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> 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 ho

> 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 are confusing housing as a capital good with housing as a service. Corporate landlords (and investors in general) don't want the houses to sit empty. So they need to rent them out, or forego rental income. And, yes, premium apartments are fine. You know that houses today are much nicer than the houses we had in 1800? That's because over time the average new house being built was nicer than the existing housing stock. When a new nice apartment is being built, there ain't a sudden bang and a newly created rich person steps out of a cloud of smoke. [0] That rich person that moves into that nice new house will (on average) vacate a slightly less nice house, that someone else can move into, and so on. This is called 'filtering'. See eg https://buildingtheskyline.org/filtering/ https://buildingtheskyline.org/filtering/ If you don't build nice new houses, rich people gentrify the existing houses; which ain't better for poorer residents. [0] So if you had a market that worked like this, that would be great. It's like an infinite money machine for the economy. Rich people can pay a lot of taxes.
  - AnthonyMouse 2y ago
    > so they get bought out by investors, who can produce any amount of cash as long as the investment pays off. But they only do this if they expect housing prices to stay high, which they wouldn't if high prices were expected to spur construction and thereby increase supply and reduce prices. The problem is when the construction is inhibited so the investor's expectation is that prices will go up rather than down.
    - eru 2y ago

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 are confusing housing as a capital good with housing as a service. Corporate landlords (and investors in general) don't want the houses to sit empty. So they need to rent them out, or forego rental income. And, yes, premium apartments are fine. You know that houses today are much nicer than the houses we had in 1800? That's because over time the average new house being built was nicer than the existing housing stock. When a new nice apartment is being built, there ain't a sudden bang and a newly created rich person steps out of a cloud of smoke. [0] That rich person that moves into that nice new house will (on average) vacate a slightly less nice house, that someone else can move into, and so on. This is called 'filtering'. See eg https://buildingtheskyline.org/filtering/ https://buildingtheskyline.org/filtering/ If you don't build nice new houses, rich people gentrify the existing houses; which ain't better for poorer residents. [0] So if you had a market that worked like this, that would be great. It's like an infinite money machine for the economy. Rich people can pay a lot of taxes.
- AnthonyMouse 2y ago
  > so they get bought out by investors, who can produce any amount of cash as long as the investment pays off. But they only do this if they expect housing prices to stay high, which they wouldn't if high prices were expected to spur construction and thereby increase supply and reduce prices. The problem is when the construction is inhibited so the investor's expectation is that prices will go up rather than down.
  - eru 2y ago