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Construction costs don't scale linearly with rent prices, it's a different market altogether that depends on regulation/worker supply/material costs/equipment/e

• estearum 7mo 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 7mo 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 7mo 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 7mo 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.