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Q: Can anyone document a situation where increased housing supply didn't just take the edge off the rate of rent increases, but actually pushed prices down? I'

Q: Can anyone document a situation where increased housing supply didn't just take the edge off the rate of rent increases, but actually pushed prices down? I've been able to watch some dramatic housing supply buildouts in a few areas, and my observation has been that the owners almost always price new housing somewhat above market rates for existing housing -- after all, it's new, and it's often marketed as luxury housing (plus the building costs were in $LAST_YEAR dollars and are mostly unamortized rather than in $DECADES_PAST dollars and mostly amortized). I'd think this might be more true for land-constrained places like San Francisco, where the only way to increase supply is up, so it's more capital intensive and only makes financial sense at a certain price. There's a few places I've observed a decrease in price, but it hasn't been because of supply increase. It's places like Detroit where demand drops, usually because the economic activity of the region stagnates or collapses, thought it's sometimes because of health/property hazards instead. If I'm right, building more might stabilize prices in SF, but they're not going down, short of the current tech boom there turning out to be an unsustainable bubble. Or maybe a major natural disaster.

nostrademons 13y ago
Rents - like wages - tend to be sticky downwards. Usually what happens is that a large increase in supply doesn't immediately push prices down, but results in a large overhang of vacant housing stock. The developer eats the cost on that for a while, but then the next recession hits, people lose their jobs, banks foreclose on the properties, and that starts the tumble in prices. That's how it worked in 2009 - rents dropped significantly in the Bay Area as employment numbers tumbled and people moved in with roommates. It does depend on their being a recession before demand catches up with supply...if there isn't, prices just don't increase as fast in the meantime.

nostrademons 13y ago

Rents - like wages - tend to be sticky downwards. Usually what happens is that a large increase in supply doesn't immediately push prices down, but results in a large overhang of vacant housing stock. The developer eats the cost on that for a while, but then the next recession hits, people lose their jobs, banks foreclose on the properties, and that starts the tumble in prices. That's how it worked in 2009 - rents dropped significantly in the Bay Area as employment numbers tumbled and people moved in with roommates. It does depend on their being a recession before demand catches up with supply...if there isn't, prices just don't increase as fast in the meantime.