5 ms·

This is why the current high-interest-rate approach worries me. Inflation is high in part because capacity is low. Yet, due to short term demand destruction (me

This is why the current high-interest-rate approach worries me. Inflation is high in part because capacity is low. Yet, due to short term demand destruction (meant to "get supply and demand in balance"), long term supply will also not be created, and productive capacity will be permanently diminished. Like in this case, for short term reasons related to "market conditions", Google is canceling construction of 15k homes. It's actually absurd and obscene when you stop to think about it.

FirmwareBurner 3y ago
>the current high-interest-rate This current level of interest rates was the norm before the money printing bonanza of 2010-2022. Only that ~decade of ultra low rates was the exception not the norm. And yet housing was still being built back then. So what gives? From what I saw from that last decade, ultra cheap rates for too long just leads to a bunch of speculation bubbles as everyone and his dog goes into debt as much as they can and inflating everything.
- cj 3y ago
  In my area of the US, you have to move mountains in order to get a plumber, electrician, carpenter, etc to show up. To get work done on my house, it involves leaving messages with at least 10 people, getting callbacks from maybe 1-2, and hoping to god the person actually shows up (when they do show up, it's probably a month after the first call). (Private equity is capitalizing on this by buying out local plumbing/electrician/hvac companies to merge them into full service companies with a call center, CRM for customers, tech-enabled scheduling and dispatch systems... which is all good, except they charge 2-3x higher rates compared to your local plumber... so the option is <call PE-owned plumbing company and pay 2-3x the price to have someone show up tomorrow> or <call 10 local plumbers and pray that 1 of them calls you back and actually shows up>) I imagine house builders and contractors have more reliable networks of workers to draw on compared to the average homeowner. But maybe the availability of workers to build a house isn't what it used to be?
  - FirmwareBurner 3y ago
    >you have to move mountains in order to get a plumber, electrician, carpenter, etc to show up. Watch the latest South Park episode: https://youtu.be/RcoGzT9QrTI?si=m95_pQ9H203hcfuW https://youtu.be/RcoGzT9QrTI?si=m95_pQ9H203hcfuW
  - anon84873628 3y ago
    This seems to be the real bottle neck in the housing supply chain, and why prices are so high. Simple fact is that there aren't enough skilled people to actually build the houses.
    - BobaFloutist 3y ago
      Possibly partially because they can't afford to live near where people most desperately want houses built.
- SoftTalker 3y ago
  And why do rates matter to Google, they can pay cash.
- greenie_beans 3y ago
  we didn't build enough housing during zero interest rates, why do you think we'll make up the deficit with higher interest rates?
  - FirmwareBurner 3y ago
    Where did I claim that? I only asked how come we managed to build housing before the 2008 crash when the interest rates where like today.
    - deleted 3y ago
      [deleted]
gottorf 3y ago
Has there been any evidence that the long period of ultra-low interest rates we enjoyed resulted in additional productive capacity? It sounds like a lot of it just went to unprofitable SaaS companies and other virtual endeavors, and not so much to things that exist in the physical world.
- deleted 3y ago
  [deleted]
- dopamean 3y ago
  > the long period of ultra-low interest rates we enjoyed resulted in additional productive capacity If there is evidence of that I'd love to see it. If this was true then we'd have a huge supply of homes all over America now which I think is not the case is it? All I hear about is undersupply driving up home prices despite demand being low. I live in Austin where this is very true so maybe I'm in a bit of a bubble?
  - notaustinpowers 3y ago
    Even with the ultra-low interest rates, supply was kept low due to nervousness from home builders. Builders were decimated in the housing crisis and, honestly, never recovered. To them, the collapse came sudden and quick, and many housing projects and developments just sit half-finished even to this day. The focus was turned from single-family housing to apartments, specifically luxury apartments as the luxury housing sector picked up steam quickly as developers and investors jumped on those properties when they were at their lowest prices. So "luxury" apartments were built at low-costs and purchased by investment firms. The main focus was for the builder to get their money back and more as quickly as possible, minimizing their risk, and the investors in the new complex got a bargain "luxury" property that they can increase rents quickly on, while ensuring demand since fewer and fewer single-family homes were being built. The current issue of supply and demand for housing is, largely, artificially created, possibly accidentally. Single-family housing is just risky now, apartments are less risky. But as people are desiring yards and space again (due to COVID and WFH), we are now seeing the rental model extend to "build-to-rent" single-family communities.
- 3y ago
brvsft 3y ago
Google would not have considered constructing 15k homes had interest rates not been at historic lows. They're not in the construction or real estate business. And I fail to see what is absurd and obscene, except perhaps the inverse, that low interest rates caused such extreme market distortions that you have a massive company outside of the real estate industry looking into creating 15,000 homes. What is not absurd or obscene about that to you? We don't live in the company-town days any more (not that Google was trying to create a company-town, but they are, again, not in the real estate business).
- anon84873628 3y ago
  Prior to the pandemic, Google needed more office space, and it needed workers in the Bay Area. I don't view this plan as ever being about "getting into real estate". It was just a way to get cities to agree to office construction, and also ensure that workers were willing/able to live nearby. Anyway, given the amount of office space Google still owns and manages, they are very much "in real estate" in that regard...
wwweston 3y ago
As far as I can tell it's a bit of a "these are the tools we have" kind of thing. The institutions that could do effective targeted supply-stimulating policymaking are hobbled if not hamstrung right now, while central banks are less so but only have blunt macro tools to work with. There's not really much solution other than "people have to care about concrete policy, or at least specifically supply."
dehrmann 3y ago
> high-interest-rate approach These are historically normal interest rates.
tacocataco 3y ago
The for-profit home building industry created this problem, and I feel they shouldn't be involved in its solution.

FirmwareBurner 3y ago

>the current high-interest-rate This current level of interest rates was the norm before the money printing bonanza of 2010-2022. Only that ~decade of ultra low rates was the exception not the norm. And yet housing was still being built back then. So what gives? From what I saw from that last decade, ultra cheap rates for too long just leads to a bunch of speculation bubbles as everyone and his dog goes into debt as much as they can and inflating everything.

cj 3y ago
In my area of the US, you have to move mountains in order to get a plumber, electrician, carpenter, etc to show up. To get work done on my house, it involves leaving messages with at least 10 people, getting callbacks from maybe 1-2, and hoping to god the person actually shows up (when they do show up, it's probably a month after the first call). (Private equity is capitalizing on this by buying out local plumbing/electrician/hvac companies to merge them into full service companies with a call center, CRM for customers, tech-enabled scheduling and dispatch systems... which is all good, except they charge 2-3x higher rates compared to your local plumber... so the option is <call PE-owned plumbing company and pay 2-3x the price to have someone show up tomorrow> or <call 10 local plumbers and pray that 1 of them calls you back and actually shows up>) I imagine house builders and contractors have more reliable networks of workers to draw on compared to the average homeowner. But maybe the availability of workers to build a house isn't what it used to be?
- FirmwareBurner 3y ago
  >you have to move mountains in order to get a plumber, electrician, carpenter, etc to show up. Watch the latest South Park episode: https://youtu.be/RcoGzT9QrTI?si=m95_pQ9H203hcfuW https://youtu.be/RcoGzT9QrTI?si=m95_pQ9H203hcfuW
- anon84873628 3y ago
  This seems to be the real bottle neck in the housing supply chain, and why prices are so high. Simple fact is that there aren't enough skilled people to actually build the houses.
  - BobaFloutist 3y ago
    Possibly partially because they can't afford to live near where people most desperately want houses built.
SoftTalker 3y ago
And why do rates matter to Google, they can pay cash.
greenie_beans 3y ago
we didn't build enough housing during zero interest rates, why do you think we'll make up the deficit with higher interest rates?
- FirmwareBurner 3y ago
  Where did I claim that? I only asked how come we managed to build housing before the 2008 crash when the interest rates where like today.
  - deleted 3y ago
    [deleted]

gottorf 3y ago

Has there been any evidence that the long period of ultra-low interest rates we enjoyed resulted in additional productive capacity? It sounds like a lot of it just went to unprofitable SaaS companies and other virtual endeavors, and not so much to things that exist in the physical world.

deleted 3y ago
[deleted]
dopamean 3y ago
> the long period of ultra-low interest rates we enjoyed resulted in additional productive capacity If there is evidence of that I'd love to see it. If this was true then we'd have a huge supply of homes all over America now which I think is not the case is it? All I hear about is undersupply driving up home prices despite demand being low. I live in Austin where this is very true so maybe I'm in a bit of a bubble?
- notaustinpowers 3y ago
  Even with the ultra-low interest rates, supply was kept low due to nervousness from home builders. Builders were decimated in the housing crisis and, honestly, never recovered. To them, the collapse came sudden and quick, and many housing projects and developments just sit half-finished even to this day. The focus was turned from single-family housing to apartments, specifically luxury apartments as the luxury housing sector picked up steam quickly as developers and investors jumped on those properties when they were at their lowest prices. So "luxury" apartments were built at low-costs and purchased by investment firms. The main focus was for the builder to get their money back and more as quickly as possible, minimizing their risk, and the investors in the new complex got a bargain "luxury" property that they can increase rents quickly on, while ensuring demand since fewer and fewer single-family homes were being built. The current issue of supply and demand for housing is, largely, artificially created, possibly accidentally. Single-family housing is just risky now, apartments are less risky. But as people are desiring yards and space again (due to COVID and WFH), we are now seeing the rental model extend to "build-to-rent" single-family communities.
3y ago

brvsft 3y ago

Google would not have considered constructing 15k homes had interest rates not been at historic lows. They're not in the construction or real estate business. And I fail to see what is absurd and obscene, except perhaps the inverse, that low interest rates caused such extreme market distortions that you have a massive company outside of the real estate industry looking into creating 15,000 homes. What is not absurd or obscene about that to you? We don't live in the company-town days any more (not that Google was trying to create a company-town, but they are, again, not in the real estate business).

anon84873628 3y ago
Prior to the pandemic, Google needed more office space, and it needed workers in the Bay Area. I don't view this plan as ever being about "getting into real estate". It was just a way to get cities to agree to office construction, and also ensure that workers were willing/able to live nearby. Anyway, given the amount of office space Google still owns and manages, they are very much "in real estate" in that regard...

wwweston 3y ago

As far as I can tell it's a bit of a "these are the tools we have" kind of thing. The institutions that could do effective targeted supply-stimulating policymaking are hobbled if not hamstrung right now, while central banks are less so but only have blunt macro tools to work with. There's not really much solution other than "people have to care about concrete policy, or at least specifically supply."

dehrmann 3y ago

> high-interest-rate approach These are historically normal interest rates.

tacocataco 3y ago

The for-profit home building industry created this problem, and I feel they shouldn't be involved in its solution.