3 ms·

In Chicago, every new thing that gets built is luxury condo high rises that further amplifies housing cost in an area

by imbnwa 3y ago

marssaxman 3y ago
Causality goes the opposite direction: constructing a high rise is very expensive, therefore you will only see them built where housing cost is already high enough to justify luxury condos; otherwise, such a project would not be profitable.
j7ake 3y ago
With a sufficiently enough number of condos relative to demand, the housing cost should eventually decrease no?
- harimau777 3y ago
  It seems to me that if one luxury condo takes the space and building cost of multiple smaller units, then building luxury condos could prevent a sufficient number being built.
- mistrial9 3y ago
  pre-covid, the San Francisco greater Bay Area had a quantified dwelling unit (DU) shortage of around 500,000 units. Those numbers are directly connected to jobs available and other demographic factors. source: professional urban planners at the time
  - bombcar 3y ago
    The other issue you have (which confuses the situation) is there may be a 500k shortage in the Bay Area directly (e.g., people who work in the area and would like to live closer, etc, etc). But if you solve that you may find that you have an additional five million families far from the area, out of state, even out of country that would also like to live there. At some point you can't satisfy everyone, or the Bay Area wouldn't be the Bay Area anymore and it would more resemble New York West.
    - mistrial9 3y ago
      hypothetical nonsense -- whole cities in California cannot attract new Doctors or uniform police because the person working cannot afford RENT. public school teachers have been priced out of RENT for more than a decade. The ability to purchase a home comes only after personal capital is accumulated for most people. A recent study showed in California that in many areas, household income must be FIVE HUNDRED THOUSAND per YEAR documented income to purchase an ordinary home. This housing system is top-loaded with capital for twenty years now. nonsense like "oh maybe another five million would want to come here" is not only distracting, but bordering on cruel denial.
- alistairSH 3y ago
  Yes, in theory. But, we have such a supply problem (in popular US metro areas) that prices continue to go up, even when we add capacity. In my immediate area, there is very little SFH stock being added - it's almost exclusively large THs and rental apartments (but not condos). The apartments rent for "luxury" prices ($2500-$3500+/month) but are just generic 1-2 bedroom flats without any true luxury features. The THs are "near-luxury" - better than "builder grade" finishes, but nothing special either. And sell for $800-$1.2 million (for a typical 3-bed, 1-2 garage, 2500sqft floorplan).
tptacek 3y ago
Adding new housing units at any price point lowers housing costs in the area; so long as the luxury condo high rises are increasing the number of units in the area, they are reducing the cost of housing. There are counter-theories of "induced demand" (whose premises aren't even operative in Chicagoland), but this is reasonably and recently well studied, and those theories don't seem to hold up.
- imtringued 3y ago
  "Induced demand" does exist, but not in a normal market. It exists in markets where positive externalities are not fully priced in. When you have a road without congestion charges, then building a second lane to expand capacity just adds more "free shit" to the local infrastructure. The demand for "free shit" is infinite, giving rise to the appearance that supply is driving demand, when it is actually the price that is biased towards demand structurally exceeding supply. This doesn't apply to housing at all, because the landlord would simply price in all positive externalities, such as the free road infrastructure mentioned above. The "free shit" would go straight into the pocket of the landlord, which would stimulate supply and discourage demand. The problem is that these places are constrained by geographics, local politics and the willingness of previous land owners to move out so you can't just build more.
- maxsilver 3y ago
  > Adding new housing units at any price point lowers housing costs in the area; This isn't really true in housing. Housing is not a market commodity, it's not priced primarily via supply or demand. Housing is priced based on comparables, quite literally, what is the most expensive thing that sold recently, and how close do we compare to that. In this way, building a fancy new condo building will literally raise prices, even if the number of people remain constant, and even if it "increases the number of the units in the area", because now pricing comparables will get to take the new condo's higher pricing into effect, and things like comparables and federal interest rates have a much higher effect on sales price than traditional supply or demand. To be clear, this is NOT an anti-build argument, we need more housing, the only way to get more is to build it. We just need to be mindful of the real-world consequences of it, new luxury condo construction creates a form of financial "pollution" into that area, and all nearby housing stock will absorb that pollution in higher prices. This is something anyone who cares about affordable housing needs to understand, and plan for.
Moldoteck 3y ago
have you thought that those luxury condo are limiting the housing cost instead of amplifying it? I mean that maybe without them the costs would increase even more

In Chicago, every new thing that gets built is luxury condo high rises that further amplifies housing cost in an area

by imbnwa 3y ago

In Chicago, every new thing that gets built is luxury condo high rises that further amplifies housing cost in an area

Causality goes the opposite direction: constructing a high rise is very expensive, therefore you will only see them built where housing cost is already high enough to justify luxury condos; otherwise, such a project would not be profitable.

j7ake 3y ago

With a sufficiently enough number of condos relative to demand, the housing cost should eventually decrease no?

harimau777 3y ago
It seems to me that if one luxury condo takes the space and building cost of multiple smaller units, then building luxury condos could prevent a sufficient number being built.
mistrial9 3y ago
pre-covid, the San Francisco greater Bay Area had a quantified dwelling unit (DU) shortage of around 500,000 units. Those numbers are directly connected to jobs available and other demographic factors. source: professional urban planners at the time
- bombcar 3y ago
  The other issue you have (which confuses the situation) is there may be a 500k shortage in the Bay Area directly (e.g., people who work in the area and would like to live closer, etc, etc). But if you solve that you may find that you have an additional five million families far from the area, out of state, even out of country that would also like to live there. At some point you can't satisfy everyone, or the Bay Area wouldn't be the Bay Area anymore and it would more resemble New York West.
  - mistrial9 3y ago
    hypothetical nonsense -- whole cities in California cannot attract new Doctors or uniform police because the person working cannot afford RENT. public school teachers have been priced out of RENT for more than a decade. The ability to purchase a home comes only after personal capital is accumulated for most people. A recent study showed in California that in many areas, household income must be FIVE HUNDRED THOUSAND per YEAR documented income to purchase an ordinary home. This housing system is top-loaded with capital for twenty years now. nonsense like "oh maybe another five million would want to come here" is not only distracting, but bordering on cruel denial.
alistairSH 3y ago
Yes, in theory. But, we have such a supply problem (in popular US metro areas) that prices continue to go up, even when we add capacity. In my immediate area, there is very little SFH stock being added - it's almost exclusively large THs and rental apartments (but not condos). The apartments rent for "luxury" prices ($2500-$3500+/month) but are just generic 1-2 bedroom flats without any true luxury features. The THs are "near-luxury" - better than "builder grade" finishes, but nothing special either. And sell for $800-$1.2 million (for a typical 3-bed, 1-2 garage, 2500sqft floorplan).

tptacek 3y ago

Adding new housing units at any price point lowers housing costs in the area; so long as the luxury condo high rises are increasing the number of units in the area, they are reducing the cost of housing. There are counter-theories of "induced demand" (whose premises aren't even operative in Chicagoland), but this is reasonably and recently well studied, and those theories don't seem to hold up.

imtringued 3y ago
"Induced demand" does exist, but not in a normal market. It exists in markets where positive externalities are not fully priced in. When you have a road without congestion charges, then building a second lane to expand capacity just adds more "free shit" to the local infrastructure. The demand for "free shit" is infinite, giving rise to the appearance that supply is driving demand, when it is actually the price that is biased towards demand structurally exceeding supply. This doesn't apply to housing at all, because the landlord would simply price in all positive externalities, such as the free road infrastructure mentioned above. The "free shit" would go straight into the pocket of the landlord, which would stimulate supply and discourage demand. The problem is that these places are constrained by geographics, local politics and the willingness of previous land owners to move out so you can't just build more.
maxsilver 3y ago
> Adding new housing units at any price point lowers housing costs in the area; This isn't really true in housing. Housing is not a market commodity, it's not priced primarily via supply or demand. Housing is priced based on comparables, quite literally, what is the most expensive thing that sold recently, and how close do we compare to that. In this way, building a fancy new condo building will literally raise prices, even if the number of people remain constant, and even if it "increases the number of the units in the area", because now pricing comparables will get to take the new condo's higher pricing into effect, and things like comparables and federal interest rates have a much higher effect on sales price than traditional supply or demand. To be clear, this is NOT an anti-build argument, we need more housing, the only way to get more is to build it. We just need to be mindful of the real-world consequences of it, new luxury condo construction creates a form of financial "pollution" into that area, and all nearby housing stock will absorb that pollution in higher prices. This is something anyone who cares about affordable housing needs to understand, and plan for.

Moldoteck 3y ago

have you thought that those luxury condo are limiting the housing cost instead of amplifying it? I mean that maybe without them the costs would increase even more