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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 in

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.
  - orwin 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. That didn't stop them before. Joking aside, I find the build quality in the US quite poor overall (even in the north, in Ohio). We have the same issue in continental Europe (France-Germany at least) with new-ish, low-end stock (late 90s-early 2010s at least), but we're not nearly as bad (I'm mostly thinking of windows and electricity, but even carpentry is approximative from what I've seen). Which is weird, because I've seen / talked with skilled tradespeople in West Virginia, and saw the most impressive house in the middle of nowhere, Lincoln County.
    - FredPret 2y ago
      It's always been hard and expensive to build anything right. The only surviving old buildings were the good ones.

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.
- orwin 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. That didn't stop them before. Joking aside, I find the build quality in the US quite poor overall (even in the north, in Ohio). We have the same issue in continental Europe (France-Germany at least) with new-ish, low-end stock (late 90s-early 2010s at least), but we're not nearly as bad (I'm mostly thinking of windows and electricity, but even carpentry is approximative from what I've seen). Which is weird, because I've seen / talked with skilled tradespeople in West Virginia, and saw the most impressive house in the middle of nowhere, Lincoln County.
  - FredPret 2y ago
    It's always been hard and expensive to build anything right. The only surviving old buildings were the good ones.