4 ms·

It's definitely true that more homes are needed no matter what, but as far as I can tell, just allowing more development isn't going to solve the problem for an

It's definitely true that more homes are needed no matter what, but as far as I can tell, just allowing more development isn't going to solve the problem for anybody who's already priced out of the market. For-profit developers who invest now will be building the current unit prices into their model (and starting with current/future building costs, which are higher than past/amortized building costs). I think this is basically why when I've looked, I can't seem to find any examples where housing supply buildouts alone have dropped prices -- seems there's always a drop in demand based on changes in regional fundamentals that has to happen first.

jjoonathan 13y ago
Not quite. Without housing ordinances you could buy 10,000sqft, build a multi-story building where once there was a single-story building, and sell 50,000sqft. You can still turn a profit by selling at a lower rate than you bought since you can multiply quantity between buying and selling. Through the magic of multi-story buildings we actually can manufacture "land" out of thin air. There wouldn't be such a crunch without building restrictions.
riggins 13y ago
For-profit developers who invest now will be building the current unit prices into their model I struggle to follow this. For profit developers will build if they can do so for a profit. The only thing that will matter is whether the cost of construction is less than the PV of the future cashflows of a constructed building. An apartment building that costs $50M to put up costs the same $50M whether a 1BR apartment rents for $1,000/month or $5,000/month (for the most part ... if you get a lot of development in response to price increases, you can end up with a shortage of labor and labor costs can increase the total build cost ... but that will be on the margins). Furthermore, the cost to put up a building may be coming down. Here's a story about reducing construction costs by prefabricating buildings. http://www.wired.com/design/2012/09/broad-sustainable-building-instant-skyscraper/all/ http://www.wired.com/design/2012/09/broad-sustainable-buildi... I don't know what it costs to construct and apartment building in SF, but if the rest of the world is a guide, there are plenty of projects that would have a positive NPV even at lower rent levels. So development would contain prices and could even bring prices down.

jjoonathan 13y ago

Not quite. Without housing ordinances you could buy 10,000sqft, build a multi-story building where once there was a single-story building, and sell 50,000sqft. You can still turn a profit by selling at a lower rate than you bought since you can multiply quantity between buying and selling. Through the magic of multi-story buildings we actually can manufacture "land" out of thin air. There wouldn't be such a crunch without building restrictions.

riggins 13y ago

For-profit developers who invest now will be building the current unit prices into their model I struggle to follow this. For profit developers will build if they can do so for a profit. The only thing that will matter is whether the cost of construction is less than the PV of the future cashflows of a constructed building. An apartment building that costs $50M to put up costs the same $50M whether a 1BR apartment rents for $1,000/month or $5,000/month (for the most part ... if you get a lot of development in response to price increases, you can end up with a shortage of labor and labor costs can increase the total build cost ... but that will be on the margins). Furthermore, the cost to put up a building may be coming down. Here's a story about reducing construction costs by prefabricating buildings. http://www.wired.com/design/2012/09/broad-sustainable-building-instant-skyscraper/all/ http://www.wired.com/design/2012/09/broad-sustainable-buildi... I don't know what it costs to construct and apartment building in SF, but if the rest of the world is a guide, there are plenty of projects that would have a positive NPV even at lower rent levels. So development would contain prices and could even bring prices down.