less because they will immediately be tarred and feathered if they make everyone's mortgage underwater. To be clear this isn't a good thing, but no one wants to blink first and start another 2008.
- hiAndrewQuinn 3y ago
  I'm not sure I follow. If the building owner lowered their rent, wouldn't they find it easier to fill that vacancy? Or if you're saying the bank decides to take one of the units as extra collateral, why wouldn't the bank then rent out the unit?
  - rokkitmensch 3y ago
    Owners frequently have loan covenants that mandate bank approval for rents below a threshold. You've securitized the cashflow from the property, so if that cashflow dips, the lender has an assurance they can reprice the security in line with your new cashflow story. Even if you cover the shortfall in cashflow out of pocket, this is better for both you and the bank because you don't have to admit that the market rates at which you got your loan have changed.
    - hiAndrewQuinn 3y ago
      Oh, okay. So you've been offered a loan partly _on the basis_ of that future cashflow, and probably wouldn't have been able to get one on equally good terms if it was "just" to build a building? Yeah. I can see how that would create perverse incentives downstream.
      - rokkitmensch 3y ago
        Same reason no working schmucks go to their mortgage servicer when they lose a job. They don't even want to know!
- NeuNeurosis 3y ago
  Thanks for the extra context from the credit holders. It seems that this is completely overlooked in the solutions proposed to solve the housing crisis. Seems like there is an argument to be made that we need new policies to change this calculation at either the state or federal level. Wouldn't public private partnership funding help with this?

ryukafalz 3y ago

Sibling comment covers this, but to expand: it decreases the overall price of units of housing, not of land. Which is ultimately what matters here, because we live in houses or apartments or condos, not in square feet of land. I could not have afforded the plot of land my first city apartment was on, but I could afford an apartment in the building!

bradleyjg 3y ago
But the incumbent single family homeowners that are so opposed to upzoning currently own both land and a housing unit. While upzoning might make the value of their housing unit go down the value of their land will go up.
- hiAndrewQuinn 3y ago
  For this reason it would be best to allow single family homeowners to be able to vote on the zoning policies of whichever side of the city is exactly opposite and ideally non-adjacent to them. Single family homes for me, affordable high rises for thee. (The dead center can be rezoned to high scale commercial as a kind of urban Switzerland.)

Izikiel43 3y ago

> I don’t think higher density decreases prices. https://www.investopedia.com/terms/l/law-of-supply-demand.asp https://www.investopedia.com/terms/l/law-of-supply-demand.as...