4 ms·

People prefer to argue endlessly about private vs state funded healthcare without realizing that issue is completely orthogonal to the massive doctor shortage.

by klipt 2y ago

People prefer to argue endlessly about private vs state funded healthcare without realizing that issue is completely orthogonal to the massive doctor shortage. Same thing with the housing debate really. People prefer to argue snot rent control instead of just building more housing.

Tade0 2y ago
You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? Hardly. We're only seeing sustained price decreases now that the bubble is bursting, but it's not going to make real estate more affordable, as it comes with a heavy economic downturn.
- seanmcdirmid 2y ago
  Houses built in the wrong place aren’t useful. Also, allowing hoarding of housing (viable since no property tax) can also restrict supply. There are plenty of reasons why more housing doesn’t necessarily lead to cheaper housing. Even inside 4th ring in East Beijing, we estimated that the block we were living in was only 60% or so occupied (by counting lights on nightly walks), much of the rest of the 40% were probably not even renovated.
  - eru 2y ago
    > Also, allowing hoarding of housing (viable since no property tax) can also restrict supply. I don't see how property tax makes any difference here? The opportunity cost in terms of lost rent (if you are hoarding vacant property instead of renting it out) should be the same no matter what the property tax is? > There are plenty of reasons why more housing doesn’t necessarily lead to cheaper housing. If you can find a market that you can keep adding supply into, and prices don't react, you found yourself an infinite money machine! (It's the same mechanism as when people complained that printing money (whether by the Bank of Japan in the 1990s or the Fed in the 2010) can't raise inflation: Instead of complaining, you should keep printing money and gradually buy up the whole world in return for some ink and paper / database entries.)
    - seanmcdirmid 2y ago
      That was China’s thinking, but it turns out there is a limit, it’s just not a gradual slope downward but a huge crash.
      - eru 2y ago
        What makes you think so? The Chinese problems come from different sources. For example, there's lots of corruption, they are not keeping their nominal GDP on a stable growth target, and if I remember right, they have a lot of government intervention in the real estate and credit markets. See https://www.econlib.org/the-confusing-china-debate/ https://www.econlib.org/the-confusing-china-debate/ for an assessment more qualified than mine. And https://scottsumner.substack.com/p/chinas-mysterious-deflation https://scottsumner.substack.com/p/chinas-mysterious-deflati... for something more recent.
- ChadNauseam 2y ago
  is this housing stock in places where people want to live? I find it hard to believe that half the units in hong kong or shanghai are vacant
- kelnos 2y ago
  > China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? Hardly. If you build housing where people don't care to live, it doesn't matter how much you build. Housing will be more expensive in desirable areas unless you build more housing in those desirable areas.
- AnthonyMouse 2y ago
  > You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. Suppose housing prices are high. A construction company exists and has a million dollars, so they buy a $500,000 home, knock it down and spend $500,000 to build half a dozen condo units the size of the original house on the same lot, then sell them each for $500,000. That takes six months to a year. Now the construction company has three million dollars and buys three lots and makes nine million dollars, do you see where this is going? The thing that prevents this is when either a) they're not allowed to knock down the house and build condos there, or b) you pass laws that make it cost $3,000,000 to build a six-unit condo instead of $500,000, and then the unit is never going to cost less than $500,000 because it costs that much to build. > China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? China is hardly an example of markets. But it's a good demonstration of why you need to allow housing to be built anywhere that it's needed instead of having bureaucrats decide where it should go. > We're only seeing sustained price decreases now that the bubble is bursting, but it's not going to make real estate more affordable, as it comes with a heavy economic downturn. We made a mistake with the last housing crisis, which was to reinflate the bubble with low interest rates. What you really want in that circumstance is to increase take home pay, e.g. by lowering taxes on the middle class.
  - eru 2y ago
    The commenter you replied to makes the mistake of mistaking the price of houses as a capital good with the monthly rent you pay for housing services. If you want lots of new houses being built, high house prices are good. That incentivises developers to jump through all the hoops, build some houses, and sell them. (In the wake of the Great Recession, we had and have the opposite problem: tightening of credit dropped house prices, thus house construction was choked off, and thus rents rose. The ratio of rents to house prices went up, and rents also went up in absolute terms.)
    - Tade0 2y ago
      > That incentivises developers to jump through all the hoops, build some houses, and sell them. That doesn't help with affordability, as when house prices are high they're... unaffordable anyway, so they get bought out by investors, who can produce any amount of cash as long as the investment pays off. For this reason a huge chunk of new housing is not even built to be affordable - both the margins and ROI on a "premium" apartment are just better. A win for investors and developers alike while at the same time regular people are thrown under the bus.
- eru 2y ago
  > You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. Huh? What kind of weird statement is this? It seems there's a lot of confusion. I think it mostly stems from owner-occupiers. For our analysis, let's separate them into two: some people own houses and rent them out, and everyone (but the homeless) rent houses. It's just that sometimes people rent from themselves. What matters for discussions about affordability of housing is how much of your income you have to spend each month on housing every month. Let's call that 'housing services'. That is pretty much a function of available supply every month vs demand every month. Who owns them doesn't make a difference. If an investor buys a house, but rents it out, that's fine. Neither supply of housing services nor demand for housing services has changed. If an investor buys a house, but doesn't rent it out (eg because it's intentionally empty, or because the investor lives there herself), then she counts as a consumer of that unit for that month. That's an indirect change in supply and demand for housing services, but doesn't directly have anything to do with the investor as a owner. Now to come to your scenario: If investors use houses as collateral to invest in more housing, that's great! Ideally that will drive up the prices of housing as a capital god. The more expensive houses are as a capital good, the more it makes sense for developers to jump through all the hoops and build more houses to sell them into the market. That means more houses available for renting out, which drives down rents. (In the wake of the Great Recession, we had and have the opposite problem: tightening of credit dropped house prices, thus house construction was choked off, and thus rents rose. The ratio of rents to house prices went up, and rents also went up in absolute terms.)
- IG_Semmelweiss 2y ago
  When your housing inventory is located on no mans land, and your economic policy is largely built on top of assumptions that housing should be an infinitely-appreciating asset (instead of a depreciating asset, like any other hars asset) , then you end up with china prices. And I'm not even mentioning the fact that the Chinese birthrate decline is so precipitous that their current population is expected to half by 2100. The chinese market of housing does not reflect real supply or prices. It instead reflects bad incentives and an economic bubble propped by the centralized state
sidewndr46 2y ago
What is snot rent control?
- klipt 2y ago
  Swipe typo! I meant "about"

by klipt 2y ago

Tade0 2y ago

You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? Hardly. We're only seeing sustained price decreases now that the bubble is bursting, but it's not going to make real estate more affordable, as it comes with a heavy economic downturn.

seanmcdirmid 2y ago
Houses built in the wrong place aren’t useful. Also, allowing hoarding of housing (viable since no property tax) can also restrict supply. There are plenty of reasons why more housing doesn’t necessarily lead to cheaper housing. Even inside 4th ring in East Beijing, we estimated that the block we were living in was only 60% or so occupied (by counting lights on nightly walks), much of the rest of the 40% were probably not even renovated.
- eru 2y ago
  > Also, allowing hoarding of housing (viable since no property tax) can also restrict supply. I don't see how property tax makes any difference here? The opportunity cost in terms of lost rent (if you are hoarding vacant property instead of renting it out) should be the same no matter what the property tax is? > There are plenty of reasons why more housing doesn’t necessarily lead to cheaper housing. If you can find a market that you can keep adding supply into, and prices don't react, you found yourself an infinite money machine! (It's the same mechanism as when people complained that printing money (whether by the Bank of Japan in the 1990s or the Fed in the 2010) can't raise inflation: Instead of complaining, you should keep printing money and gradually buy up the whole world in return for some ink and paper / database entries.)
  - seanmcdirmid 2y ago
    That was China’s thinking, but it turns out there is a limit, it’s just not a gradual slope downward but a huge crash.
    - eru 2y ago
      What makes you think so? The Chinese problems come from different sources. For example, there's lots of corruption, they are not keeping their nominal GDP on a stable growth target, and if I remember right, they have a lot of government intervention in the real estate and credit markets. See https://www.econlib.org/the-confusing-china-debate/ https://www.econlib.org/the-confusing-china-debate/ for an assessment more qualified than mine. And https://scottsumner.substack.com/p/chinas-mysterious-deflation https://scottsumner.substack.com/p/chinas-mysterious-deflati... for something more recent.
ChadNauseam 2y ago
is this housing stock in places where people want to live? I find it hard to believe that half the units in hong kong or shanghai are vacant
kelnos 2y ago
> China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? Hardly. If you build housing where people don't care to live, it doesn't matter how much you build. Housing will be more expensive in desirable areas unless you build more housing in those desirable areas.
AnthonyMouse 2y ago
> You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. Suppose housing prices are high. A construction company exists and has a million dollars, so they buy a $500,000 home, knock it down and spend $500,000 to build half a dozen condo units the size of the original house on the same lot, then sell them each for $500,000. That takes six months to a year. Now the construction company has three million dollars and buys three lots and makes nine million dollars, do you see where this is going? The thing that prevents this is when either a) they're not allowed to knock down the house and build condos there, or b) you pass laws that make it cost $3,000,000 to build a six-unit condo instead of $500,000, and then the unit is never going to cost less than $500,000 because it costs that much to build. > China reportedly has currently enough housing stock to house their population twice over. Did that make housing cheap? China is hardly an example of markets. But it's a good demonstration of why you need to allow housing to be built anywhere that it's needed instead of having bureaucrats decide where it should go. > We're only seeing sustained price decreases now that the bubble is bursting, but it's not going to make real estate more affordable, as it comes with a heavy economic downturn. We made a mistake with the last housing crisis, which was to reinflate the bubble with low interest rates. What you really want in that circumstance is to increase take home pay, e.g. by lowering taxes on the middle class.
- eru 2y ago
  The commenter you replied to makes the mistake of mistaking the price of houses as a capital good with the monthly rent you pay for housing services. If you want lots of new houses being built, high house prices are good. That incentivises developers to jump through all the hoops, build some houses, and sell them. (In the wake of the Great Recession, we had and have the opposite problem: tightening of credit dropped house prices, thus house construction was choked off, and thus rents rose. The ratio of rents to house prices went up, and rents also went up in absolute terms.)
  - Tade0 2y ago
    > That incentivises developers to jump through all the hoops, build some houses, and sell them. That doesn't help with affordability, as when house prices are high they're... unaffordable anyway, so they get bought out by investors, who can produce any amount of cash as long as the investment pays off. For this reason a huge chunk of new housing is not even built to be affordable - both the margins and ROI on a "premium" apartment are just better. A win for investors and developers alike while at the same time regular people are thrown under the bus.
eru 2y ago
> You can't outpace investment demand - especially not in the phase when housing is used as collateral to borrow in order to invest in more housing. Huh? What kind of weird statement is this? It seems there's a lot of confusion. I think it mostly stems from owner-occupiers. For our analysis, let's separate them into two: some people own houses and rent them out, and everyone (but the homeless) rent houses. It's just that sometimes people rent from themselves. What matters for discussions about affordability of housing is how much of your income you have to spend each month on housing every month. Let's call that 'housing services'. That is pretty much a function of available supply every month vs demand every month. Who owns them doesn't make a difference. If an investor buys a house, but rents it out, that's fine. Neither supply of housing services nor demand for housing services has changed. If an investor buys a house, but doesn't rent it out (eg because it's intentionally empty, or because the investor lives there herself), then she counts as a consumer of that unit for that month. That's an indirect change in supply and demand for housing services, but doesn't directly have anything to do with the investor as a owner. Now to come to your scenario: If investors use houses as collateral to invest in more housing, that's great! Ideally that will drive up the prices of housing as a capital god. The more expensive houses are as a capital good, the more it makes sense for developers to jump through all the hoops and build more houses to sell them into the market. That means more houses available for renting out, which drives down rents. (In the wake of the Great Recession, we had and have the opposite problem: tightening of credit dropped house prices, thus house construction was choked off, and thus rents rose. The ratio of rents to house prices went up, and rents also went up in absolute terms.)
IG_Semmelweiss 2y ago
When your housing inventory is located on no mans land, and your economic policy is largely built on top of assumptions that housing should be an infinitely-appreciating asset (instead of a depreciating asset, like any other hars asset) , then you end up with china prices. And I'm not even mentioning the fact that the Chinese birthrate decline is so precipitous that their current population is expected to half by 2100. The chinese market of housing does not reflect real supply or prices. It instead reflects bad incentives and an economic bubble propped by the centralized state

sidewndr46 2y ago

What is snot rent control?

klipt 2y ago
Swipe typo! I meant "about"