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Depends on how you look at it. Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly b

Depends on how you look at it. Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. We're seeing this in many capitals across the world. Realistically I think any solution must start with making real estate a non-feasible investment vehicle, otherwise you're always going to bid against the ultrarich of the world either directly or indirectly, no matter how much supply you add.

lotsofpulp 2y ago
Supply is supply of sellers, in this case. A market works best with lots of sellers and lots of buyers.
- Etheryte 2y ago
  No, the article clearly talks about the supply of housing in the quote the above comment has outlined.
  - lotsofpulp 2y ago
    The point is supply of housing units is moot if there is only 1 seller or cartel of sellers (barring land value taxes or other sufficiently large penalties for vacant housing units).
tome 2y ago
> If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. Can you explain a little bit more about how this situation is supposed to arise? Perhaps you're saying that regardless of how much new housing is built, landlords will always be able and willing to buy it for a higher price than "ordinary people"? That sounds quite implausible to me. Landlords don't have infinite amounts of money. Maybe you're saying something else.
- Etheryte 2y ago
  The problem arises when you have long periods of either zero or near zero interest rates and no policy guardrails to regulate the market. The implausible scenario has played out in many cities in Europe, sometimes even to the extent that companies aggregating landlords started to build their own real estate that would never be sold, only let, because they ran out of real estate they wanted to buy. This left behind only low quality or poor condition housing, but at extremely high prices because everything else is gone from the market. The issue here is essentially a cash flows problem, once you're a landlord that has a sizeable portfolio of real estate, you can use that as collateral and offload the extra expense to renters. In a healthy market, renters can turn around and buy their own homes if the rent gets too high. Where this doesn't work is if housing is too expensive for the average buyer so they're forced to rent, come hell or high water. The Netherlands is a good example of this. While the problem has a lot more nuance and historical context to it, the state of affairs is the Dutch are short somewhere between 300k and 400k homes while two people earning the median wage can not afford an average home because the price is too high to obtain a mortgage. Meanwhile nearly all rental homes are owned either by companies or whale land lords. Rereading my comment now I'm not sure if I was able to convey what I mean well enough, sorry about that. I'm happy to answer any questions should you have them.
  - tome 2y ago
    What I don't understand is that you say "the Dutch are short somewhere between 300k and 400k homes" when you previously said "Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem". What does it mean to be "short of 300k" homes if not "adding supply of 300k homes will address the problem"?
    - Etheryte 2y ago
      In this specific example it means the Dutch have built a considerable amount of homes in the past few years, but the number of homes the supply is short has increased, not decreased. Simply adding more houses alone is clearly not going to solve the problem.
FredPret 2y ago
Landlords may have much more capital than the average person, but they don't have an infinite reserve. Investment opportunities compete with one another for investor dollars. If the yield on housing goes down, then investors will shift their money to (non-REIT) stocks and bonds. Let's do a thought experiment and imagine the worst-case scenario for the "build baby build" camp. 1. We build a ton of new housing, more than we need. 2. Landlords snap all of it up immediately. 3. They collude to keep rents steady despite the massive oversupply. 4. So now most of the housing is rented out at artificially high rates, and some housing is extra and thus empty. However, a ton of capital is locked up on the empty houses. 5. The more housing we overbuild, the more investors' yield on housing goes down - they have to invest more and more to snap up all the houses, but the number of houses that's collecting rent is steady. 6. The rational subset of housing investors pull their capital and buy stocks and bonds instead. Housing prices fall. 7. The irrational subset of housing investors hold out, hoping to keep collecting high rent or sell the housing on to a "greater fool". Housing investors lose some of their capital, and the worst ones are cycled out of the system as poor capital allocators.
- Etheryte 2y ago
  This whole idea relies on the prerequisite that you're capable of overbuilding desirable housing though, no? It's reasonably straightforward to overbuild housing, just look at ghost cities in China, but building housing that's desirable enough that someone actually wants to live there is a different matter entirely. I agree with the rest of your comment that the issue largely boils down to making real estate an undesirable investment class. I think where we diverge is that I think legislation and building is the most feasible way to achieve this, not just building.
  - FredPret 2y ago
    Fair points, another difficulty up here in Canada and probably in the States as well is that there are shortages of people who can build houses. But that's no excuse for giving up on the problem. I will also add though that even though it's physically hard to add housing to a place like Manhattan or politically hard to do so in the Bay area, there are tons of mid-sized cities all over the continent with lots of room to grow. With remote work and an army of millennials reaching house-buying-baby-having age all at the same time, there's no reason these cities can't be desirable and cheap places to live.

lotsofpulp 2y ago

Supply is supply of sellers, in this case. A market works best with lots of sellers and lots of buyers.

Etheryte 2y ago
No, the article clearly talks about the supply of housing in the quote the above comment has outlined.
- lotsofpulp 2y ago
  The point is supply of housing units is moot if there is only 1 seller or cartel of sellers (barring land value taxes or other sufficiently large penalties for vacant housing units).

tome 2y ago

> If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. Can you explain a little bit more about how this situation is supposed to arise? Perhaps you're saying that regardless of how much new housing is built, landlords will always be able and willing to buy it for a higher price than "ordinary people"? That sounds quite implausible to me. Landlords don't have infinite amounts of money. Maybe you're saying something else.

Etheryte 2y ago
The problem arises when you have long periods of either zero or near zero interest rates and no policy guardrails to regulate the market. The implausible scenario has played out in many cities in Europe, sometimes even to the extent that companies aggregating landlords started to build their own real estate that would never be sold, only let, because they ran out of real estate they wanted to buy. This left behind only low quality or poor condition housing, but at extremely high prices because everything else is gone from the market. The issue here is essentially a cash flows problem, once you're a landlord that has a sizeable portfolio of real estate, you can use that as collateral and offload the extra expense to renters. In a healthy market, renters can turn around and buy their own homes if the rent gets too high. Where this doesn't work is if housing is too expensive for the average buyer so they're forced to rent, come hell or high water. The Netherlands is a good example of this. While the problem has a lot more nuance and historical context to it, the state of affairs is the Dutch are short somewhere between 300k and 400k homes while two people earning the median wage can not afford an average home because the price is too high to obtain a mortgage. Meanwhile nearly all rental homes are owned either by companies or whale land lords. Rereading my comment now I'm not sure if I was able to convey what I mean well enough, sorry about that. I'm happy to answer any questions should you have them.
- tome 2y ago
  What I don't understand is that you say "the Dutch are short somewhere between 300k and 400k homes" when you previously said "Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem". What does it mean to be "short of 300k" homes if not "adding supply of 300k homes will address the problem"?
  - Etheryte 2y ago
    In this specific example it means the Dutch have built a considerable amount of homes in the past few years, but the number of homes the supply is short has increased, not decreased. Simply adding more houses alone is clearly not going to solve the problem.

FredPret 2y ago

Landlords may have much more capital than the average person, but they don't have an infinite reserve. Investment opportunities compete with one another for investor dollars. If the yield on housing goes down, then investors will shift their money to (non-REIT) stocks and bonds. Let's do a thought experiment and imagine the worst-case scenario for the "build baby build" camp. 1. We build a ton of new housing, more than we need. 2. Landlords snap all of it up immediately. 3. They collude to keep rents steady despite the massive oversupply. 4. So now most of the housing is rented out at artificially high rates, and some housing is extra and thus empty. However, a ton of capital is locked up on the empty houses. 5. The more housing we overbuild, the more investors' yield on housing goes down - they have to invest more and more to snap up all the houses, but the number of houses that's collecting rent is steady. 6. The rational subset of housing investors pull their capital and buy stocks and bonds instead. Housing prices fall. 7. The irrational subset of housing investors hold out, hoping to keep collecting high rent or sell the housing on to a "greater fool". Housing investors lose some of their capital, and the worst ones are cycled out of the system as poor capital allocators.

Etheryte 2y ago
This whole idea relies on the prerequisite that you're capable of overbuilding desirable housing though, no? It's reasonably straightforward to overbuild housing, just look at ghost cities in China, but building housing that's desirable enough that someone actually wants to live there is a different matter entirely. I agree with the rest of your comment that the issue largely boils down to making real estate an undesirable investment class. I think where we diverge is that I think legislation and building is the most feasible way to achieve this, not just building.
- FredPret 2y ago
  Fair points, another difficulty up here in Canada and probably in the States as well is that there are shortages of people who can build houses. But that's no excuse for giving up on the problem. I will also add though that even though it's physically hard to add housing to a place like Manhattan or politically hard to do so in the Bay area, there are tons of mid-sized cities all over the continent with lots of room to grow. With remote work and an army of millennials reaching house-buying-baby-having age all at the same time, there's no reason these cities can't be desirable and cheap places to live.