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Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is

Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is the actual profit on home construction constant (or even shrinking)? One would assume it would be, if their data also controlled for confounding factors like regulatory limits, economic stagnation, etc. In other words, it is my position that the burden of proof should rest on people who claim that the laws of supply and demand fail to explain what the obstacle is to equilibrium in the market they're studying: why if I increase supply does price not come down? My instinct is that it's just more expensive to build homes on the same profit margin than it was over 40 years ago, when their data sampling begins. I don't believe that the real estate industry suddenly had a collective awakening to greed.

ddorian43 2y ago
Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.
- mouse_ 2y ago
  Good answer
- absolutelastone 2y ago
  Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices). But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.
  - lazide 2y ago
    Real estate is very illiquid - and ‘valuations are high, but the market is grinding to a half because demand is dying due to increased borrowing costs’ is exactly when it is nearly impossible to get out. Once things ‘snap’ and it starts to shift, well… then it’s too late.
llamaimperative 2y ago
It's the land price. Rising land prices are the problem, and land is in completely fixed supply. You cannot induce more supply with rising prices. Land is the dominating factor, ergo local variations in housing elasticity don't really matter. Clearly there is some inelastic thing that is eating all the increased local income without inducing more supply: it's the land. Edit: To the people saying "you can build more on each piece of land!" sure you can. And that should definitely mitigate price increases, but that's exactly what this paper says actually isn't predictive of prices, clearly because cost is dominantly driven by something that isn't affected by this elasticity. The value of higher density development gets immediately baked into the land prices, which then does not induce more supply of land.
- lazide 2y ago
  Land prices have been rising because of easily available funds.
  - llamaimperative 2y ago
    Land prices have been rising mostly because of productivity gains. Land is completely free. There is no inherent cost to it. All cost is derived from its productive power, and productive power rises as technology improves and as people congregate in greater density. You could outlaw loans altogether and land would still not be anywhere close to free.
- calvinmorrison 2y ago
  with enough price you can raise supply of anything.
  - dragonwriter 2y ago
    “Supply” in economics is the function mapping market clearing price to quantity supplied. Even if all supply curves slope upward, that's not increasing supply with price, it is increasing quantity supplied with price.
mrangle 2y ago
Respectfully, why would data be controlled for "regulatory limits" and "economic stagnation"? Regulation is a constant factor, historically, not something that would be controlled for. You could have something like a "regulatory constant" but then you would need one, historically, to make it meaningful. It would also likely have to be local. None of that will exist. How exactly do you define "economic stagnation" and how would one control for it, assuming for one second that would be desirable to do so? There is no "law of supply and demand" in the real market, only in textbooks. There is only the factor of supply and demand. Therefore, raw supply and demand is not an assumed default explanation for pricing. No one is obligated to explain why supply doesn't seem to explain price. Though, anyone is welcome to pitch as to why it might for a particular circumstance. Other variables that are sometimes interlinked: international cash buyers, institutional cash buyers, global dollar and therefore asset and commodity value in USD (inflation), skilled labor costs and availability, interest rates, the white and blue collar unemployment rates, changing lending criteria, the cost of gasoline, regional population fluctuations, the bond market, etc.
- johngladtj 2y ago
  Regulation is not a constant factor.
  - deleted 2y ago
    [deleted]
- btilly 2y ago
  Regulation is not a constant factor. It varies from place to place, and has generally increased over time.
  - mrangle 2y ago
    You're misusing the word "factor". Regulation is always a factor in the United States. Whether it is a significant or insignificant factor is the question. Regulation is historically in flux, and local, which is why it can't be controlled for. And why would it be, besides? Perhaps I misapplied the word "constant". What I meant to say is that theoretically there could be a varying formal measurement, but that this is impractical for the reasons stated.
DrillShopper 2y ago
> why if I increase supply does price not come down? Over what window? There's clearly already a pent up demand for housing due to it currently being unaffordable. There's also clearly already a demand for speculative investment real estate, some of which is also pent up due to rising prices and constrained supply. If the investors are still going to be in the market at the current price, and they snap up all available supply, then the price for housing is not going to come down immediately. It will only come down if you increase the supply to more than the demand of the investors. Only then will the price come down, and then people who just need a place to live may engage with the market. The prices coming down isn't a simple on/off switch, especially in a market as complex as real estate.
- epistasis 2y ago
  Are investors buying and keeping places vacant? There has always been talk of that in places like Vancouver, but I have not heard of that in the US. All the conspiracy theories about vacancies are about the for-rent new buildings, which doesn't make sense either. 100% agreed about there not being an on/off switch for pricing, real estate pricing sticks high, and it takes a shock to make people reevaluate what they thought there property was worth. The very very minor increases in supply when there is massive pent up demand will not alleviate prices much, even if it staves off price increases.
  - Althuns 2y ago
    Absolutely they are! We're not talking complete vacancy, but 10% is the bottom of what I see for new buildings in my midwest city. These are built less than 10 years ago, and several have 25+% even after all that time. It seems that they're willing to let vacancies happen instead of lower rent rates. Anecdotal obviously, but the closest one to me has been consistently over 50% empty due to bad construction and design, with no interest in fixing it to fill in the leaking units. Another 90 unit one has had trouble renting at the "luxury apartment" rates they were built to get because they looked landlord special day 1. They haven't lowered rents, only left units vacant.
    - 2y ago
JKCalhoun 2y ago
> why if I increase supply does price not come down? We're making more and more luxury cars, why is the price not coming down? From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.
- thechao 2y ago
  I know a number of builders in my neighborhood. There's a number of compounding issues: labor costs are higher, which means the customer wants to maximize resale value by amortizing lot costs. This dovetails (in Texas) with carried property tax rates; so, lots in city boundaries increase in price faster than you'd think just sitting around. Second, the builders tend to buy material on futures, which means you lock in price + volatility. There's been a buttload of volatility over the last 12 years, adding to the cost of materials. Inflation has hit building materials pretty hard (wood, concrete, steel). Last, and this is really hard to convince some people: the amount of rebuilding due to natural disasters has skyrocketed. Due to the way insurance & federal relief works, that work is far preferable to labor than spec work. This has put a huge distortion in the new build market.
  - mjevans 2y ago
    As a country the, US and everywhere else too, should focus on Disaster Resistant builds. It should be in the building code. High wind resistant, fire resistant. Landscaping too.
    - matwood 2y ago
      > should focus on Disaster Resistant builds They absolutely do. Look up all the building code changes post Hurricane Andrew in the 90s. Those changes spread through the whole southeast and have made wind almost a non-factor. The problem is and always will be flooding. My house is built above the '100 year flood' line to fit code which helps. The problem is either older houses or houses built in areas that didn't historically flood enough for people to consider it a risk.
pj_mukh 2y ago
Yes, this. Also, hate to use this argument but this simply doesn't match my lived experience. My rent and income have been going up for the last 10 years and yes that means I'm paying more and more for housing. However, my city rubber-stamped a glut of housing in one neighborhood and as my income went up, I was able to negotiate my rent down. This phenomenon is a direct contradiction to the thesis of this paper. It is true, the people who people the glut of housing are currently freaking out because their margins are threatened. That's probably a good thing..upto a point [1]. The solution seems simple: rubber-stamp, nay, encourage developers into building gluts of housing so they demolish their own margins into dropping the price of housing. [1] https://oaklandside.org/2025/02/14/oakland-downtown-apartments-foreclosures-real-estate/ https://oaklandside.org/2025/02/14/oakland-downtown-apartmen...
- epistasis 2y ago
  As somebody who has been involved politically with trying to increase supply (unsuccessfull), so that more people could experience what you are, I would note that Tori experience does not technically deny that supply is a big component of pricing. It just says that there has to be something more too. However, NIMBYs will use this paper inappropriately to argue against policies that enable your type of price drops.
- kelseyfrog 2y ago
  Can you help me understand your argument. It seems to hinge on the idea the existence of a counter-example proves it wrong? I could see how this would work for a logical argument or a proof, but I'm finding it difficult to see how it fits into proving ultimately a statistical finding incorrect. I generally see statistics as being able to tease apart situations where there are counter-examples and we're looking at things like proportions between categories and such.
  - pj_mukh 2y ago
    Yea which is why I started with “hate to use this argument”. Definitely anecdotal but the kernel of truth is that income and rent going up could be a correlation with a different causation and as many have pointed out in this thread the paper inadequately controls for this. This is especially dangerous now as papers can be used as hard truths in a misinfo driven information culture to see policy.

ddorian43 2y ago

Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.

mouse_ 2y ago
Good answer
absolutelastone 2y ago
Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices). But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.
- lazide 2y ago
  Real estate is very illiquid - and ‘valuations are high, but the market is grinding to a half because demand is dying due to increased borrowing costs’ is exactly when it is nearly impossible to get out. Once things ‘snap’ and it starts to shift, well… then it’s too late.

llamaimperative 2y ago

It's the land price. Rising land prices are the problem, and land is in completely fixed supply. You cannot induce more supply with rising prices. Land is the dominating factor, ergo local variations in housing elasticity don't really matter. Clearly there is some inelastic thing that is eating all the increased local income without inducing more supply: it's the land. Edit: To the people saying "you can build more on each piece of land!" sure you can. And that should definitely mitigate price increases, but that's exactly what this paper says actually isn't predictive of prices, clearly because cost is dominantly driven by something that isn't affected by this elasticity. The value of higher density development gets immediately baked into the land prices, which then does not induce more supply of land.

lazide 2y ago
Land prices have been rising because of easily available funds.
- llamaimperative 2y ago
  Land prices have been rising mostly because of productivity gains. Land is completely free. There is no inherent cost to it. All cost is derived from its productive power, and productive power rises as technology improves and as people congregate in greater density. You could outlaw loans altogether and land would still not be anywhere close to free.
calvinmorrison 2y ago
with enough price you can raise supply of anything.
- dragonwriter 2y ago
  “Supply” in economics is the function mapping market clearing price to quantity supplied. Even if all supply curves slope upward, that's not increasing supply with price, it is increasing quantity supplied with price.

mrangle 2y ago

Respectfully, why would data be controlled for "regulatory limits" and "economic stagnation"? Regulation is a constant factor, historically, not something that would be controlled for. You could have something like a "regulatory constant" but then you would need one, historically, to make it meaningful. It would also likely have to be local. None of that will exist. How exactly do you define "economic stagnation" and how would one control for it, assuming for one second that would be desirable to do so? There is no "law of supply and demand" in the real market, only in textbooks. There is only the factor of supply and demand. Therefore, raw supply and demand is not an assumed default explanation for pricing. No one is obligated to explain why supply doesn't seem to explain price. Though, anyone is welcome to pitch as to why it might for a particular circumstance. Other variables that are sometimes interlinked: international cash buyers, institutional cash buyers, global dollar and therefore asset and commodity value in USD (inflation), skilled labor costs and availability, interest rates, the white and blue collar unemployment rates, changing lending criteria, the cost of gasoline, regional population fluctuations, the bond market, etc.

johngladtj 2y ago
Regulation is not a constant factor.
- deleted 2y ago
  [deleted]
btilly 2y ago
Regulation is not a constant factor. It varies from place to place, and has generally increased over time.
- mrangle 2y ago
  You're misusing the word "factor". Regulation is always a factor in the United States. Whether it is a significant or insignificant factor is the question. Regulation is historically in flux, and local, which is why it can't be controlled for. And why would it be, besides? Perhaps I misapplied the word "constant". What I meant to say is that theoretically there could be a varying formal measurement, but that this is impractical for the reasons stated.

DrillShopper 2y ago

> why if I increase supply does price not come down? Over what window? There's clearly already a pent up demand for housing due to it currently being unaffordable. There's also clearly already a demand for speculative investment real estate, some of which is also pent up due to rising prices and constrained supply. If the investors are still going to be in the market at the current price, and they snap up all available supply, then the price for housing is not going to come down immediately. It will only come down if you increase the supply to more than the demand of the investors. Only then will the price come down, and then people who just need a place to live may engage with the market. The prices coming down isn't a simple on/off switch, especially in a market as complex as real estate.

epistasis 2y ago
Are investors buying and keeping places vacant? There has always been talk of that in places like Vancouver, but I have not heard of that in the US. All the conspiracy theories about vacancies are about the for-rent new buildings, which doesn't make sense either. 100% agreed about there not being an on/off switch for pricing, real estate pricing sticks high, and it takes a shock to make people reevaluate what they thought there property was worth. The very very minor increases in supply when there is massive pent up demand will not alleviate prices much, even if it staves off price increases.
- Althuns 2y ago
  Absolutely they are! We're not talking complete vacancy, but 10% is the bottom of what I see for new buildings in my midwest city. These are built less than 10 years ago, and several have 25+% even after all that time. It seems that they're willing to let vacancies happen instead of lower rent rates. Anecdotal obviously, but the closest one to me has been consistently over 50% empty due to bad construction and design, with no interest in fixing it to fill in the leaking units. Another 90 unit one has had trouble renting at the "luxury apartment" rates they were built to get because they looked landlord special day 1. They haven't lowered rents, only left units vacant.
  - 2y ago

JKCalhoun 2y ago

> why if I increase supply does price not come down? We're making more and more luxury cars, why is the price not coming down? From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.

thechao 2y ago
I know a number of builders in my neighborhood. There's a number of compounding issues: labor costs are higher, which means the customer wants to maximize resale value by amortizing lot costs. This dovetails (in Texas) with carried property tax rates; so, lots in city boundaries increase in price faster than you'd think just sitting around. Second, the builders tend to buy material on futures, which means you lock in price + volatility. There's been a buttload of volatility over the last 12 years, adding to the cost of materials. Inflation has hit building materials pretty hard (wood, concrete, steel). Last, and this is really hard to convince some people: the amount of rebuilding due to natural disasters has skyrocketed. Due to the way insurance & federal relief works, that work is far preferable to labor than spec work. This has put a huge distortion in the new build market.
- mjevans 2y ago
  As a country the, US and everywhere else too, should focus on Disaster Resistant builds. It should be in the building code. High wind resistant, fire resistant. Landscaping too.
  - matwood 2y ago
    > should focus on Disaster Resistant builds They absolutely do. Look up all the building code changes post Hurricane Andrew in the 90s. Those changes spread through the whole southeast and have made wind almost a non-factor. The problem is and always will be flooding. My house is built above the '100 year flood' line to fit code which helps. The problem is either older houses or houses built in areas that didn't historically flood enough for people to consider it a risk.

pj_mukh 2y ago

Yes, this. Also, hate to use this argument but this simply doesn't match my lived experience. My rent and income have been going up for the last 10 years and yes that means I'm paying more and more for housing. However, my city rubber-stamped a glut of housing in one neighborhood and as my income went up, I was able to negotiate my rent down. This phenomenon is a direct contradiction to the thesis of this paper. It is true, the people who people the glut of housing are currently freaking out because their margins are threatened. That's probably a good thing..upto a point [1]. The solution seems simple: rubber-stamp, nay, encourage developers into building gluts of housing so they demolish their own margins into dropping the price of housing. [1] https://oaklandside.org/2025/02/14/oakland-downtown-apartments-foreclosures-real-estate/ https://oaklandside.org/2025/02/14/oakland-downtown-apartmen...

epistasis 2y ago
As somebody who has been involved politically with trying to increase supply (unsuccessfull), so that more people could experience what you are, I would note that Tori experience does not technically deny that supply is a big component of pricing. It just says that there has to be something more too. However, NIMBYs will use this paper inappropriately to argue against policies that enable your type of price drops.
kelseyfrog 2y ago
Can you help me understand your argument. It seems to hinge on the idea the existence of a counter-example proves it wrong? I could see how this would work for a logical argument or a proof, but I'm finding it difficult to see how it fits into proving ultimately a statistical finding incorrect. I generally see statistics as being able to tease apart situations where there are counter-examples and we're looking at things like proportions between categories and such.
- pj_mukh 2y ago
  Yea which is why I started with “hate to use this argument”. Definitely anecdotal but the kernel of truth is that income and rent going up could be a correlation with a different causation and as many have pointed out in this thread the paper inadequately controls for this. This is especially dangerous now as papers can be used as hard truths in a misinfo driven information culture to see policy.