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New construction has already decelerated in Austin due to falling prices, which compresses already-near-zero margin on real estate development. So yes, it real

New construction has already decelerated in Austin due to falling prices, which compresses already-near-zero margin on real estate development. So yes, it really is "just build more housing." The problem is: why would you build more housing as prices fall?

creato 8mo ago
It doesn't matter whether prices are going up or down, it matters if the price is more than the cost to build.
- estearum 8mo ago
  No, not really. It matters whether the margin is higher than other investment opportunities of similar scale and risk profile. Already, the answer is very often no. In Austin, the answer will increasingly be no. That means people will not finance new construction, so if demand continues to grow it will outstrip supply and prices will go back up until the margin on new construction exceeds that of alternative investment opportunities of similar scale and risk profile.
  - lotsofpulp 8mo ago
    Your explanation of fluctuations in supply and demand are not very revelatory. Everything being in flux at all times is kind of an elementary fact of life.
    - estearum 8mo ago
      It's clearly not elementary if people here believe that you can just keep building until prices collapse, and people will still keep building. The question is whether the market achieves equilibrium at a point where 1) developers can get financing to build profitably, and 2) units can be sold at a broadly attainable price to the local market. The answer appears to be no because the cost of inputs is so high. No one here is talking about directly reducing the cost of inputs. They believe that instead developers will just continue to build units that they sell at a loss, or at least investors will continue to invest in construction that returns less than the S&P 500 or 10 Year Treasuries (they won't).
  - epistasis 8mo ago
    Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price." If we're going to be pedantic, you're ignoring the huge amounts of uncertainty on costs that are inherent to any project, the amount of risk versus the expected profit. And indeed that amount of uncertainty: will I be allowed to build eventually? How long will I have to pay interests on assets before I'm allowed to build? Can I actually build what's specified in code or will discretionary processes arbitrarily change what I'm allowed to do, 18 months into the project?
    - estearum 8mo ago
      > Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price. It demonstrably is not what people understand it to mean to "the cost to build is lower than the price." The cost to build can be well below the sale price and development still be a totally uninvestable activity.
  - pclowes 8mo ago
    I would expect the development of Austin to continue until market equilibrium and then pause. Decreasing margin does not mean equilibrium. Obviously austin is not at equilibrium because we still have price data on developer activity and that would be near zero if developers couldn’t make returns given risk etc. I guess I don’t see where we disagree?
    - estearum 8mo ago
      I mean... that is pretty much what we're seeing: Austin new housing starts (approx per month): 2019: 1416 2020: 1504 2021: 1495 2022: 2083 2023: 1415 2024: 916 2025: 900 2026: 481 The problem here is that the market obviously does not have perfect information, limited mechanisms to coordinate, and significant lead time. It seems pretty much baked in at this point that many of the projects currently underway will complete into a negative market and (assuming Austin remains somewhat desirable) a whole lot of developers will be wiped out. This will stop development until prices rise again, probably back to a level where housing is quite expensive again relative to local wages.
terminalshort 8mo ago
Because home builders don't make money by buying and selling houses, they make money by building them and selling them.
- mrcode007 8mo ago
  This 1000x. Folks don’t get that the primary market != secondary market. Same as pre-IPO stock holder != IPO time buyer.
- estearum 8mo ago
  And... how is this relevant? I'm not sure what you're trying to imply here. You should spell it out explicitly.
  - epistasis 8mo ago
    The difference is between buying and asset and producing an asset. Even if RAM costs are falling, it can still be profitable to produce more RAM, as long as the costs are far enough below the eventual sales price. It's entirely different if you're buying the housing already built; there's no productive activity, you're just a rentier and do not benefit at all from falling housing prices. The differences in interests between an asset holder and a productive builder are night and day.
    - estearum 8mo ago
      > it can still be profitable to produce more RAM, as long as the costs are far enough below the eventual sales price. Right... my point is that the costs are not far below the eventual sales price. That's why construction is slowing down. And as mentioned several other times, it's actually not as simple as cost > sale price. It's margin > margin of alternative investments of similar scale and risk profile.
      - epistasis 8mo ago
        It was not clear that it was your point at all! Yes of course, gotta get your return on capital invested or the money goes elsewhere, probably into a REIT that invests in the existing assets and drives up prices even further. Because the demand for housing goes somewhere: either existing owners profit or the people building and alleviating the shortage profit. Every single municipality in the US I'm familiar with has done everything they can to make it expensive to build and try to remove any profit margin from building. Which leads to capital moving towards piggybacking on the rentierism of the average homeowner, the people who control the policies that make it unaffordable to build.
pembrook 8mo ago
Construction costs don't scale linearly with rent prices, it's a different market altogether that depends on regulation/worker supply/material costs/equipment/etc. As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build.
- estearum 8mo ago
  > As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build. Not true Real estate development is extremely capital intensive and therefore it's a question of all-in cost of capital compared to other investment opportunities.
  - 9rx 8mo ago
    The opportunity cost has already factored that in. Unless you think cost calculations are arbitrarily forgetting to include certain costs for no reason?
    - estearum 8mo ago
      Well for sure in the actual financial models yes, but it's demonstrably true that most HN commenters here do not know this is how to think about the question of returns. And FWIW "opportunity cost" doesn't really show up as "a cost" in the traditional sense.
      - 9rx 8mo ago
        > And FWIW "opportunity cost" doesn't really show up as "a cost" in the traditional sense. I cannot think of any forward-looking situation where opportunity cost doesn't show up. What case are you thinking of? The discussion, of course, is about a forward-looking situation. In hindsight often one becomes more interested in seeing if the opportunity cost was paid. A common way to calculate that is to forget about cost and only look at expenses. More specifically, income minus expenses. The result of that calculation gives the opportunity realized. This may be what you are thinking of, but the opportunity cost is still there, it's just that the way of looking at it has changed.
FireBeyond 8mo ago
In my state, or in my capital city, you say this, but the real estate developers are generally the top 1% in town. If they're running on razor-thin margins, I'm not seeing it - I am seeing them on my Facebook (being friends with the wife of the mayor) doing things like taking their kids on vacation to the French Riviera, Switzerland, Tokyo, the Maldives... well, alongside the City's Planning Committee commisioners and their families...
- estearum 8mo ago
  Well you see, we clearly need to armor the parts of the planes that have bullet holes in them upon return!
  - maest 8mo ago
    I get what you mean, but I doubt corruption is good for building good housing
    - hunterpayne 8mo ago
      Corruption isn't prevented by regulations; its enabled by regulations. That's the flaw in your thinking. If a market's only players are really rich, there are 2 possible reasons for that: 1) the market is really good and more players should be entering or 2) the market is highly regulated which prevents more players. Guess which happens a lot more than the other in RE development? PS Most of the people who build houses aren't very rich, just the CEO/big boss who owns the entire company is. The other 99.9% of people are middle class/blue collar.
      - FireBeyond 8mo ago
        > just the CEO/big boss who owns the entire company is. The other 99.9% of people are middle class/blue collar Yup. I did some IT integration work for a man who owned a local construction company and was very effectively vertically integrating it. In addition to their other work he'd buy land, personally, his company would build at cost prices, and his office staff first informally and then more formally became property managers.
spongebobstoes 8mo ago
it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities we can also make it cheaper to build. easing taxes on imported materials, bringing in more skilled labor, expediting permits, and even direct subsidies like tax breaks
- estearum 8mo ago
  > it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities Correct, which it basically doesn't in Austin, which is why construction is decelerating. > we can also make it cheaper to build Yep, this is the only structural solution. The "just add supply" runs into the problem of price equilibriums. The reality is the input costs of building housing basically guarantees that housing is hard-to-attain for any local market. We need to address the cost of inputs. Temporary reductions in price are temporary and the market will self-correct back to restrict supply (as we're seeing in Austin) until prices go back up to being hard-to-attain.
  - pfdietz 8mo ago
    The problem is it can't drive prices below what the free market would dictate? Talk about praising with faint damns.
    - estearum 8mo ago
      No, the problem is that the free market in advanced economies appears to dictate a price point for housing that is unattainable for broad swaths of society. Classic case of Baumol's disease, which is not solved by "well duh we just gotta build more." People will not "just build" enough to solve the problem because they won't "just build" beyond equilibrium (for long).
      - pfdietz 8mo ago
        No, the problem is the government has artificially restricted housing supply and this has driven up prices. It's not a market failure, it's a government failure.
cuuupid 8mo ago
It's not necessarily prices falling here but the profitability of [demand] at [price]. Like if prices fall 10% but demand rises 20%, you would want to build more housing. This is the beauty of the free market because it guarantees three things: [1] Real estate is generally a good investment and will hold value or appreciate in the long term, because supply will adjust to demand shocks to rescue values [2] If people want to live somewhere, houses will be built for them to live there [3] Real estate developers and construction are solid, safe businesses with great unit economics because building may decrease prices, but may still increase demand It's when you constrain and restrict a market that players have to adjust and then you get crazy scenarios
- estearum 8mo ago
  > Like if prices fall 10% but demand rises 20% Not as a developer you wouldn't... You already have razor thin margins. Prices going down 10% means you cannot get financing for your project. Holding real estate is generally a good investment. Developing real estate actually is not. > Real estate developers and construction are solid, safe businesses with great unit economics No they are not lol
  - bpt3 8mo ago
    Can you define razor thin? Grocery stores have very small margins, as little as 1%. Homebuilders make at least an order of magnitude more on a very expensive item.
    - estearum 8mo ago
      Grocery stores don't require millions to billions of dollars of capital to execute each new transaction. So it's not the margin itself but actually the spread between the margin and what investors could get by investing in alternatives. Real estate investment opportunities are often measured by their advantage (measured in fractions of a percentage, .2% advantage being considered solid) over 10 Year Treasuries or S&P 500 returns. Real estate developers do often actually lose money, but the more salient boundary condition is whether they can get financing for a project, where they have to clear a bar well above the "just make >$0" bar.
komali2 8mo ago
Maybe other real estate savvy people can help me understand this plus two other things I'm confused about in the housing crisis: 1. Houses are unaffordable for many Americans. To get houses to prices where they'd be affordable again would require a housing prices drop that would likely be, market-wide, significantly low enough to put a ton of people underwater on their mortgages. What is society/the government meant to do about that? Is it an insurmountable floor on how low we can get housing prices? That floor feels very close if so. 2. We've been promising the last five generations (or more) of Americans that a house is an Investment, capital I, an excellent place to keep your money. How do we overcome the political pressure to turn a house into a depreciating investment for the length of time required to get housing to be affordable again? What kind of politician would put their neck on the line to piss off every boomer and 75% of gen X and 30% of millennials, or whatever the house ownership distribution is?
- epistasis 8mo ago
  There's a big difference between land prices and the building prices. When costs rise 5% per year for a house that's untouched, that's almost entirely the land price going up. You can make housing cheaper by putting more houses on the same amount of land. In high cost areas, the price of land dominates the cost of housing. Political pressure to change the investment nature of housing can come from various directions, for example establishing a land value tax, which eliminates the financial incentive to speculate on rising land prices by keeping people out of your area, redistributes all those unearned land rents to the population equally, as is only fair, and also results in a lot of people selling land to be redeveloped taht are otherwise hoarding it when the rest of society would be using it a lot better. Of course, in societies with high levels of land ownership, the voting public usually tries to vote away such extremely fair taxes. Politically, we must stop prioritizing the views of homeowners at the local level. They already got their reward, massive unearned capital gains on their residence, there's no need to give them priority on land use over the general needs of society.
  - bpt3 8mo ago
    > Politically, we must stop prioritizing the views of homeowners at the local level. They already got their reward, massive unearned capital gains on their residence, there's no need to give them priority on land use over the general needs of society. They are the majority of people in most areas, so it does make sense that they would be given priority in some ways. The rest of your post is unsubstantiated vitriol, which isn't exactly convincing.
adrianN 8mo ago
There is the possibility that the government builds housing, since the government doesn't have to care about direct profits and can include the overall economic effects of affordable housing in its calculations. We don't expect much direct profits from roads either, but we keep building more and more of them.
- sgc 8mo ago
  That is a good idea that requires careful attention to make sure it has near-perfect execution. Because we do that, and they are called 'the projects'.
  - adrianN 8mo ago
    I'm under the impression that more supply=lower rents, even if execution is not perfect, but I'm not an economist.
    - sgc 8mo ago
      Sure if that's all you care about, it will do that. At the price of making people's lives miserable due to substandard housing if it's done wrong. I said it's a good idea, let's just make sure we do it right.
      - autoexec 8mo ago
        > At the price of making people's lives miserable due to substandard housing if it's done wrong. I'm curious to see how Austin will do in the near future by that same metric. More people can afford a place that will let them pay rent, although now at least some of those people will be living in someone else's basement or garage. These may not be very nice places to live, but they may be all some people can afford. They've also removed the regulation requiring a second way out of a burning 5 story building. Austin faces an increasing number of red flag warnings and has the 5th highest wildfire risk in the US. It remains to be seen what removing that second exit route will cost in the charred corpses of families. Austin is also cutting corners on permitting which is great news if that was all needless red tape that can be rushed or skipped without cost, but if new apartments built today are (or soon become) deathtraps due to lax code enforcement that could be a major problem down the road. Austin has already lowered rents which is great, but hopefully it was also done right and it doesn't result in more people being forced into substandard housing or increased deaths. As long as it doesn't, other cities should look into trying some of the same things Austin has done.
deleted 8mo ago
[deleted]
SocialGradients 8mo ago
This is an empirical claim. It looks like new monthly permits are down from ~4k a month in 2021-2022 to ~3k a month. They're still up significantly from before 2020. The building boom has slowed but it's still elevated. Not particularly close to zeroing out. The data is here: https://fred.stlouisfed.org/series/AUST448BPPRIVSA https://fred.stlouisfed.org/series/AUST448BPPRIVSA.
- SocialGradients 8mo ago
  Not to mention, Austin could just make it cheaper to build to offset lower sell prices. Gruber et al estimate permits are 50% of an LA home's price. Fix permitting and rent goes down 50% by your assumptions that developers build until margins are 0. Assume austin is only half as bad as LA, a 25% rent decrease would be incredible Gruber's paper: https://evansoltas.com/papers/Permitting_SoltasGruber2026.pdf https://evansoltas.com/papers/Permitting_SoltasGruber2026.pd...
  - estearum 8mo ago
    > Gruber et al estimate permits are 50% of an LA home's price That is not what Gruber shows. The 50% figure is that there's a permit adds a 50% premium on the value of raw land. In other words, the permit cost is "only" 33% of the cost of the permitted raw land. That's significant and a big problem, but very very far from "50% of on LA home's price." But yeah structurally the solution is indeed to reduce the cost of production. Which if your 50% figure was correct, would be huge. But it's not correct.
pinkmuffinere 8mo ago
I'm confused by this objection, if you draw a stereotypical supply and demand curve, you can see how prices settle to an equilibrium point. Of course reality has more complications, but I think your objection is 95% answered by a supply and demand curve. You keep building houses when it is profitable. You stop when it is not. This naturally keeps everything in balance.
- idiotsecant 8mo ago
  What do you do when that equilibrium point is hopelessly above what the average person can afford?
  - wiradikusuma 8mo ago
    Won't the market fill the gap? For example, in Indonesia, "standard size" houses are mostly out of reach for new buyers (young generations), so they build houses farther away and/or smaller.
  - pinkmuffinere 8mo ago
    there are many things you can do, but essentially you want to make it profitable for builders to make houses at a lower price point, or give the average person more money. Some approaches (not all of which I'm endorsing): - reduce restrictions around planning / construction / etc (because it takes time and expertise to comply, both of which cost money) - find a way to bring in cheaper labor, or make it possible for construction companies to hire the same labor at a lower price. Maybe a subsidy, maybe reduced taxes, maybe relaxed labor laws - add a subsidy for homes - make your citizens more wealthy, so the price is no longer above their means - outsource construction to a place that can build it more cheaply (eg, prefab homes)
    - locknitpicker 8mo ago
      > - find a way to bring in cheaper labor, or make it possible for construction companies to hire the same labor at a lower price. Maybe a subsidy, maybe reduced taxes, maybe relaxed labor laws It's far easier than that: just have your regional/local government finance urban renewal projects that increase occupation density. You can even tie the project to the expansion of a public transportation system.
lmm 8mo ago
> already-near-zero margin on real estate development Why is the margin so low when the prices are so high? Is it because the value of housing is already priced into the value of land? > The problem is: why would you build more housing as prices fall? Why would you want to? When you stop being able to sell more houses, that's the sign that you've built enough.
- estearum 8mo ago
  Yes, the prices of inputs are very high and rising. Mainly land and labor, but materials aren't cheap either. Housing is also one of the few thing we need at massive scale but which has diseconomies of scale. The more you develop an area, the more expensive it gets to develop it further.
rconti 8mo ago
As long as the cost to build housing is less than the revenue from selling it, why wouldn't you? It's not like homebuilders in Austin flee for North Carolina when the margins shift slightly.
eru 8mo ago
Huh? In Silicon Valley the objection is usually: even if we build more housing, prices won't fall. So which way is it now?
- estearum 8mo ago
  I don't know what those people say, why are you asking me?
throwaway27448 8mo ago
Why let private developers build at all? The market provides perverse incentive to not house everyone.
- RuslanL 8mo ago
  To create artificial scarcity on a free market, it should be either a direct monopoly, or a giant cartel that includes every single developer and has mechanisms of punishing the outliers.
- CalRobert 8mo ago
  How so?
- whattheheckheck 8mo ago
  Because central planners do not have the information processing feedback loops necessary to distribute all of the complex network of component commodities. Truly there is some scarcity of resources in any given place that takes energy to extract, transform, and transport to the desired location. Because everything cannot be everywhere, there will be unmet needs in a society. The "free" market economy allows for a natural price discovery of everything which is more likely to not have shortages or overages in any given spot. Granted this is pure basic economics. It does not imply when for a toy example, there are 10 people thirsty and a baby and there is a scarcity of milk, 1 cup, the milk should go to the highest bidder. obviously it should go to the baby. Same thing with housing. There is a scarcity of all of the components that go into housing and administering the amenities that houses need in a city. Central planners do not have a good track record but with careful tracking and modulating feedback loops we might be able to meet more people's needs that an otherwise regulatory captured monopoly of vertically integrated home builders so that everyone has a better chance at a home. But again not everyone can live everywhere logistically so how do you fairly distribute it? Obviously hunger gaming it in a cut throat capitalist world isn't working out too well but we do have the largest number of people ever on the planet so its a pretty decent system so far
locknitpicker 8mo ago
> The problem is: why would you build more housing as prices fall? Profitability is not black-and-white. Real estate investments can still be profitable if prices fall. There are different types of real estate markets too. Working class homes in suburbs are not the same market as upper middle class apartments in an urban center. A very interesting type of investment is high-density housing in catchment areas of new public transportation hubs. Those tend to be so profitable that they can even finance the investment in the public transportation service. All you need is willingness to invest.
throwaway2037 8mo ago
> already-near-zero margin on real estate development I did a little bit of research. I looks like 15-20% is a normal target margin for the United States. Is this really "already-near-zero"? I disagree.
- estearum 8mo ago
  https://www.nahb.org/news-and-economics/press-releases/2025/04/nahbs-new-study-provides-statistics-and-data-on-builder-financial-performance https://www.nahb.org/news-and-economics/press-releases/2025/... 8.7% net profit during a period of explosive appreciation across the nation. Normal net profit is about 7%. S&P 500 has been returning more than twice that annually over the past 10 years. That is how real estate financing decisions get made.
modriano 8mo ago
The prices may be falling, but if you can still make more profit (per unit time) building in Austin than elsewhere (due to less red tape or more local builders or whatever), building will occur.
- estearum 8mo ago
  No, it's absolutely possible that building as a whole is not a good use of capital. There is not some fixed quantity of people-who-must-build and dollars-that-must-be-spent-building. If the incentive disappears, the people and dollars disappear. And they have to clear a much higher bar than merely being profitable. Because it's a capex heavy industry, development must compete against other ways to invest capital (like S&P 500 or the US 10-Year).
energy123 8mo ago
That gets automatically decided by the market. That's the beauty of markets. They automatically solve the local knowledge problem. It takes a government to create a lack of housing.
- taintlord 8mo ago
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sophrosyne42 8mo ago
Supply increases until the market reaches saturation. The question is why build more housing if the current supply is sufficient?
- estearum 8mo ago
  Saturation == until it's not longer a comparatively strong use of capital, not "until a significant portion of people are comfortably housed."
21asdffdsa12 8mo ago
Why would you produce more bread, milk, eggs as prices fall? You would of course wait for the next-pig cycle - when the starving masses pay any price to you. The answer- essentials can never be a non-government interferring market. This can be by creating artifical oversupply by buying up oversupply for foreign aid or bio fuels(food production). In the case of housing, this is by having the goverment continually construct housing.
- estearum 8mo ago
  Sure, which is a different intervention than what's being discussed here.
- philipallstar 8mo ago
  One of the main housing issues is government interference. People want to do things to get money from other people, including building houses for them to buy.
  - somenameforme 8mo ago
    You're probably being downvoted because you're just assuming everybody knows what you mean. For somebody who doesn't it's going to be a nonsensical statement. The issue is that the government mandated banks enable easier access to loans for housing, as a means of resolving prior housing issues. But what happens when you suddenly start giving a bunch of people the ability to go arbitrarily far into debt to buy something that they perceive as priceless (because housing, and most any other 'thing' tends to endlessly appreciate in value in an inflationary economic system)? Obviously prices skyrocket. The exact same thing happened with education for the exact same reason.
- dan-robertson 8mo ago
  The government intervention in the markets for agricultural products is because farmers are often an important political base, not to keep prices low for consumers. Without the intervention, prices would fall and supply would have to fall too, which would be good for consumers and bad for producers.
crystaln 8mo ago
This is how markets balance. When there is under supply prices go up and incentivize production. When there is oversupply production goes down. Prices converge on a small premium to the price of production.
- estearum 8mo ago
  Correct, and the argument being made here is that the convergence point on "small premium to price of production" actually sits at "unattainable for an increasing proportion of Americans." Similar to how the convergence point on price for a platinum-bodied iPhone converges at "unattainable for enough people to support its production" and it therefore doesn't exist. The difference being, obviously, that society can hum along just fine without platinum-bodied iPhones and it cannot hum along without housing.
wnc3141 8mo ago
Of its still profitable to do so, considering opportunity costs for the capital, firms will continue to build. However, it's so expensive to build that these project wind up not becoming bankable very quickly. I think that's the underlying issue that needs to be addressed.
- estearum 8mo ago
  Correct -- this is what I'm pointing to. The problem is the cost of inputs. Classic Baumol's disease. We cannot escape Baumol's disease by just saying "hurrr durr just gotta get people to finance projects into a market with falling prices!"
PowerElectronix 8mo ago
That sounds like they could use some deregulation to keep margins healthy.
inglor_cz 8mo ago
The point is that housing would be cheaper, not that it would become dirt cheap. There are some inherent costs to new housing. Work of professionals involved, cost of materials, compliance with all technical regulations, some profit for the developer, connection to infrastructure. Let us mark this unavoidable cost by C. It is a component of the current prices. Then there is the component N, which is deadweight cost caused by zoning and non-technical regulations. I am not saying that it should be 0, but it is in our interest that it is kept in check, maybe 20 per cent of C. As of now, in some places, it well may be 120 per cent of C, even though it is really hard to calculate. This component of the final price directly enriches no one, it is pure friction caused by special interests of various parties that don't want to see any new housing either near them, or anywhere (landlord cartels that hate competition - indirect enrichment). Even C is now a formidable figure. Modern homes are basically industrial robots, they are much more complicated from the inside than they were 100 years ago. But there isn't really a reason why they should be horribly expensive. If as a regular office person you can buy a home for, say, 5x your annual income, it is not unaffordable. That is well, just normal. Not completely everyone is expected to own their home. The problem is that nowadays, the multiplier in many places isn't 5x, but 10x or 12x. That is just way too much. And given that C cannot be easily massively reduced (unless some sort of massive robotization of construction work happens), you really need to attack N.
samrus 8mo ago
Thats how supply demand works right? Its a stable equilibrium. When supply is low, prices rises to entice supply, supply increases to match demand, prices fall, the rate of increase of supply falls as well until supply approaches to meet demand. It prevents oversupply. If supply slips below demand again prices will rise to pull it back up Theres no problem here. Thats how the system should work
- estearum 8mo ago
  To some degree yes. However, the problem I'm pointing to is that the equilibrium in several developed economies (esp US) seems to be at a level that makes housing unattainable for a huge number of people. I.e. Probably due to Baumol's disease, there is no price at which it is both 1) profitable to invest in constructing new housing and 2) makes housing broadly attainable to people. This is a problem. There are a lot of goods (like a platinum-bodied iPhone) that cannot achieve both (1) and (2). However, unlike all of these other goods, housing is a necessity with an extremely high floor on demand.
taintlord 8mo ago
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pbhjpbhj 8mo ago
To house people. Shelter is a basic need.
Saline9515 8mo ago
Building codes also push prices higher. In the EU, the recent regulations force developers to build luxury buildings as a baseline, at a high cost. Not all buildings require elevators, intelligent thermostats, triple-panel windows or electric car plugs. Especially when you are experiencing a housing crisis.
torginus 8mo ago
How can real estate have zero margin when housing rises exponentially in price? No other good behaves like this. A midsize sedan didn't increase in price (in real term) over time, while new cars improved. New houses don't really improve that much over time, yet are getting more more and more expensive. Why is that?
- estearum 8mo ago
  > How can real estate have zero margin when housing rises exponentially in price? Well let's think about it... It would suggest that costs are going up, correct? What are the main costs? Land: Goes up alongside housing prices. Labor: Also goes up alongside housing prices. Unlike cars, there are very few economies of scale in real estate development. In fact, due to the dynamic above, there are actually diseconomies of scale in housing development. The more you develop an area, the more expensive it gets to continue development. We normally don't scale goods that have diseconomies of scale because, like we see in housing, they become unaffordable and cease to exist. Unfortunately, housing is a necessity, and so we must build it against increasingly disfavorable economics. Same is true of healthcare and education. Other goods/services that have diseconomies of scale simply don't scale. That is not an option for housing, education, and healthcare.
- whattheheckheck 8mo ago
  The stock market has greater returns than housing by a lot
thinkingtoilet 8mo ago
>The problem is: why would you build more housing as prices fall? So human beings with thoughts and feelings can live indoors. It's not hard.
balderdash 8mo ago
lower prices != unprofitable, it might, it may also mean lower, similar, higher margins / ROI
foobiekr 8mo ago
Why would you build more cars as prices fall? What do you think homebuilders do? Just close up shop when the market dips? The answer is there are companies in the business of building homes. If there is profit to be made, they will keep building. Most of the issues we have today are caused by extreme and dysfunctional regulatory regimes that destroy the return on investment by extending the process out. More time sitting on the property before building = lower investment return, and other investments end up making more sense.
- estearum 8mo ago
  > What do you think homebuilders do? Just close up shop when the market dips? Uhh yes. Downward price pressure is a business-destroying event in real estate development. The amount of risk developers take on with each project is pretty incredible actually. > Why would you build more cars as prices fall? For one, there are advantages to scale. That is hardly true (and in many cases the opposite is true -- diseconomies of scale) in real estate development. > The answer is there are companies in the business of building homes. If there is profit to be made, No. The question is whether there is more profit to be made from building homes than from investing e.g. in the S&P500 or US 10yr Treasuries. Otherwise investors don't finance new home construction. We are already in an environment where real estate financing is simply not a great option compared to other ways to invest money, and so construction will slow as prices go down (which is, as stated, already happening in ATX).
  - foobiekr 8mo ago
    That is exactly what the rest of my message said, had you read it.

creato 8mo ago

It doesn't matter whether prices are going up or down, it matters if the price is more than the cost to build.

estearum 8mo ago
No, not really. It matters whether the margin is higher than other investment opportunities of similar scale and risk profile. Already, the answer is very often no. In Austin, the answer will increasingly be no. That means people will not finance new construction, so if demand continues to grow it will outstrip supply and prices will go back up until the margin on new construction exceeds that of alternative investment opportunities of similar scale and risk profile.
- lotsofpulp 8mo ago
  Your explanation of fluctuations in supply and demand are not very revelatory. Everything being in flux at all times is kind of an elementary fact of life.
  - estearum 8mo ago
    It's clearly not elementary if people here believe that you can just keep building until prices collapse, and people will still keep building. The question is whether the market achieves equilibrium at a point where 1) developers can get financing to build profitably, and 2) units can be sold at a broadly attainable price to the local market. The answer appears to be no because the cost of inputs is so high. No one here is talking about directly reducing the cost of inputs. They believe that instead developers will just continue to build units that they sell at a loss, or at least investors will continue to invest in construction that returns less than the S&P 500 or 10 Year Treasuries (they won't).
- epistasis 8mo ago
  Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price." If we're going to be pedantic, you're ignoring the huge amounts of uncertainty on costs that are inherent to any project, the amount of risk versus the expected profit. And indeed that amount of uncertainty: will I be allowed to build eventually? How long will I have to pay interests on assets before I'm allowed to build? Can I actually build what's specified in code or will discretionary processes arbitrarily change what I'm allowed to do, 18 months into the project?
  - estearum 8mo ago
    > Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price. It demonstrably is not what people understand it to mean to "the cost to build is lower than the price." The cost to build can be well below the sale price and development still be a totally uninvestable activity.
- pclowes 8mo ago
  I would expect the development of Austin to continue until market equilibrium and then pause. Decreasing margin does not mean equilibrium. Obviously austin is not at equilibrium because we still have price data on developer activity and that would be near zero if developers couldn’t make returns given risk etc. I guess I don’t see where we disagree?
  - estearum 8mo ago
    I mean... that is pretty much what we're seeing: Austin new housing starts (approx per month): 2019: 1416 2020: 1504 2021: 1495 2022: 2083 2023: 1415 2024: 916 2025: 900 2026: 481 The problem here is that the market obviously does not have perfect information, limited mechanisms to coordinate, and significant lead time. It seems pretty much baked in at this point that many of the projects currently underway will complete into a negative market and (assuming Austin remains somewhat desirable) a whole lot of developers will be wiped out. This will stop development until prices rise again, probably back to a level where housing is quite expensive again relative to local wages.

terminalshort 8mo ago

Because home builders don't make money by buying and selling houses, they make money by building them and selling them.

mrcode007 8mo ago
This 1000x. Folks don’t get that the primary market != secondary market. Same as pre-IPO stock holder != IPO time buyer.
estearum 8mo ago
And... how is this relevant? I'm not sure what you're trying to imply here. You should spell it out explicitly.
- epistasis 8mo ago
  The difference is between buying and asset and producing an asset. Even if RAM costs are falling, it can still be profitable to produce more RAM, as long as the costs are far enough below the eventual sales price. It's entirely different if you're buying the housing already built; there's no productive activity, you're just a rentier and do not benefit at all from falling housing prices. The differences in interests between an asset holder and a productive builder are night and day.
  - estearum 8mo ago
    > it can still be profitable to produce more RAM, as long as the costs are far enough below the eventual sales price. Right... my point is that the costs are not far below the eventual sales price. That's why construction is slowing down. And as mentioned several other times, it's actually not as simple as cost > sale price. It's margin > margin of alternative investments of similar scale and risk profile.
    - epistasis 8mo ago
      It was not clear that it was your point at all! Yes of course, gotta get your return on capital invested or the money goes elsewhere, probably into a REIT that invests in the existing assets and drives up prices even further. Because the demand for housing goes somewhere: either existing owners profit or the people building and alleviating the shortage profit. Every single municipality in the US I'm familiar with has done everything they can to make it expensive to build and try to remove any profit margin from building. Which leads to capital moving towards piggybacking on the rentierism of the average homeowner, the people who control the policies that make it unaffordable to build.

pembrook 8mo ago

Construction costs don't scale linearly with rent prices, it's a different market altogether that depends on regulation/worker supply/material costs/equipment/etc. As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build.

estearum 8mo ago
> As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build. Not true Real estate development is extremely capital intensive and therefore it's a question of all-in cost of capital compared to other investment opportunities.
- 9rx 8mo ago
  The opportunity cost has already factored that in. Unless you think cost calculations are arbitrarily forgetting to include certain costs for no reason?
  - estearum 8mo ago
    Well for sure in the actual financial models yes, but it's demonstrably true that most HN commenters here do not know this is how to think about the question of returns. And FWIW "opportunity cost" doesn't really show up as "a cost" in the traditional sense.
    - 9rx 8mo ago
      > And FWIW "opportunity cost" doesn't really show up as "a cost" in the traditional sense. I cannot think of any forward-looking situation where opportunity cost doesn't show up. What case are you thinking of? The discussion, of course, is about a forward-looking situation. In hindsight often one becomes more interested in seeing if the opportunity cost was paid. A common way to calculate that is to forget about cost and only look at expenses. More specifically, income minus expenses. The result of that calculation gives the opportunity realized. This may be what you are thinking of, but the opportunity cost is still there, it's just that the way of looking at it has changed.

FireBeyond 8mo ago

In my state, or in my capital city, you say this, but the real estate developers are generally the top 1% in town. If they're running on razor-thin margins, I'm not seeing it - I am seeing them on my Facebook (being friends with the wife of the mayor) doing things like taking their kids on vacation to the French Riviera, Switzerland, Tokyo, the Maldives... well, alongside the City's Planning Committee commisioners and their families...

estearum 8mo ago
Well you see, we clearly need to armor the parts of the planes that have bullet holes in them upon return!
- maest 8mo ago
  I get what you mean, but I doubt corruption is good for building good housing
  - hunterpayne 8mo ago
    Corruption isn't prevented by regulations; its enabled by regulations. That's the flaw in your thinking. If a market's only players are really rich, there are 2 possible reasons for that: 1) the market is really good and more players should be entering or 2) the market is highly regulated which prevents more players. Guess which happens a lot more than the other in RE development? PS Most of the people who build houses aren't very rich, just the CEO/big boss who owns the entire company is. The other 99.9% of people are middle class/blue collar.
    - FireBeyond 8mo ago
      > just the CEO/big boss who owns the entire company is. The other 99.9% of people are middle class/blue collar Yup. I did some IT integration work for a man who owned a local construction company and was very effectively vertically integrating it. In addition to their other work he'd buy land, personally, his company would build at cost prices, and his office staff first informally and then more formally became property managers.

spongebobstoes 8mo ago

it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities we can also make it cheaper to build. easing taxes on imported materials, bringing in more skilled labor, expediting permits, and even direct subsidies like tax breaks

estearum 8mo ago
> it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities Correct, which it basically doesn't in Austin, which is why construction is decelerating. > we can also make it cheaper to build Yep, this is the only structural solution. The "just add supply" runs into the problem of price equilibriums. The reality is the input costs of building housing basically guarantees that housing is hard-to-attain for any local market. We need to address the cost of inputs. Temporary reductions in price are temporary and the market will self-correct back to restrict supply (as we're seeing in Austin) until prices go back up to being hard-to-attain.
- pfdietz 8mo ago
  The problem is it can't drive prices below what the free market would dictate? Talk about praising with faint damns.
  - estearum 8mo ago
    No, the problem is that the free market in advanced economies appears to dictate a price point for housing that is unattainable for broad swaths of society. Classic case of Baumol's disease, which is not solved by "well duh we just gotta build more." People will not "just build" enough to solve the problem because they won't "just build" beyond equilibrium (for long).
    - pfdietz 8mo ago
      No, the problem is the government has artificially restricted housing supply and this has driven up prices. It's not a market failure, it's a government failure.

cuuupid 8mo ago

It's not necessarily prices falling here but the profitability of [demand] at [price]. Like if prices fall 10% but demand rises 20%, you would want to build more housing. This is the beauty of the free market because it guarantees three things: [1] Real estate is generally a good investment and will hold value or appreciate in the long term, because supply will adjust to demand shocks to rescue values [2] If people want to live somewhere, houses will be built for them to live there [3] Real estate developers and construction are solid, safe businesses with great unit economics because building may decrease prices, but may still increase demand It's when you constrain and restrict a market that players have to adjust and then you get crazy scenarios

estearum 8mo ago
> Like if prices fall 10% but demand rises 20% Not as a developer you wouldn't... You already have razor thin margins. Prices going down 10% means you cannot get financing for your project. Holding real estate is generally a good investment. Developing real estate actually is not. > Real estate developers and construction are solid, safe businesses with great unit economics No they are not lol
- bpt3 8mo ago
  Can you define razor thin? Grocery stores have very small margins, as little as 1%. Homebuilders make at least an order of magnitude more on a very expensive item.
  - estearum 8mo ago
    Grocery stores don't require millions to billions of dollars of capital to execute each new transaction. So it's not the margin itself but actually the spread between the margin and what investors could get by investing in alternatives. Real estate investment opportunities are often measured by their advantage (measured in fractions of a percentage, .2% advantage being considered solid) over 10 Year Treasuries or S&P 500 returns. Real estate developers do often actually lose money, but the more salient boundary condition is whether they can get financing for a project, where they have to clear a bar well above the "just make >$0" bar.

komali2 8mo ago

Maybe other real estate savvy people can help me understand this plus two other things I'm confused about in the housing crisis: 1. Houses are unaffordable for many Americans. To get houses to prices where they'd be affordable again would require a housing prices drop that would likely be, market-wide, significantly low enough to put a ton of people underwater on their mortgages. What is society/the government meant to do about that? Is it an insurmountable floor on how low we can get housing prices? That floor feels very close if so. 2. We've been promising the last five generations (or more) of Americans that a house is an Investment, capital I, an excellent place to keep your money. How do we overcome the political pressure to turn a house into a depreciating investment for the length of time required to get housing to be affordable again? What kind of politician would put their neck on the line to piss off every boomer and 75% of gen X and 30% of millennials, or whatever the house ownership distribution is?

epistasis 8mo ago
There's a big difference between land prices and the building prices. When costs rise 5% per year for a house that's untouched, that's almost entirely the land price going up. You can make housing cheaper by putting more houses on the same amount of land. In high cost areas, the price of land dominates the cost of housing. Political pressure to change the investment nature of housing can come from various directions, for example establishing a land value tax, which eliminates the financial incentive to speculate on rising land prices by keeping people out of your area, redistributes all those unearned land rents to the population equally, as is only fair, and also results in a lot of people selling land to be redeveloped taht are otherwise hoarding it when the rest of society would be using it a lot better. Of course, in societies with high levels of land ownership, the voting public usually tries to vote away such extremely fair taxes. Politically, we must stop prioritizing the views of homeowners at the local level. They already got their reward, massive unearned capital gains on their residence, there's no need to give them priority on land use over the general needs of society.
- bpt3 8mo ago
  > Politically, we must stop prioritizing the views of homeowners at the local level. They already got their reward, massive unearned capital gains on their residence, there's no need to give them priority on land use over the general needs of society. They are the majority of people in most areas, so it does make sense that they would be given priority in some ways. The rest of your post is unsubstantiated vitriol, which isn't exactly convincing.

adrianN 8mo ago

There is the possibility that the government builds housing, since the government doesn't have to care about direct profits and can include the overall economic effects of affordable housing in its calculations. We don't expect much direct profits from roads either, but we keep building more and more of them.

sgc 8mo ago
That is a good idea that requires careful attention to make sure it has near-perfect execution. Because we do that, and they are called 'the projects'.
- adrianN 8mo ago
  I'm under the impression that more supply=lower rents, even if execution is not perfect, but I'm not an economist.
  - sgc 8mo ago
    Sure if that's all you care about, it will do that. At the price of making people's lives miserable due to substandard housing if it's done wrong. I said it's a good idea, let's just make sure we do it right.
    - autoexec 8mo ago
      > At the price of making people's lives miserable due to substandard housing if it's done wrong. I'm curious to see how Austin will do in the near future by that same metric. More people can afford a place that will let them pay rent, although now at least some of those people will be living in someone else's basement or garage. These may not be very nice places to live, but they may be all some people can afford. They've also removed the regulation requiring a second way out of a burning 5 story building. Austin faces an increasing number of red flag warnings and has the 5th highest wildfire risk in the US. It remains to be seen what removing that second exit route will cost in the charred corpses of families. Austin is also cutting corners on permitting which is great news if that was all needless red tape that can be rushed or skipped without cost, but if new apartments built today are (or soon become) deathtraps due to lax code enforcement that could be a major problem down the road. Austin has already lowered rents which is great, but hopefully it was also done right and it doesn't result in more people being forced into substandard housing or increased deaths. As long as it doesn't, other cities should look into trying some of the same things Austin has done.

deleted 8mo ago

[deleted]

SocialGradients 8mo ago

This is an empirical claim. It looks like new monthly permits are down from ~4k a month in 2021-2022 to ~3k a month. They're still up significantly from before 2020. The building boom has slowed but it's still elevated. Not particularly close to zeroing out. The data is here: https://fred.stlouisfed.org/series/AUST448BPPRIVSA https://fred.stlouisfed.org/series/AUST448BPPRIVSA.

SocialGradients 8mo ago
Not to mention, Austin could just make it cheaper to build to offset lower sell prices. Gruber et al estimate permits are 50% of an LA home's price. Fix permitting and rent goes down 50% by your assumptions that developers build until margins are 0. Assume austin is only half as bad as LA, a 25% rent decrease would be incredible Gruber's paper: https://evansoltas.com/papers/Permitting_SoltasGruber2026.pdf https://evansoltas.com/papers/Permitting_SoltasGruber2026.pd...
- estearum 8mo ago
  > Gruber et al estimate permits are 50% of an LA home's price That is not what Gruber shows. The 50% figure is that there's a permit adds a 50% premium on the value of raw land. In other words, the permit cost is "only" 33% of the cost of the permitted raw land. That's significant and a big problem, but very very far from "50% of on LA home's price." But yeah structurally the solution is indeed to reduce the cost of production. Which if your 50% figure was correct, would be huge. But it's not correct.

pinkmuffinere 8mo ago

I'm confused by this objection, if you draw a stereotypical supply and demand curve, you can see how prices settle to an equilibrium point. Of course reality has more complications, but I think your objection is 95% answered by a supply and demand curve. You keep building houses when it is profitable. You stop when it is not. This naturally keeps everything in balance.

idiotsecant 8mo ago
What do you do when that equilibrium point is hopelessly above what the average person can afford?
- wiradikusuma 8mo ago
  Won't the market fill the gap? For example, in Indonesia, "standard size" houses are mostly out of reach for new buyers (young generations), so they build houses farther away and/or smaller.
- pinkmuffinere 8mo ago
  there are many things you can do, but essentially you want to make it profitable for builders to make houses at a lower price point, or give the average person more money. Some approaches (not all of which I'm endorsing): - reduce restrictions around planning / construction / etc (because it takes time and expertise to comply, both of which cost money) - find a way to bring in cheaper labor, or make it possible for construction companies to hire the same labor at a lower price. Maybe a subsidy, maybe reduced taxes, maybe relaxed labor laws - add a subsidy for homes - make your citizens more wealthy, so the price is no longer above their means - outsource construction to a place that can build it more cheaply (eg, prefab homes)
  - locknitpicker 8mo ago
    > - find a way to bring in cheaper labor, or make it possible for construction companies to hire the same labor at a lower price. Maybe a subsidy, maybe reduced taxes, maybe relaxed labor laws It's far easier than that: just have your regional/local government finance urban renewal projects that increase occupation density. You can even tie the project to the expansion of a public transportation system.

lmm 8mo ago

> already-near-zero margin on real estate development Why is the margin so low when the prices are so high? Is it because the value of housing is already priced into the value of land? > The problem is: why would you build more housing as prices fall? Why would you want to? When you stop being able to sell more houses, that's the sign that you've built enough.

estearum 8mo ago
Yes, the prices of inputs are very high and rising. Mainly land and labor, but materials aren't cheap either. Housing is also one of the few thing we need at massive scale but which has diseconomies of scale. The more you develop an area, the more expensive it gets to develop it further.

rconti 8mo ago

As long as the cost to build housing is less than the revenue from selling it, why wouldn't you? It's not like homebuilders in Austin flee for North Carolina when the margins shift slightly.

eru 8mo ago

Huh? In Silicon Valley the objection is usually: even if we build more housing, prices won't fall. So which way is it now?

estearum 8mo ago
I don't know what those people say, why are you asking me?

throwaway27448 8mo ago

Why let private developers build at all? The market provides perverse incentive to not house everyone.

RuslanL 8mo ago
To create artificial scarcity on a free market, it should be either a direct monopoly, or a giant cartel that includes every single developer and has mechanisms of punishing the outliers.
CalRobert 8mo ago
How so?
whattheheckheck 8mo ago
Because central planners do not have the information processing feedback loops necessary to distribute all of the complex network of component commodities. Truly there is some scarcity of resources in any given place that takes energy to extract, transform, and transport to the desired location. Because everything cannot be everywhere, there will be unmet needs in a society. The "free" market economy allows for a natural price discovery of everything which is more likely to not have shortages or overages in any given spot. Granted this is pure basic economics. It does not imply when for a toy example, there are 10 people thirsty and a baby and there is a scarcity of milk, 1 cup, the milk should go to the highest bidder. obviously it should go to the baby. Same thing with housing. There is a scarcity of all of the components that go into housing and administering the amenities that houses need in a city. Central planners do not have a good track record but with careful tracking and modulating feedback loops we might be able to meet more people's needs that an otherwise regulatory captured monopoly of vertically integrated home builders so that everyone has a better chance at a home. But again not everyone can live everywhere logistically so how do you fairly distribute it? Obviously hunger gaming it in a cut throat capitalist world isn't working out too well but we do have the largest number of people ever on the planet so its a pretty decent system so far

locknitpicker 8mo ago

> The problem is: why would you build more housing as prices fall? Profitability is not black-and-white. Real estate investments can still be profitable if prices fall. There are different types of real estate markets too. Working class homes in suburbs are not the same market as upper middle class apartments in an urban center. A very interesting type of investment is high-density housing in catchment areas of new public transportation hubs. Those tend to be so profitable that they can even finance the investment in the public transportation service. All you need is willingness to invest.

throwaway2037 8mo ago

> already-near-zero margin on real estate development I did a little bit of research. I looks like 15-20% is a normal target margin for the United States. Is this really "already-near-zero"? I disagree.

estearum 8mo ago
https://www.nahb.org/news-and-economics/press-releases/2025/04/nahbs-new-study-provides-statistics-and-data-on-builder-financial-performance https://www.nahb.org/news-and-economics/press-releases/2025/... 8.7% net profit during a period of explosive appreciation across the nation. Normal net profit is about 7%. S&P 500 has been returning more than twice that annually over the past 10 years. That is how real estate financing decisions get made.

modriano 8mo ago

The prices may be falling, but if you can still make more profit (per unit time) building in Austin than elsewhere (due to less red tape or more local builders or whatever), building will occur.

estearum 8mo ago
No, it's absolutely possible that building as a whole is not a good use of capital. There is not some fixed quantity of people-who-must-build and dollars-that-must-be-spent-building. If the incentive disappears, the people and dollars disappear. And they have to clear a much higher bar than merely being profitable. Because it's a capex heavy industry, development must compete against other ways to invest capital (like S&P 500 or the US 10-Year).

energy123 8mo ago

That gets automatically decided by the market. That's the beauty of markets. They automatically solve the local knowledge problem. It takes a government to create a lack of housing.

taintlord 8mo ago
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sophrosyne42 8mo ago

Supply increases until the market reaches saturation. The question is why build more housing if the current supply is sufficient?

estearum 8mo ago
Saturation == until it's not longer a comparatively strong use of capital, not "until a significant portion of people are comfortably housed."

21asdffdsa12 8mo ago

Why would you produce more bread, milk, eggs as prices fall? You would of course wait for the next-pig cycle - when the starving masses pay any price to you. The answer- essentials can never be a non-government interferring market. This can be by creating artifical oversupply by buying up oversupply for foreign aid or bio fuels(food production). In the case of housing, this is by having the goverment continually construct housing.

estearum 8mo ago
Sure, which is a different intervention than what's being discussed here.
philipallstar 8mo ago
One of the main housing issues is government interference. People want to do things to get money from other people, including building houses for them to buy.
- somenameforme 8mo ago
  You're probably being downvoted because you're just assuming everybody knows what you mean. For somebody who doesn't it's going to be a nonsensical statement. The issue is that the government mandated banks enable easier access to loans for housing, as a means of resolving prior housing issues. But what happens when you suddenly start giving a bunch of people the ability to go arbitrarily far into debt to buy something that they perceive as priceless (because housing, and most any other 'thing' tends to endlessly appreciate in value in an inflationary economic system)? Obviously prices skyrocket. The exact same thing happened with education for the exact same reason.
dan-robertson 8mo ago
The government intervention in the markets for agricultural products is because farmers are often an important political base, not to keep prices low for consumers. Without the intervention, prices would fall and supply would have to fall too, which would be good for consumers and bad for producers.

crystaln 8mo ago

This is how markets balance. When there is under supply prices go up and incentivize production. When there is oversupply production goes down. Prices converge on a small premium to the price of production.

estearum 8mo ago
Correct, and the argument being made here is that the convergence point on "small premium to price of production" actually sits at "unattainable for an increasing proportion of Americans." Similar to how the convergence point on price for a platinum-bodied iPhone converges at "unattainable for enough people to support its production" and it therefore doesn't exist. The difference being, obviously, that society can hum along just fine without platinum-bodied iPhones and it cannot hum along without housing.

wnc3141 8mo ago

Of its still profitable to do so, considering opportunity costs for the capital, firms will continue to build. However, it's so expensive to build that these project wind up not becoming bankable very quickly. I think that's the underlying issue that needs to be addressed.

estearum 8mo ago
Correct -- this is what I'm pointing to. The problem is the cost of inputs. Classic Baumol's disease. We cannot escape Baumol's disease by just saying "hurrr durr just gotta get people to finance projects into a market with falling prices!"

PowerElectronix 8mo ago

That sounds like they could use some deregulation to keep margins healthy.

inglor_cz 8mo ago

The point is that housing would be cheaper, not that it would become dirt cheap. There are some inherent costs to new housing. Work of professionals involved, cost of materials, compliance with all technical regulations, some profit for the developer, connection to infrastructure. Let us mark this unavoidable cost by C. It is a component of the current prices. Then there is the component N, which is deadweight cost caused by zoning and non-technical regulations. I am not saying that it should be 0, but it is in our interest that it is kept in check, maybe 20 per cent of C. As of now, in some places, it well may be 120 per cent of C, even though it is really hard to calculate. This component of the final price directly enriches no one, it is pure friction caused by special interests of various parties that don't want to see any new housing either near them, or anywhere (landlord cartels that hate competition - indirect enrichment). Even C is now a formidable figure. Modern homes are basically industrial robots, they are much more complicated from the inside than they were 100 years ago. But there isn't really a reason why they should be horribly expensive. If as a regular office person you can buy a home for, say, 5x your annual income, it is not unaffordable. That is well, just normal. Not completely everyone is expected to own their home. The problem is that nowadays, the multiplier in many places isn't 5x, but 10x or 12x. That is just way too much. And given that C cannot be easily massively reduced (unless some sort of massive robotization of construction work happens), you really need to attack N.

samrus 8mo ago

Thats how supply demand works right? Its a stable equilibrium. When supply is low, prices rises to entice supply, supply increases to match demand, prices fall, the rate of increase of supply falls as well until supply approaches to meet demand. It prevents oversupply. If supply slips below demand again prices will rise to pull it back up Theres no problem here. Thats how the system should work

estearum 8mo ago
To some degree yes. However, the problem I'm pointing to is that the equilibrium in several developed economies (esp US) seems to be at a level that makes housing unattainable for a huge number of people. I.e. Probably due to Baumol's disease, there is no price at which it is both 1) profitable to invest in constructing new housing and 2) makes housing broadly attainable to people. This is a problem. There are a lot of goods (like a platinum-bodied iPhone) that cannot achieve both (1) and (2). However, unlike all of these other goods, housing is a necessity with an extremely high floor on demand.

taintlord 8mo ago

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pbhjpbhj 8mo ago

To house people. Shelter is a basic need.

Saline9515 8mo ago

Building codes also push prices higher. In the EU, the recent regulations force developers to build luxury buildings as a baseline, at a high cost. Not all buildings require elevators, intelligent thermostats, triple-panel windows or electric car plugs. Especially when you are experiencing a housing crisis.

torginus 8mo ago

How can real estate have zero margin when housing rises exponentially in price? No other good behaves like this. A midsize sedan didn't increase in price (in real term) over time, while new cars improved. New houses don't really improve that much over time, yet are getting more more and more expensive. Why is that?

estearum 8mo ago
> How can real estate have zero margin when housing rises exponentially in price? Well let's think about it... It would suggest that costs are going up, correct? What are the main costs? Land: Goes up alongside housing prices. Labor: Also goes up alongside housing prices. Unlike cars, there are very few economies of scale in real estate development. In fact, due to the dynamic above, there are actually diseconomies of scale in housing development. The more you develop an area, the more expensive it gets to continue development. We normally don't scale goods that have diseconomies of scale because, like we see in housing, they become unaffordable and cease to exist. Unfortunately, housing is a necessity, and so we must build it against increasingly disfavorable economics. Same is true of healthcare and education. Other goods/services that have diseconomies of scale simply don't scale. That is not an option for housing, education, and healthcare.
whattheheckheck 8mo ago
The stock market has greater returns than housing by a lot

thinkingtoilet 8mo ago

>The problem is: why would you build more housing as prices fall? So human beings with thoughts and feelings can live indoors. It's not hard.

balderdash 8mo ago

lower prices != unprofitable, it might, it may also mean lower, similar, higher margins / ROI

foobiekr 8mo ago

Why would you build more cars as prices fall? What do you think homebuilders do? Just close up shop when the market dips? The answer is there are companies in the business of building homes. If there is profit to be made, they will keep building. Most of the issues we have today are caused by extreme and dysfunctional regulatory regimes that destroy the return on investment by extending the process out. More time sitting on the property before building = lower investment return, and other investments end up making more sense.

estearum 8mo ago
> What do you think homebuilders do? Just close up shop when the market dips? Uhh yes. Downward price pressure is a business-destroying event in real estate development. The amount of risk developers take on with each project is pretty incredible actually. > Why would you build more cars as prices fall? For one, there are advantages to scale. That is hardly true (and in many cases the opposite is true -- diseconomies of scale) in real estate development. > The answer is there are companies in the business of building homes. If there is profit to be made, No. The question is whether there is more profit to be made from building homes than from investing e.g. in the S&P500 or US 10yr Treasuries. Otherwise investors don't finance new home construction. We are already in an environment where real estate financing is simply not a great option compared to other ways to invest money, and so construction will slow as prices go down (which is, as stated, already happening in ATX).
- foobiekr 8mo ago
  That is exactly what the rest of my message said, had you read it.