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> build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000 If builders were selling units at their cost plus a

by jjav 3y ago

> build a dozen housing units there and sell the property for $2.4M, pricing each of the units at $200,000 If builders were selling units at their cost plus a fixed profit margin, you're right. But builders are in the business of maximizing profit. If in this area there was a backlog of people willing to pay 400K for a housing unit, the builder will sell each of these dozen units for 400K. If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased.

AnthonyMouse 3y ago
Well you have to pick one. Either people will pay ~$400K for the units and then the builder's incentive to build there is obvious -- because there is enough demand to sell them for $400K, which is profitable. Or people wouldn't pay quite as much as the existing single-family homes, but they'd still pay more than the builder's costs to construct the building, so it's still profitable. It only becomes not profitable when the price of a housing unit drops below the builder's costs. Which is why they'd want to keep building until that happens. > If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased. I keep saying this. The causation goes the other way. Density increases where demand is higher. Higher demand increases prices, then density blunts the increase so that it's smaller than it would be if no additional construction occurred. That doesn't mean it would become cheaper in the higher demand area than the lower demand area -- particularly if the area is still growing, in which case construction lags the increase in demand and has to catch up. And if construction is inhibited, it can't, so you get as much density as the zoning allows and then prices skyrocket because supply can no longer respond to increases in demand. Which can happen even if the area already has above-average density. What you'd need to see a price decrease is an area where zoning was relaxed after being strict, allowing density to increase after it had previously been suppressed, so that density increases because of the legal change rather than a new increase in demand. But the lack of this happening in areas of high demand is exactly the problem. Maybe we should try it and see what happens?

by jjav 3y ago

AnthonyMouse 3y ago

Well you have to pick one. Either people will pay ~$400K for the units and then the builder's incentive to build there is obvious -- because there is enough demand to sell them for $400K, which is profitable. Or people wouldn't pay quite as much as the existing single-family homes, but they'd still pay more than the builder's costs to construct the building, so it's still profitable. It only becomes not profitable when the price of a housing unit drops below the builder's costs. Which is why they'd want to keep building until that happens. > If you feel I'm wrong, please point me at a few cities in the US where housing became cheaper as density increased. I keep saying this. The causation goes the other way. Density increases where demand is higher. Higher demand increases prices, then density blunts the increase so that it's smaller than it would be if no additional construction occurred. That doesn't mean it would become cheaper in the higher demand area than the lower demand area -- particularly if the area is still growing, in which case construction lags the increase in demand and has to catch up. And if construction is inhibited, it can't, so you get as much density as the zoning allows and then prices skyrocket because supply can no longer respond to increases in demand. Which can happen even if the area already has above-average density. What you'd need to see a price decrease is an area where zoning was relaxed after being strict, allowing density to increase after it had previously been suppressed, so that density increases because of the legal change rather than a new increase in demand. But the lack of this happening in areas of high demand is exactly the problem. Maybe we should try it and see what happens?