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> For San Francisco's housing prices to _appreciate_ more than those in Ohio, today's seller needs to accept a bigger discount (compared to reliably estimated 2

> For San Francisco's housing prices to _appreciate_ more than those in Ohio, today's seller needs to accept a bigger discount (compared to reliably estimated 2030 prices) for San Francisco real estate than for Ohio real estate. Ie SF housing prices need to be comparatively lower. > Why would the seller be so nice for SF but not for Ohio? Are current SF land owners less interested in money? The reason is that there are two classes of buyer; investors and occupants. The expectation in SF is that population will increase and the housing supply will not be allowed to increase, so occupants will have to pay more in the future, creating the expectation of future appreciation. Investors could then come in and bid up the current price in anticipation of this, but they'll only do this until the current price rises to match the risk-adjusted returns from competing investments. The expectation in Ohio is that the population will be approximately flat and new construction will be less inhibited, so expected housing price appreciation there might be less than competing investments. That discourages external investors, but the current-day prices are still held at their current level from demand by local residents because they still need somewhere to live. > Are you sure there isn't something else going? Perhaps some other weird law, or perhaps some weird tax dodge (or even status game?) that leads some investors to leave properties empty? These things could be contributing to it. You could also add bureaucratic incompetence to the list, i.e. an institutional bureaucracy gets an order to invest in housing so it buys a bunch of housing and is too insulated from consequences to recognize that it could make more money by renting it out. But all of these derive from the expectation that housing will appreciate and thereby make a good investment. Otherwise whatever weird law or unusual risk function is causing them not to rent the properties out would be irrelevant because they would lose the incentive to invest in them to begin with. > Even without tenants, an SF REIT with only empty properties makes more sense for diversification than a single property. After all, tenants and city wide regulations aren't the only thing affecting the prices of a single house. Sure, but then you have a REIT buying up properties and leaving them empty, which is no better than doing it one at a time, and moreover can likewise be prevented by not inhibiting construction to remove the expectation of market-competitive returns solely from housing appreciation.

eru 2y ago
> The expectation in SF is that population will increase and the housing supply will not be allowed to increase, so occupants will have to pay more in the future, creating the expectation of future appreciation. See, I don't understand this. So I grant you that rents will increase in SF. That's what you are describing. (Conversely, current rents are lower than rents in five years; and there's no market mechanism to bring that rent increase from 2030 to 2025.) But I don't get the proposed mechanism to turn that relative discount of 2025-compared-to-2030 rents into a relative discount of 2025-compared-to-2030 house prices. There's a clear mechanism in the markets to bring assets prices from the future to the present, but there's no clean mechanism to bring rent increases from the future to the present. That's because you can buy a house now, and hold it for the next five years. But you can't turn a 2025 month of rental services into a 2030 month of rental services. > The expectation in Ohio is that the population will be approximately flat and new construction will be less inhibited, so expected housing price appreciation there might be less than competing investments. That discourages external investors, but the current-day prices are still held at their current level from demand by local residents because they still need somewhere to live. That argument seems very confused to me. So is the return to funds invested in housing in Ohio higher or lower than in San Francisco? (That includes both capital appreciation and rental income (or the 'opportunity profits' [0] of not having to pay rent)). You seem to be mixing up (imputed) rental income and the cost of houses as a capital good. Local residents are responsible for the rent in either place. Both of us agree that we expects rents to grow quicker in San Francisco than in Ohio. > Investors could then come in and bid up the current price in anticipation of this, but they'll only do this until the current price rises to match the risk-adjusted returns from competing investments. > That discourages external investors, but the current-day prices are still held at their current level from demand by local residents because they still need somewhere to live. Contrasting these two sentences, looks exactly backwards from what we are trying to explain? You need to explain why current house prices in San Francisco are so _low_, and Ohio house prices are so _high_, both compared to their expected 2030 levels. [0] I'm not sure if 'opportunity profits' is an established term. I mean the opposite of 'opportunity costs': the imputed implicit profit of avoided costs.

eru 2y ago

> The expectation in SF is that population will increase and the housing supply will not be allowed to increase, so occupants will have to pay more in the future, creating the expectation of future appreciation. See, I don't understand this. So I grant you that rents will increase in SF. That's what you are describing. (Conversely, current rents are lower than rents in five years; and there's no market mechanism to bring that rent increase from 2030 to 2025.) But I don't get the proposed mechanism to turn that relative discount of 2025-compared-to-2030 rents into a relative discount of 2025-compared-to-2030 house prices. There's a clear mechanism in the markets to bring assets prices from the future to the present, but there's no clean mechanism to bring rent increases from the future to the present. That's because you can buy a house now, and hold it for the next five years. But you can't turn a 2025 month of rental services into a 2030 month of rental services. > The expectation in Ohio is that the population will be approximately flat and new construction will be less inhibited, so expected housing price appreciation there might be less than competing investments. That discourages external investors, but the current-day prices are still held at their current level from demand by local residents because they still need somewhere to live. That argument seems very confused to me. So is the return to funds invested in housing in Ohio higher or lower than in San Francisco? (That includes both capital appreciation and rental income (or the 'opportunity profits' [0] of not having to pay rent)). You seem to be mixing up (imputed) rental income and the cost of houses as a capital good. Local residents are responsible for the rent in either place. Both of us agree that we expects rents to grow quicker in San Francisco than in Ohio. > Investors could then come in and bid up the current price in anticipation of this, but they'll only do this until the current price rises to match the risk-adjusted returns from competing investments. > That discourages external investors, but the current-day prices are still held at their current level from demand by local residents because they still need somewhere to live. Contrasting these two sentences, looks exactly backwards from what we are trying to explain? You need to explain why current house prices in San Francisco are so _low_, and Ohio house prices are so _high_, both compared to their expected 2030 levels. [0] I'm not sure if 'opportunity profits' is an established term. I mean the opposite of 'opportunity costs': the imputed implicit profit of avoided costs.