8 ms·

A lot more market-rate construction helps low-income renters more than subsidies

31 points by bmmayer1 12y ago

venomsnake 12y ago
When we have strong and not very elastic demand, increased supply will help? Never would have guessed.
yummyfajitas 12y ago
If you stop thinking about prices and simply count people in houses, this result becomes more obvious. If N people want to live in SF but only K < N houses exist, N-K people have a problem. (For simplicity I'm ignoring details like crowding 3 people into a 1BHK.) The only question is which N-K people have a problem - this will be determined by economic and political processes.
- whybroke 12y ago
  > determined by ... political processes Part of which is playing out here where people of privilege are working out a story that allows them to displace an older population dependent on rent control so that they can get that housing.
  - yummyfajitas 12y ago
    Yes, if you believe that the political process is controlled by the wealthy and you oppose the wealthy, then allowing more construction is your best bet. My concern with the political process is the exact opposite - it doesn't favor the wealthy but it should. In either case, eliminating the malthusian constraints on housing are a solution to the problem. See also this article on moreright illustrating how your view and mine are not strongly in opposition: http://www.moreright.net/social-technology-and-anarcho-tyranny/ http://www.moreright.net/social-technology-and-anarcho-tyran...
    - whybroke 12y ago
      How would San Francisco be better with 2 million people than with 1 million? Should it grow until it is as crowded as the cities people are fleeing in order to come to SF? What will happen is not that increased supply will have any effect but demand from talented people will drop as SF becomes as characterless as any other cheaper US city. As crowding rises the value of labor relative to land will fall, something very beneficial to the wealthy and harmful to the employed. On a site where conjecture about immorality pills and "the singularity" abound, how is it supposed that population density can grow forever and everyone be better off for it? Mega-cities are the characteristic of the third world and they are paragons of failure. Or will SF uniquely continue to grow infinitely owing to killer apps and the innate superiority of its people?
      - icebraining 12y ago
        As crowding rises the value of labor relative to land will fall, something very beneficial to the wealthy and harmful to the employed. It's also beneficial to the unemployed who want to go to SF. Saying it's generally harmful to the workers is only true if you ignore those left out by the restrictions.
        whybroke 12y ago
        Very true. But the unemployed and their (inevitably reduced wages) are the result of a larger failed system. Effectively the market considers them excess population for their area. And as business expenses rise to cover the inflated cost of living (eg rent) there will be fewer and fewer jobs available (eg no unemployed teacher looks to San Francisco). And cost of living will rise with population density while wages fall. Also there are plenty of unemployed people in SF too namely the huge homeless population. As the real value of wages drop their numbers increase. Since calls here for justice and opportunities seems strangely focused on middle class people, I should ask how that new person's arrival would affect these other equally unemployed people. If you believe in "market forces" then unemployment and low wages are not solved by adding more people. Indeed individuals would be happier and communities stronger if they were not often up rooted by market whims. Especially in old age. So the ideal solution for employment, wages and quality of life would not assume people are infinitely portable human resources.
  - ageek123 12y ago
    I assume when you said "older population" you mean "people who have lived here longer." Because as you know, rent control applies to a housing unit regardless of the age of the person living in it. But more importantly, I'm not sure what you mean by "people of privilege are working out a story that allows them to displace." As far as I can tell, what's happening is that landlords own property, and they see an opportunity to rent the property to someone who is willing to pay more. I'm not sure what "story" is being worked out by the new renter; by the time they find out about the property, it is already on the market.
    - ZeroGravitas 12y ago
      I'm guessing they're talking about here on Hacker News, where young, rich professionals who may want to live and work in SF are upvoting stuff that undermines rent control. Which is convenient as they'd like to use their superior purchasing power to acquire nice SF apartments, and rent control blocks them from that goal. So it helps to have economics on your side, to a) make you feel better about yourself and b) to convince others to join your side. Maybe in this case that's "right", but the fact that we are collectively upvoting the economics that helps us and not approvingly discussing some other economic theory about how importing low-wage software developers would boost the economy makes it political.
      - yummyfajitas 12y ago
        As one of the pro-economics faction, I'm a strong proponent of offshoring and immigration. https://news.ycombinator.com/item?id=9246255 https://news.ycombinator.com/item?id=9246255 https://news.ycombinator.com/item?id=9126011 https://news.ycombinator.com/item?id=9126011 https://news.ycombinator.com/item?id=8884775 https://news.ycombinator.com/item?id=8884775
    - whybroke 12y ago
      And therefore there is a direct arithmetic connection between rent control benefit and tenant age. The article involves improbable convoluted statistical conjectures yet is incapable of noticing that extremely simple correlation. Perhaps more disturbing than the ethical issue is the unconstrained confirmation bias. The "story" built here and in other articles is the minimal believable tale that gets rid of current generally older tenants to make those units available for people with more money. To reach the front page of HN, it only needs to be believable to those who will benefit from its implementation. Not a very high hurdle and usually easily reach by hand waving some misunderstood "free market" juvenilia.
  - davidw 12y ago
    > that housing That's sort of the problem though - "that" housing. If there were more housing, if it were not the zero-sum game that it is in SF, then it would be less of a problem.
    - whybroke 12y ago
      If geography is the only problem then it should be easy to answer this guy's question. https://news.ycombinator.com/item?id=9255710 https://news.ycombinator.com/item?id=9255710
  - eli_gottlieb 12y ago
    Oh shut up. Everyone deserves housing. Which bloody idiot started telling left-wing people "class struggle" is actually just a zero-sum society configured to the disadvantage of the formerly well-off?
- erispoe 12y ago
  A lot more than N-K people have a problem. The fact that K < N drives prices up for everybody, not only for N-K people.
nabla9 12y ago
This is fairly obvious once you think it trough and one of the few things were majority of academic economists agree. Houses are not build to stand empty[1]. The number of houses available and the income level determine the prices. Even if you build luxury apartments, the end result is more affordable houses available to people with low income after the chain reaction where people move up to better housing ends. [1]: If this happens in some market conditions, raising property taxes to empty apartments works miracles.
bjourne 12y ago
It's not only a problem in SF, exploding rents is a problem all over the world. But is "barriers to new construction" the problem? No one ever explains those, just blames politicians. But for a property owning corporation it is obviously a poor idea to invest in new apartments because that would reduce the value of the ones they already got. It's not much different from OPEC not wanting to flood the market with oil.
- brc 12y ago
  For a property owning corporation, it might not be the best thing. However, in a free market, there wouldn't be anything they could do about it. Competition is supposed to reduce the profits of any industry over time. Barriers to new construction is of course the problem. If you had to fill out a lot of paperwork and get government permission to build a tractor, and there was a shortage of tractors, the solution wouldn't be to give farmers more cash to procure a tractor, nor try and control the price of tractors, nor pass laws restricting use of tractors. The solution would be to build more tractors. With enough tractors, it woudotn even matter if the occasional farmer kept one in the barn unused. I don't know how people develop this blindspot with housing - if the prices are going up too much it is because demand is exceeding supply. Everyone is reluctant to say the lack of supply is an issue, and I don't know why.
  - seanmcdirmid 12y ago
    In an unrestricted free market, someone would just buy up all the property in a constrained space to corner the market. That has definitely happened before in robber baron days. And honestly, if I wanted to live in a cess pool like Houston, I would move there. Houses are cheap enough (comparatively) but it is a huge icky sprawl.
    - icebraining 12y ago
      That has definitely happened before in robber baron days. I'm curious, has it really happened at a city level? Seems to me that it would get prohibitively expensive, since other owners would see the massive demand and push up the prices, but that's really just a supposition.
realjakedoe 12y ago
And a lot more subsidy-rate construction helps low-income renters even more. Go figure. If we have more market-rate construction, low-income renters would mostly have to pay market rate which would always be above subsidy rate. Because if the market rates are low there is less construction. If there are not enough housing units in the current high price market it is not the fault of subsidies. The return of investment in other markets is apparently even better.
collyw 12y ago
That's kind of obvious is it not. Every time the UK government do something to "help first time buyers" it involves getting them into even more debt, and keeping the prices high. There are still the same number of properties around, and the same number of people competing for them. How can they honestly think this is helping in any way.
- deleted 12y ago
  [deleted]
- chii 12y ago
  i think gov't are reluctant to introduce any policy that will cause housing prices to drop - a lot of "wealth" is locked in property, and should property prices drop, the on-paper measure of such wealth drops too (despite the fact that a house that's lived in is stable in it's "wealth" measured with utiliziation).
  - collyw 12y ago
    I agree. I am fairly sure this is the only route they have open. Allowing property prices to drop would collapse the banks again.
  - brc 12y ago
    Sensible market release would cause markets to stagnate while new supply was introduced. It would be impossible to build enough supply to overwhelm demand anyway if it is done realistically.
wwweston 12y ago
Can anyone point to an example of a location where rents have fallen with significant new construction and without any underlying national/regional economic weakening? (Not interested in arguments/models as to why it would; just places where I might examine data showing where/when it has in fact worked out this way.)
deleted 12y ago
[deleted]
cauterized 12y ago
Of course, rent control and zoning/adjusting regulations for higher rates of construction are not mutually exclusive.
brudgers 12y ago
As a result of its high housing costs, California has the highest real poverty rate in the country. California ranks 35th in terms of poverty rate. [1] The graph that follows the statement shows that California's poverty rate is higher than the US average. That's not an auspicious premise for quality economic reasoning. The constraint on housing prices in places like San Francisco is land cost. If developable land costs $500,000 per buildable dwelling unit on the open market, then $1,500,000 and up is where finished dwellings need to be priced to make development economically viable. Land supply is mostly fixed pending large investments in public infrastructure, particularly efficient extension of public transit. [1]: https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_pover...
- twic 12y ago
  > California ranks 35th in terms of poverty rate. [1] I'm not sure how carefully you read the page you cite. Firstly, that 35th is 35th from the bottom - which means that California has the 17th highest poverty rate amongst the 51 states and federal district of the USA. Secondly, that rank is based on a definition of poverty based on income thresholds that do not vary across the country: http://www.census.gov/hhes/www/poverty/about/overview/measure.html http://www.census.gov/hhes/www/poverty/about/overview/measur... It therefore does not take into account geographical variations in the cost of living, such as housing. Since the whole point of the article is that California has a higher cost of housing, it is therefore not a useful measure in this context, or indeed at all. That's probably why, in 2010, the census bureau adopted a better metric, the Supplemental Poverty Measure: http://www.census.gov/hhes/povmeas/methodology/supplemental/overview.html http://www.census.gov/hhes/povmeas/methodology/supplemental/... Helpfully, the 2012-2014 average of this measure is also tabulated on the page you cite, and if you sort the states and the district by that, you can see that California does indeed have the highest poverty rate in the country - 23.8%, just pipping Washington DC's 22.7%
- nulltype 12y ago
  If I took a 500k plot of land and built a 100k house on it, why does it need to be priced at 1.5m?
tormeh 12y ago
Subsidies are almost never a good answer to anything. Just give low-income renters cash they can spend on whatever they want instead.

31 points by bmmayer1 12y ago

When we have strong and not very elastic demand, increased supply will help? Never would have guessed.

If you stop thinking about prices and simply count people in houses, this result becomes more obvious. If N people want to live in SF but only K < N houses exist, N-K people have a problem. (For simplicity I'm ignoring details like crowding 3 people into a 1BHK.) The only question is which N-K people have a problem - this will be determined by economic and political processes.

whybroke 12y ago
> determined by ... political processes Part of which is playing out here where people of privilege are working out a story that allows them to displace an older population dependent on rent control so that they can get that housing.
- yummyfajitas 12y ago
  Yes, if you believe that the political process is controlled by the wealthy and you oppose the wealthy, then allowing more construction is your best bet. My concern with the political process is the exact opposite - it doesn't favor the wealthy but it should. In either case, eliminating the malthusian constraints on housing are a solution to the problem. See also this article on moreright illustrating how your view and mine are not strongly in opposition: http://www.moreright.net/social-technology-and-anarcho-tyranny/ http://www.moreright.net/social-technology-and-anarcho-tyran...
  - whybroke 12y ago
    How would San Francisco be better with 2 million people than with 1 million? Should it grow until it is as crowded as the cities people are fleeing in order to come to SF? What will happen is not that increased supply will have any effect but demand from talented people will drop as SF becomes as characterless as any other cheaper US city. As crowding rises the value of labor relative to land will fall, something very beneficial to the wealthy and harmful to the employed. On a site where conjecture about immorality pills and "the singularity" abound, how is it supposed that population density can grow forever and everyone be better off for it? Mega-cities are the characteristic of the third world and they are paragons of failure. Or will SF uniquely continue to grow infinitely owing to killer apps and the innate superiority of its people?
    - icebraining 12y ago
      As crowding rises the value of labor relative to land will fall, something very beneficial to the wealthy and harmful to the employed. It's also beneficial to the unemployed who want to go to SF. Saying it's generally harmful to the workers is only true if you ignore those left out by the restrictions.
      - whybroke 12y ago
        Very true. But the unemployed and their (inevitably reduced wages) are the result of a larger failed system. Effectively the market considers them excess population for their area. And as business expenses rise to cover the inflated cost of living (eg rent) there will be fewer and fewer jobs available (eg no unemployed teacher looks to San Francisco). And cost of living will rise with population density while wages fall. Also there are plenty of unemployed people in SF too namely the huge homeless population. As the real value of wages drop their numbers increase. Since calls here for justice and opportunities seems strangely focused on middle class people, I should ask how that new person's arrival would affect these other equally unemployed people. If you believe in "market forces" then unemployment and low wages are not solved by adding more people. Indeed individuals would be happier and communities stronger if they were not often up rooted by market whims. Especially in old age. So the ideal solution for employment, wages and quality of life would not assume people are infinitely portable human resources.
- ageek123 12y ago
  I assume when you said "older population" you mean "people who have lived here longer." Because as you know, rent control applies to a housing unit regardless of the age of the person living in it. But more importantly, I'm not sure what you mean by "people of privilege are working out a story that allows them to displace." As far as I can tell, what's happening is that landlords own property, and they see an opportunity to rent the property to someone who is willing to pay more. I'm not sure what "story" is being worked out by the new renter; by the time they find out about the property, it is already on the market.
  - ZeroGravitas 12y ago
    I'm guessing they're talking about here on Hacker News, where young, rich professionals who may want to live and work in SF are upvoting stuff that undermines rent control. Which is convenient as they'd like to use their superior purchasing power to acquire nice SF apartments, and rent control blocks them from that goal. So it helps to have economics on your side, to a) make you feel better about yourself and b) to convince others to join your side. Maybe in this case that's "right", but the fact that we are collectively upvoting the economics that helps us and not approvingly discussing some other economic theory about how importing low-wage software developers would boost the economy makes it political.
    - yummyfajitas 12y ago
      As one of the pro-economics faction, I'm a strong proponent of offshoring and immigration. https://news.ycombinator.com/item?id=9246255 https://news.ycombinator.com/item?id=9246255 https://news.ycombinator.com/item?id=9126011 https://news.ycombinator.com/item?id=9126011 https://news.ycombinator.com/item?id=8884775 https://news.ycombinator.com/item?id=8884775
  - whybroke 12y ago
    And therefore there is a direct arithmetic connection between rent control benefit and tenant age. The article involves improbable convoluted statistical conjectures yet is incapable of noticing that extremely simple correlation. Perhaps more disturbing than the ethical issue is the unconstrained confirmation bias. The "story" built here and in other articles is the minimal believable tale that gets rid of current generally older tenants to make those units available for people with more money. To reach the front page of HN, it only needs to be believable to those who will benefit from its implementation. Not a very high hurdle and usually easily reach by hand waving some misunderstood "free market" juvenilia.
- davidw 12y ago
  > that housing That's sort of the problem though - "that" housing. If there were more housing, if it were not the zero-sum game that it is in SF, then it would be less of a problem.
  - whybroke 12y ago
    If geography is the only problem then it should be easy to answer this guy's question. https://news.ycombinator.com/item?id=9255710 https://news.ycombinator.com/item?id=9255710
- eli_gottlieb 12y ago
  Oh shut up. Everyone deserves housing. Which bloody idiot started telling left-wing people "class struggle" is actually just a zero-sum society configured to the disadvantage of the formerly well-off?
erispoe 12y ago
A lot more than N-K people have a problem. The fact that K < N drives prices up for everybody, not only for N-K people.

nabla9 12y ago

This is fairly obvious once you think it trough and one of the few things were majority of academic economists agree. Houses are not build to stand empty[1]. The number of houses available and the income level determine the prices. Even if you build luxury apartments, the end result is more affordable houses available to people with low income after the chain reaction where people move up to better housing ends. [1]: If this happens in some market conditions, raising property taxes to empty apartments works miracles.

bjourne 12y ago

It's not only a problem in SF, exploding rents is a problem all over the world. But is "barriers to new construction" the problem? No one ever explains those, just blames politicians. But for a property owning corporation it is obviously a poor idea to invest in new apartments because that would reduce the value of the ones they already got. It's not much different from OPEC not wanting to flood the market with oil.

brc 12y ago
For a property owning corporation, it might not be the best thing. However, in a free market, there wouldn't be anything they could do about it. Competition is supposed to reduce the profits of any industry over time. Barriers to new construction is of course the problem. If you had to fill out a lot of paperwork and get government permission to build a tractor, and there was a shortage of tractors, the solution wouldn't be to give farmers more cash to procure a tractor, nor try and control the price of tractors, nor pass laws restricting use of tractors. The solution would be to build more tractors. With enough tractors, it woudotn even matter if the occasional farmer kept one in the barn unused. I don't know how people develop this blindspot with housing - if the prices are going up too much it is because demand is exceeding supply. Everyone is reluctant to say the lack of supply is an issue, and I don't know why.
- seanmcdirmid 12y ago
  In an unrestricted free market, someone would just buy up all the property in a constrained space to corner the market. That has definitely happened before in robber baron days. And honestly, if I wanted to live in a cess pool like Houston, I would move there. Houses are cheap enough (comparatively) but it is a huge icky sprawl.
  - icebraining 12y ago
    That has definitely happened before in robber baron days. I'm curious, has it really happened at a city level? Seems to me that it would get prohibitively expensive, since other owners would see the massive demand and push up the prices, but that's really just a supposition.

realjakedoe 12y ago

And a lot more subsidy-rate construction helps low-income renters even more. Go figure. If we have more market-rate construction, low-income renters would mostly have to pay market rate which would always be above subsidy rate. Because if the market rates are low there is less construction. If there are not enough housing units in the current high price market it is not the fault of subsidies. The return of investment in other markets is apparently even better.

collyw 12y ago

That's kind of obvious is it not. Every time the UK government do something to "help first time buyers" it involves getting them into even more debt, and keeping the prices high. There are still the same number of properties around, and the same number of people competing for them. How can they honestly think this is helping in any way.

deleted 12y ago
[deleted]
chii 12y ago
i think gov't are reluctant to introduce any policy that will cause housing prices to drop - a lot of "wealth" is locked in property, and should property prices drop, the on-paper measure of such wealth drops too (despite the fact that a house that's lived in is stable in it's "wealth" measured with utiliziation).
- collyw 12y ago
  I agree. I am fairly sure this is the only route they have open. Allowing property prices to drop would collapse the banks again.
- brc 12y ago
  Sensible market release would cause markets to stagnate while new supply was introduced. It would be impossible to build enough supply to overwhelm demand anyway if it is done realistically.

wwweston 12y ago

Can anyone point to an example of a location where rents have fallen with significant new construction and without any underlying national/regional economic weakening? (Not interested in arguments/models as to why it would; just places where I might examine data showing where/when it has in fact worked out this way.)

deleted 12y ago

[deleted]

cauterized 12y ago

Of course, rent control and zoning/adjusting regulations for higher rates of construction are not mutually exclusive.

brudgers 12y ago

As a result of its high housing costs, California has the highest real poverty rate in the country. California ranks 35th in terms of poverty rate. [1] The graph that follows the statement shows that California's poverty rate is higher than the US average. That's not an auspicious premise for quality economic reasoning. The constraint on housing prices in places like San Francisco is land cost. If developable land costs $500,000 per buildable dwelling unit on the open market, then $1,500,000 and up is where finished dwellings need to be priced to make development economically viable. Land supply is mostly fixed pending large investments in public infrastructure, particularly efficient extension of public transit. [1]: https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate https://en.m.wikipedia.org/wiki/List_of_U.S._states_by_pover...

twic 12y ago
> California ranks 35th in terms of poverty rate. [1] I'm not sure how carefully you read the page you cite. Firstly, that 35th is 35th from the bottom - which means that California has the 17th highest poverty rate amongst the 51 states and federal district of the USA. Secondly, that rank is based on a definition of poverty based on income thresholds that do not vary across the country: http://www.census.gov/hhes/www/poverty/about/overview/measure.html http://www.census.gov/hhes/www/poverty/about/overview/measur... It therefore does not take into account geographical variations in the cost of living, such as housing. Since the whole point of the article is that California has a higher cost of housing, it is therefore not a useful measure in this context, or indeed at all. That's probably why, in 2010, the census bureau adopted a better metric, the Supplemental Poverty Measure: http://www.census.gov/hhes/povmeas/methodology/supplemental/overview.html http://www.census.gov/hhes/povmeas/methodology/supplemental/... Helpfully, the 2012-2014 average of this measure is also tabulated on the page you cite, and if you sort the states and the district by that, you can see that California does indeed have the highest poverty rate in the country - 23.8%, just pipping Washington DC's 22.7%
nulltype 12y ago
If I took a 500k plot of land and built a 100k house on it, why does it need to be priced at 1.5m?

tormeh 12y ago

Subsidies are almost never a good answer to anything. Just give low-income renters cash they can spend on whatever they want instead.