Repeat after me: building any new homes reduces housing costs for all

https://www.ft.com/content/86836af4-6b52-49e8-a8f0-8aec6181dbc5

by nabla9 • 3 years ago

129 199 3 years ago

falcolas6• 3 years ago

Housing builders don't want prices to fall. Nor do the investors who fund new construction and buy existing houses. In other words, the general public are not the ones you need to convince.

EDIT: Nor do existing homeowners want to see their house prices fall. So anything that relies upon them voting to change the value of their homes is a non-starter too.

Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.

watwut2• 3 years ago

You kinda do, because the biggest obstacles are zoning laws and regulations.

falcolas6• 3 years ago

If there's one thing America has, it's space. There's plenty of land free of zoning laws and regulations right now.

Also, NIMBY homeowners don't want the prices to go down either.

jjoonathan• 3 years ago

Competition means they don't have to want prices to fall for prices to fall. Come on, this is capitalism 101.

falcolas6• 3 years ago

Housing builders and investors are currently allowing 10% of the total house stock in the US sit vacant to keep the prices up.

They're not competing, whether by silent agreement or individually acknowledging it's in their best interests to keep the status quo in place.

HPsquared2• 3 years ago

House builders aren't the deciding factor. It's property owners.

falcolas6• 3 years ago

The builders and the property owners are often the same entity. Speculative house building has been a thing since forever.

_0ffh• 3 years ago

No, but they want to profit from the existing prices, which they do by building new ones. Builders earn their money by building, not by gloating over the prices.

falcolas6• 3 years ago

They have 10% of their stock sitting empty, waiting for their asking prices.

Builders earn their money by selling houses for what the market can bear. The act of building itself is merely a cost.

tootie• 3 years ago

Builders don't make money on the resale of existing homes. They want new homes to fetch the highest price, but they can also earn money on volume. Nothing built, nothing sold. Existing homeowners are the blocker.

And increased construction doesn't mean home owner go underwater. That's a pretty extreme situation. Housing prices are unlikely to drop barring a disaster like 2007. Houses will become affordable even if the prices rise more slowly. Encouraging home ownership as a means to increase wealth really has to go away. It's the major contributing factor to the aforementioned reluctance of existing home owners.

JohnFen10• 3 years ago

Nor do existing homeowners want to see their house prices fall.

In my area, people who own homes to live in (rather than as investments) love to see their house value fall because it reduces the amount they pay in property tax.

rqtwteye3• 3 years ago

I don’t think so. Once your house value falls, you can’t move anywhere else.

rqtwteye3• 3 years ago

“Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.”

That’s a big problem. A lot of peoples retirement plans rely on the value of their house. I am one of them.

sfvisser• 3 years ago

Starting homeowners who might want to move into a bigger home do want prices to fall as well. The loss in return of your current home is being royally offset by reduction in price when buying.

phmqk769• 3 years ago

Seriously. So many people have a low-information understanding of the housing market, and think that homebuilders somehow aren't rational actors. Why would people who make their money building houses be into lowering their profit margins and causing pricing shocks for their existing stock of houses that are in construction? Developers are incentivized to charge what the market will bear. It is public policy's job to reform the incentives so other market players see opportunities to build lower-priced and lower-margin housing stock - I think the best way to do this is to make public lending corporations that will provide 3% construction loans, which are far more attractive than the 8% to 10% presently charged by institutional lenders. Couple that with expedited permitting for these projects, and tie them to affordability standards, and that's a market disruption that makes sense for most people. But simply deregulating and hoping that prices will fall never, ever works.

MostlyStable3• 3 years ago

https://archive.ph/QNRlh

For anyone who just reads the headline, and doesn't get to the first paragraph: Yes, if the new housing you are building is an increase in total stock. (I doubt that it's very often not the case, but still an important caveat).

If you tear down a high rise to build a mansion, no that won't decrease prices just because you built something new. Again, I realize that this probably almost never happens, but it's important to point out that the thing that matters is the change in stock, not the newness.

aranw• 3 years ago

I don't know if it's just me but for some strange reason I can never get past the captcha on archive.ph. It just refreshes the page and I can never access the archived version

archo• 3 years ago

Change your DNS - Cloudflare and archive.today do not play nice - (think, David vs Goliath) Search;

  2023:'public-dns'

Take Control of your DNS - You may also try an archive.today mirror;

https://archive.vn/QNRlh - https://archive.li/QNRlh - https://archive.md/QNRlh - https://archive.is/QNRlh

https://archive.fo/QNRlh - https://archive.today/QNRlh - However, changing your DNS is the answer to this problem.

dangus• 3 years ago

Yes, great point here.

Build all the luxury housing you want. My first cheap slumlord apartment started its life as a luxury building in the 1930s.

The problem is when someone knocks down a 3-flat row house and builds a single family home in the same plot of land. Unless we have negative population growth that should never happen (and usually the places where knocking down a house and building an entirely new one makes sense are growing and desirable).

zbrozek• 3 years ago

More often than not this happens because the denser housing predates zoning restrictions. When that building reaches end of life and needs to be replaced, there's little economic choice but to build the single-family home.

aae42• 3 years ago

Living in a crusty old part of NY, I would argue replacing old appt buildings with new ones, even perhaps with a slight reduction in number of units, could still reduce housing costs....

joelhoffman• 3 years ago

Is there really a significant number of apartments that are vacant due to habitability reasons? I believe there are a lot of vacant units out there even in hot markets, for various reasons, but mostly perfectly livable.

PaulHoule2• 3 years ago

I dunno. When they built a bunch of cottages that rented for $1300 a month down the road from me that made me reconsider the $750 /month that I rent a unit in my other house for.

That is, I think seeing high prices for new developments being advertised on signs all over the place has a powerful psychological effect of creating a "level set" and even if it doesn't really drive prices up, I think many people believe that it drives prices up through that mechanism. It might be the triumph of pataphysics (e.g. in my mind the "physics" of the imagination) over economics but in the hyperreal world, pataphysics wins.

MostlyStable3• 3 years ago

And, while supply is still constraining, landlords can get away with that. But the closer supply gets to being "not constraining", the less ability they have to do that. But, as long as supply is constrained, that will happen no matter what. While a new expensive development can be a trigger, in the absense of that trigger, someone else will realize that they can just raise prices and the market will bear it, so something else will serve as the trigger. The only way to break out of it is build enough that the power to do this goes away. Unfortunately, that is, in many of the most supply constrained areas, a huge, daunting task that will probably take years of dramatically increased development.

pydry3• 3 years ago

It wont increase stock if you tear down a block of public housing that housed 180 and build an apartment block with 160 investments for Arab sheikh portfolios and 40 middle income apartments with a poor door.

Until land or property is taxed high enough to discourage hoarding the shortage will only get worse, even if supply trickles up. Housing is supply constrained.

As rents and prices go up the incentive to use politics to inhibit further construction also goes up. This is how a hundred residents can turn up to a city meeting in SF and demand that a launderette be declared historic.

MostlyStable3• 3 years ago

Housing as investment only makes sense in a supply constrained environment, and, as far as I've seen, the evidence that significant amounts of housing is being held empty for investments (foreign or otherwise) is pretty scarce. It's a popular narrative that doesn't seem to be supported by the data. Build enough, and housing wont' be an investment anymore. As it shouldn't be.

That being said, I'm definitely also in favor of an LVT

hn_throwaway_996• 3 years ago

There was an article in NYT (I think) recently that talked about how over the past 50 years or so that there was a reduction in something like 50k apartments in NYC because of people buying neighboring apartments and combining them.

NoMoreNicksLeft• 3 years ago

Can't NYC just start rebuilding all the old 1890s tenements and squeezing families of 12 into small apartments without bathrooms or proper kitchens?

People need to live smaller.

everybodyknows• 3 years ago

Another way it won't is if the new stock happen to be upscale vacation condos, ending up occupied only one month a year.

rhino369• 3 years ago

>I doubt that it's very often not the case

In my UMC area that was formerly MC there are a lot of tear-down rebuilds that trade one single family home for another. They barely increase stock ( though the houses probably have more bedrooms).

HPsquared2• 3 years ago

That people need this explained to them, readers of a financial newspaper no less, is a little concerning.

ethanbond2• 3 years ago

Gotta overcome the cognitive biases induced by “most of my wealth is in the land beneath my house.”

0xDEF• 3 years ago

The people who read a financial newspaper probably still have a lot of their networth tied up to their real-estate.

snoman• 3 years ago

I attribute this to the pervasive publishing model where anyone can submit an article to any publication, and as long as the topic lines up with current events, then the editor is just a bot that is checking for spelling and the headline being clickable.

pesfandiar• 3 years ago

Vancouver has one of the least affordable housing markets in North America and people have been concerned about it for years. 4 years ago, it was even a municipal election issue, yet most people who couldn't afford housing voted in some of the most NIMBY councillors, who in turn voted down any significant housing project. The reason? New units are expensive, so building them makes housing more expensive. Even some smart, educated people couldn't see past this.

hindsightbias• 3 years ago

Repeating a lie endlessly does not make it true.

Repeat after me: building any new homes increases housing costs anywhere anyone on HN wants to live

See: Austin, Frisco, Denver, Vail, Nashville, Miami, San Diego, SV, SF, Seattle

yjftsjthsd-h• 3 years ago

I'm open to believing you, but how? Why would building new homes increase housing costs anywhere?

aleign2• 3 years ago

It doesn't unless it is outpaced by the increase in demand for housing. This person makes it sound like they have a ton of brand new houses in Austin with nobody living in them because they're too expensive. I can tell you as a former Austinite, that couldn't be further from the truth.

the_gipsy• 3 years ago

More people = more opportunities = more people attracted, and so on.

renewiltord• 3 years ago

It's not inconceivable. There's obviously some agglomeration advantage. People are valuable to other people. For instance, I think if SF built sufficient new homes it would have a lot more young people and they'll make the place nicer and that will make it more valuable.

tpmoney2• 3 years ago

Induced demand, the same mechanism by which building more and wider roads doesn’t always mean less traffic. There’s still only so much land and space in a given area, and even in high density areas there are more and less desirable spots (e.g. a penthouse suite vs a basement apartment next to the furnace). As more people move into an area, more competition for those desirable spots has an increased pressure on the prices for those spots, which in turn increases prices for other less lucrative spots because the whole market window is shifted.

phkahler2• 3 years ago

How so?

mattnewton• 3 years ago

Those places would rise in price slightly slower with more supply. It's not like the housing stock is inducing enough demand to affect the price; the demand comes from other desirable characteristics like access to good jobs and weather.

In SF at least, we are severely supply constrained. Increasing the supply hasn't been tried in meaningful numbers to know for certain how it could affect price. But in many other municipalities that have been better able to build housing, it does decrease costs for everyone as the article describes.

orangepurple2• 3 years ago

New homes can be built and still not be enough to put a damper in increasing housing costs. Your point is null.

aleign2• 3 years ago

Increasing housing supply more slowly than the corresponding housing demand increases costs, yes.

malfist• 3 years ago

Could you present some evidence? Especially, could you provide evidence that preventing new housing has reduced costs?

hx8• 3 years ago

Just look at housing prices in places HN wants to live that didn't increase their housing supply.

JohnFen10• 3 years ago

building any new homes increases housing costs anywhere anyone on HN wants to live

I don't want to live in any of those places.

jtode• 3 years ago

This is just absurd on its face. This kind of simplisticism is toxic af.

recursive3• 3 years ago

Sounds pretty reasonable "on its face".

phkahler2• 3 years ago

Maybe not if it's rental units. Maybe.

belltaco• 3 years ago

Why not?

Arcuru• 3 years ago

I know it's off-topic, but I can't help noticing Financial Times pricing model. It's $1 for 4 weeks, $69 a month for digital, but also $99 a year for print and digital? That's a wild pricing model.

I long for the day that I can just pay XX cents to read a single article with minimal fuss, but at this point I don't see that happening.

flutas• 3 years ago

Looks almost like a typical "good better best" upsell to me, trying to get you to go for the "better" option. But they turned it into a variation to get you to accidentally subscribe to the "better" option by also having a cheap trial ($1 for 4 weeks).

robot_no_421• 3 years ago

Article is subscription locked, so I just read the (patronizing and reductive) headline.

The problem never has been lack of housing. The problem has always been lack of land. You can only build new homes on existing land and nobody wants to repurpose existing land to build new houses. Where exactly in NYC can we build new houses?

And what houses are we talking about? Single family houses that are not a good use of land? Huge multifamily complexes that further stress the crumbling infrastructure?

Housing costs are not my top priority for my QOL. Building more houses will likely impact me only in negative ways.

And again, the article is subscription locked so all I can do is read the headline.

JohnFen10• 3 years ago

I totally understand the rationale. My problem is that I don't see it happen in real life. Where I live, quite a lot of new high-end housing has been built, but it hasn't seemed to reduce housing costs at all. The people moving into the new housing aren't vacating lower-cost housing to do so. They're mostly people moving into the area for the first time.

So housing costs for everybody, but mostly at the more affordable end, continue to rise faster than inflation.

ericholscher• 3 years ago

The point is that housing costs would have gone up more if that housing wasn't built, not that some amount of built housing automatically means prices grow slower than inflation.

JohnFen10• 3 years ago

That seems pretty speculative. But even if it's true, that means that just building a bunch of new housing isn't addressing the problem.

hdlothia• 3 years ago

We would have to calculate the rate of influx vs construction. There are places where there is a lot of construction but the new construction still isn't enough to keep up with demand so instead of reducing prices it just slows down the increase. In your example I would guess if that high-end housing hadn't been built the increases would have been steeper and the new arrivals would be displacing the people in lower cost housing

JohnFen10• 3 years ago

Yes, I understand the theory. But after decades of watching this stuff, the topic kind of falls into "what am I going to believe, the theory or my lying eyes?" territory.

If I saw this effect actually happen over the long term, I'd be less suspicious of it. As it is, I'm very suspicious about it. I'm not saying I think it's not true, I'm saying that I haven't seen any indication that it is.

RcouF1uZ4gsC• 3 years ago

They're mostly people moving into the area for the first time.

Then instead of moving into the new high housing, they would have offered similar to what they are paying for the high end housing for the the lower cost housing people are in now driving the price of that up. The people living in that tier, May have been forced to a yet lower tier, driving those prices up, and so on.

JohnFen10• 3 years ago

So, in other words, if you're not wealthy, you're doomed. I don't see how any problem is being solved here.

KennyBlanken• 3 years ago

There's endless housing being built where I am, but it's all massive 4-6 bedroom, 4 car garage monstrosities that nobody but the 0.1% could afford to live in, and meanwhile service industry folks can't find enough places to live so they're having to drive an hour+ to get to the area to work.

Even if it were practically given away, nobody but the ultra-wealthy could afford the taxes on the huge chunk of land, the utilities, or the upkeep.

The argument for building "any" housing is just trickle-down bullshit based on the notion that lots of wealthy people are hanging around in housing that others could afford. Except that by building more housing for the wealthy, you lift that area up - there's more market and demand for luxury shops, services, and so on..so commercial real estate becomes more expensive, and so on.

The other reality is that people in luxury housing don't like non-luxury housing near them, so they do things like buy up property near them, tear it down or renovate it, turning it into more luxury housing.

nostrademons2• 3 years ago

If the new housing hadn't been built, that new class of buyer would've just displaced the residents of older housing, and you'd get the higher prices but for shittier housing stock. This is why a 1BR in a run-down low-rise in Silicon Valley goes for $2200/month and the Bay Area's working class lives in Sacramento or Stockton.

bcrosby952• 3 years ago

In my experience a rising tide lifts all boats. New "luxury" housing sets a new price for a neighborhood, which attracts flippers and investors who turn the old, cheaper stock into old, expensive stock. The rise in price of the old stock also increases the price of the new stock because of (hand wave) "comparables" and some people just want the biggest and newest house.

Maybe this wouldn't happen if we had all the stock we needed, but from what I've experienced it seems like adding new high priced housing to a supply constrained market increases prices rather than reduces them.

JohnFen10• 3 years ago

This has been my observation, not just where I live, but in most other places I'm familiar with.

bryanlarsen3• 3 years ago

Induced demand is real. Building a desirable house may cause somebody to move to a city that they wouldn't otherwise move to.

But the article is more than its headline. It comes armed with data that shows that the induced demand effect is not significant in the markets studied.

recursive3• 3 years ago

When you move into one place, you move out of a different place.

bryanlarsen3• 3 years ago

Housing is a local phenomenon. Some cities have a supply shortage and some don't.

dsr_2• 3 years ago

Frequently leaving your parents or ex or roommates in the old place.

phmqk769• 3 years ago

Repeat after me - the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector. The housing market is red hot right now, and yet builders are loathe to invest in a major way, fearing a downturn that will impact their profit margins, even though they stand to make big bucks. But we somehow expect a building surge that will shift the market dynamics to make all housing worth less?

The only way to incentive construction is to incentive construction. NYC HPD is an agency, for example, that has a history of providing low interest rate loans for approved projects to rehab old buildings. With borrowing costs hovering at 8%-10% for new construction projects, and with lenders tightening standards, this is the perfect time for state governments and the federal government to provide 3% construction loans, accessed in tranches after milestones are met, to facilitate not only housing on the cheaper end of the spectrum, but lower-margin housing projects that established developers and big lenders typically shy away from.

Simply deregulating does not work, and it's foolish to think it would. Lower cost housing, made profitable by public lenders as a last resort, is a no-brainer that gets lost in the discussion. As is rent control, by the way. But that won't lead to the same cast of characters getting boffo bucks through deregulation, so neither option is taken seriously by Serious People.

the88doctor2• 3 years ago

3% construction loans would majorly undermine the Fed's effort to fight inflation

soperj• 3 years ago

How?

It's not 3% for everyone, it's 3% for specific projects for low income housing.

RC_ITR3• 3 years ago

Excluding shelter, inflation is already bellow 2%.

Not building enough housing is majorly undermining the Fed's effort to fight inflation.

phmqk769• 3 years ago

Nope. It would be a massive pressure-relief valve on inflation, so much of which is in housing expenses, not just post-COVID, but for decades.

justrealist• 3 years ago

fearing a downturn that will impact their profit margins

The obvious answer is for the Fed to give clear guidance on when rates can go back to dropping. There's no mystery why builders are pulling back; people can't get mortgages.

We don't need a new complicated system, there are easy fiscal knobs to turn.

the_optimist4• 3 years ago

They cannot do this because doing so would eliminate the ambiguous feedback loop on “expectations” that is intended to exist and ultimately under their credibility in the longer run.

bemusedthrow757• 3 years ago

Repeat after me - the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector.

This. In the UK in particular there are so few housebuilders working at scale that they effectively have an oligopoly. And they turn off the tap as quickly as OPEC do.

the_optimist4• 3 years ago

Are these groups impairing their future profit interest, discounted at the cost of capital, by building more homes? You assert the answer is ‘yes.’ Why?

hn_throwaway_996• 3 years ago

The housing market is red hot right now

Sorry to be harsh, but what planet was this written from? The housing market in the US is largely frozen - many people bought at peak prices over the pandemic years at rock bottom interest rates, so now they basically can't move - they simply can't afford the same amount of house at today's rates, and many would have to lower their prices in an attempt to sell in this higher rate market. The fact that employment is still relatively high means most people aren't forced to sell, and thus prices remain unaffordably high in many cities.

Edit: And rent control? Virtually every economist of all ideological stripes agrees that rent control is ultimately self defeating in the long term. And just look what happens with people that live in rent-controlled cities. Families hang on to those apartments like they're diamonds, and all it does is create a world of "haves vs. have nots", where it's like a big lottery to get a rent controlled apartment, but meanwhile you've disincentivized builders from building any new stock.

coding1232• 3 years ago

While that may be true, it is also true that the market is red hot right now - the prices are still going up for the stock that IS available.

xnx2• 3 years ago

Concur. Existing home sales are about as low as they've been in 30 years: https://tradingeconomics.com/united-states/existing-home-sal...

bob_theslob6462• 3 years ago

It depends on the area. There are still areas in the United States where demand is still incredibly high, meaning homes sell above asking or 50+% more than 10 years ago

An example includes areas outside of the NYC metro area. Sure they aren't get peak pandemic prices but they are still getting crazy amounts of money for a home that was worth 50% less 10 years ago.

turquoisevar• 3 years ago

Edit: And rent control? Virtually every economist of all ideological stripes agrees that rent control is ultimately self defeating in the long term. And just look what happens with people that live in rent-controlled cities. Families hang on to those apartments like they're diamonds, and all it does is create a world of "haves vs. have nots", where it's like a big lottery to get a rent controlled apartment, but meanwhile you've disincentivized builders from building any new stock.

That “unanimous” agreement is starting to change and outside the US there was never unanimity on the subject.

As per usual it is an issue that has already been tackled by other nations but that we in the US insist is a “uniquely American” issue.

In countries that have a constitutions that don’t read like a product of an eleventh hour scramble to finish a homework assignment, that is to say, most western countries, they’ve chosen to enshrine certain human rights in their constitution. Like the right to accessible housing.

This serves as a mandate for the government to enable this. In most countries, although details can differ, this translates to strong tenant protections and market-wide rent control.

Having those two points at the foundation will literally negate any argument raised against rent control in the US.

If it’s market-wide then there are no haves and have nots, everyone is a have.

Another argument that’s often thrown around is that landlords would stop investing in the upkeep of property, but in a society with strong tenant protections and market-wide rent control that prospect simply doesn’t exist.

Why? Because the rent control is often based on a point system that sets the price and the tenant protections require a certain standard of living. If the property isn’t kept up the landlord will receive less rent, or hell, in egregious cases no rent at all.

You’ll see that with that stick behind the door, all of a sudden the landlord is perfectly capable to keep their properties up to par.

Another thing that’s thrown around often is that there wouldn’t be any incentive to build more housing.

Never mind the fact that in those countries this notion that the sky will come falling down has yet to come to fruition, it’s often the very same American real estate investment companies that are warning for the end of times here in the US if tenant protections and rent control will be passed, that are building and buying up rental properties over there.

In fact, the same issue here, conglomeration of big corporate landlords, is becoming an issue there. Often these corporations are American and lately also Chinese.

So it seems that landlords there still have a huge appetite, despite the strong tenant protections, strong tenant unions and strong rent control, all of which are even far beyond what is proposed here in the US.

Because the real fact of the matter is, that as long as profit can be made, however small, people will still try to make that profit and not, like you and others are suggesting, just call it quits.

This is because it simply depends on what is “normal” and in the US we need a new “normal” like the one on those other countries. And let’s be clear, that “normal” is still nothing to sneeze at, this despite the cost of construction being significantly higher in many of those countries as well as the corporate taxes that are involved.

What we need in the US is more willingness to look at our peers and see how they’ve handled certain issues.

But the main problem is the lack of political will, across the spectrum, to actually deal with these issues, because of corporate money being pumped around into political pockets. Which is a topic for another time I suppose.

the_optimist4• 3 years ago

You characterize the private sector as a monolithic decision-making entity, like the government. That’s a fundamental misunderstanding and mischaracterization. There is a collection of fiercely competing interests that balances. Right now, everyone who is able to build a new house is doing so, at significant profit interest. There’s an entire subsector of the economy that is “developers and home builders.” Do you presume these people somehow sit on their hands at the command of some other group?

akavi3• 3 years ago

Well yes, but the "other group" commanding them to do so is municipal governments, at the behest of existing property owners.

RC_ITR3• 3 years ago

A reminder to all that 80% of Singapore's population lives in housing built by the government [0]

That's right, business-friendly small-government Singapore came to this realization decades ago.

[0]https://www.bloomberg.com/news/articles/2020-07-08/behind-th...

pydry3• 3 years ago

The problem is land. The private sector isnt going to make new land. Nobody makes land. Not in the private sector. It'll build apartments on freed up land but it won't make new land.

If private investors dont lose money on inefficiently used land then they will hoard it as jealously as a goldbug hoards gold or a crypto bro hoards bitcoin.

Right now one theoretically could build a mansion in London with 100 rooms and pay $1500/year in property taxes. This isnt theoretical. I live about a kilometer away from a Russian oligarch who did exactly that and that is indeed how little he pays in tax on it.

We can either jack up property taxes or jack up land taxes but either way until land hoarding is made a shortcut to bankruptcy then the housing crisis will only ever get worse.

sofixa• 3 years ago

Nobody makes land

The Dutch do.

xnx2• 3 years ago

Plenty of land if everyone didn't try and fit in the same dozen metro areas.

phmqk769• 3 years ago

We used to build cities in America. Our grandparents' generation got brand new roads, brand new houses, brand new schools, etc. There is a concept of being at capacity, and there are areas that have reached that capacity, where the roads can comfortably carry X number of cars, where density is enough to support a local economy and industry, and the quality of life is good. Rather than trying to cram 5 pounds of crap into a 10 pound bag, building new cities in proximity to economic megalopolises (first as a crutch to support the population of the new city) with easy transportation between the two is something that California has a great track record of, for example, that you don't see in the Northeast. Irvine is a great semi-recent example of that. This is development done correctly, not cramming as many people into a mature area as possible, and then whining that NIBMYism makes living there expensive when the infrastructure of a city or region is at capacity.

And what happens when you can't build anymore, like on the island of Manhattan? You regulate rents to protect housing for the economically-diverse population of people who live there. This is all not that complicated, but all we hear about is this deregulation model that doesn't make any sense when you game it out two steps ahead.

beebmam• 3 years ago

Housing barely appreciates above inflation. About 4% on average, yearly. It would be better if we didn't interfere in the market, or there are going to be some nasty consequences.

bemusedthrow757• 3 years ago

I can't read the FT article to see whether it is based on domestic stories here UK or whether they are addressing this from a US perspective.

But what you're saying is historically far from true in the UK, at least.

Over the last seventy years, UK house prices have increased by on average 300% in real terms. This isn't barely outpacing inflation, surely.

phmqk769• 3 years ago

And yet housing has outpaced wages exponentially for decades - that's the appropriate comparison, not the stock market or inflation with a broader index.

HDThoreaun8• 3 years ago

yet builders are loathe to invest in a major way

This is not true in areas that make it easy to build housing. The reality is that builders are loath to get caught up in NIMBY bullshit that stops them from building after they dump a million on bureaucratic nonsense, not that they are trying to protect housing prices.

voisin• 3 years ago

the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector.
yet builders are loathe to invest in a major way, fearing a downturn that will impact their profit margins, even though they stand to make big bucks.

The second quote doesn’t flow from the first. The second quote is correct - builders aren’t building not because they don’t want to tank housing prices, but because of concerns about the economy. In a capitalist system with thousands of players, it there are expectations of profits there will be construction even if it drives down the profits of the industry as a whole (that’s the free market, eliminating excess profits). The issue has nothing to do with mass collusion to keep prices high and everything to do with concerns about the economy and the current interest rate environment.

phmqk769• 3 years ago

The second quote isn't entirely related to the first. "Sufficient housing stock to tank prices" is an enormous amount of housing, the likes of which are not contemplated by traditional builders, who are out to build high profit margin housing at prices the market will bear. That's the system that needs disruption. It's not de jure collusion, it's a mature industry with mature players who have been on the search for blockbuster profits in recent memory. The average home size has skyrocketed over the last forty years, builders and their financiers are no longer content to make a living building homes, they want to hit home runs every time. It's time to incentivize smaller players in the market and to steer them towards building cheaper housing with smaller profit margins.

nostrademons2• 3 years ago

"Nothing great was ever built without a speculative bubble." -- Fred Wilson

The way this normally works out is that the price goes up; the high price attracts many independent firms into the market; these firms all go gangbusters trying to supply the market to cash in on the money in the sector; they solve the supply problem; the market ends up being oversupplied as all the new firms keep building; prices crash; lots of these firms declare bankruptcy; and then their resources are redeployed in the next speculative bubble.

If you're talking about "the private housing sector" or "the builders" as a monolithic entity, you've already lost. There should be individual builders who all respond to price incentives and build what the market demands, not a cartel of builders who have the ability to dictate local policy & prices.

phmqk769• 3 years ago

I agree with you - that's why I propose public corporations as lenders of last resort to create incentives outside of the traditional market forces that would help create this housing stock that industry insiders would rather not.

sokoloff8• 3 years ago

Repeat after me - the private housing sector is not going to build sufficient housing stock to tank prices in... the private housing sector.

Are personal computer manufacturers willing to build sufficient computers to tank prices in computers? (They did.)

Are television manufacturers willing to build sufficient televisions to tank prices in televisions? (They did.)

What makes you think that builders aren't willing to build enough to tank prices overall, if it still lets them make a buck?

bemusedthrow757• 3 years ago

Houses aren't computers or televisions, though.

They are built on land that is relatively scarce (in suburban areas, and the UK scarce full stop), zoned by local government, subject to the influence of regulations and unions etc.

House builders in the UK quite clearly hold back on (or try to corrupt their way out of) large developments that require them to build social housing, they seem to have slowed down building in response to threatened law changes around leaseholds (which are onerous and abusive), and they appear to hold back on smaller projects as leverage with local governments in discussions about the regulations that are stopping them taking on larger projects.

They are absolutely willing to build fewer houses than they could, and they tend to be rewarded for this with higher prices, because the barriers to entry in building houses at scale are really significant.

purpleblue2• 3 years ago

In Toronto, the number of condos that have been built is staggering. There must be hundreds of thousands of new condos in the last 20 years.

The prices have only gone up. The idea that new housing reduces cost is insane. All of the condos being built are at the top of the price range.

What needs to be done is NEW CITIES need to be created with business centers. Not adding more housing into already packed cities.

I have been saying for a decade that large tech employers like Google and Facebook should have created offices in the middle of the US, which cheaper neighborhoods, better schools, etc. Create opportunities for families to move out from the tech areas and enrich other parts of the country. But they keep doubling, tripling and quadrupling down on the Bay Area.

New cities need to be created with business centers, not new condos in old cities!

vkou• 3 years ago

If you build 8 new units to support 10 people moving in, prices will still go up.

But not as much as if you didn't.

jross225• 3 years ago

I mean, imagine what housing in Toronto would cost if they didn't build those 100K+ condos? Pricing is composed of supply and demand, and the article is saying that holding demand constant, increasing supply lowers prices. Adding a marginal unit to the housing stock kinda has to result in lower or equal prices in the static case.

Toronto is growing insanely quickly, and supply can't meet demand. New cities are great, but a large number of people want to move to big and established population centres.

purpleblue2• 3 years ago

We are in violent agreement. Creating new condos will still keep the prices increasing, but it will be better than the situation where no new housing is built.

But the article specifically says "new homes reduce house prices." This is patently false.

Toronto is growing because there's no real business centers outside of Toronto for the 1 million immigrants a year that are coming in. We need to create viable options by expanding business outside of Toronto in new land, so that housing demand lessens.

Beached3• 3 years ago

more housing does decrease prices. the price went up, but not as much as it would have. for us to see a.price decrease, we would have to see new buildings out pace new people to the area for a sustained period of time. and what is more likely to happen is that they won't decrease but stay flat.

staying flat is still a price decrease each year it does it.

sgerenser• 3 years ago

FAANGs are not doubling down on the Bay Area. Several of them are making significant expansions in Austin, North Carolina, Virginia, Colorado, etc. I was told specifically by an Apple recruiter a couple years ago that they were told to concentrate recruiting outside of Cupertino.

thedougd3• 3 years ago

I think we're dealing with multiple overlapping issues in the housing sector. For example, where are we going to get enough skilled trades to build the houses? There are many reasons why trades are in short supply from lack of interest to immigration enforcement.

chrstphrknwtn• 3 years ago

Why would I go to trade school for a few years to make $60k forever?

thedougd3• 3 years ago

Wages are certainly part of the issue. The job certainly wouldn't interest me at that rate, forever. Skilled trades do better, however there's a lot standing in their way. Getting started, there are easier jobs with better _starting_ pay.

Even before covid and the following inflation, there was a serious problem with brain drain in the industry. This Old House set aside time for every show to recruit younger participants.

kipchak• 3 years ago

I think lack of pay is a big issue as well. (most) everyone has a number where they'd get on a ladder and learn say roofing, but it's typically much higher than $22.50 an hour.

thedougd3• 3 years ago

I intended for low pay, dangerous conditions, abuse/hazing, etc to wrap up into lack of interest.

dsr_2• 3 years ago

If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone.

If you build a thousand new apartments in Sri Lanka, this has no practical effect on the cost of housing in Colombia.

If a housing authority pays a contractor to build a dozen affordable, subsidized apartments, but the apartments are then discovered to be uninhabitable firetraps, the cost of housing can go up.

Authoritatively making sweeping generalizations not only ignores the edge cases, it often sets policy in ways that enable more of those edge cases.

amluto2• 3 years ago

If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone.

That’s not necessarily true. If you build a $5m house where there was previously no house, and the multimillionaire buys it, then they’re not buying some other $4m house, and someone could buy that instead of something else, etc.

For this to work, you need a situation where building n houses does not create demand for approximately n houses.

HDThoreaun8• 3 years ago

If you build a $5 million dollar house, and a multimillionaire buys it as their fourth house, this does not reduce housing costs for anyone.

There is not an infinite number of people looking for second homes. Build enough $5 million dollar homes and you'll run out eventually.

Tade03• 3 years ago

I'm having trouble reconciling this with the fact that in my corner of the world prices have been growing exponentially during the past decade despite the population remaining relatively stable and a record number of housing units being built.

The only thing that changed in this period was investment demand, which skyrocketed.

I have a building in my neighbourhood which consists solely of tiny studio apartments - the vast majority of which were already bought out back when the project was still a hole in the ground. Half of the lights are perpetually dark, because barely anyone lives there.

Or better yet: there's a hole in the ground in my neighbourhood that was still the previous building back when they started selling apartments - the company went bankrupt during the pandemic and construction was only started when another company stepped in and bought everything.

Bottom line is you can't fight exponential growth in demand with linear increase of supply.

sokoloff8• 3 years ago

in my corner of the world prices have been growing exponentially during the past decade

Even steady inflation results in an exponential growth in prices.

Tade03• 3 years ago

To the tune of 8-10% annually in a borderline deflationary economic environment - which was the case for most of the last decade?

I don't think this increase can be attributed to inflation.

01100011• 3 years ago

This. We're still in the midst of an asset bubble due to fiscal and monetary excess. Monetary policy changes haven't largely taken effect yet while we are still stimulating the economy on the fiscal side with deficit spending.

akavi3• 3 years ago

What's your corner of the world? I'm sure we can find hard data on the population growth vs. new building rates which might be illuminatory.

Tade03• 3 years ago

Poland.

Population data: https://data.worldbank.org/indicator/SP.POP.TOTL?locations=P...

Number of new apartments handed over every year: https://demagog.org.pl/wp-content/uploads/2022/06/Mieszkania...

Price changes vs reference moment(dark blue - new apartments, light blue - used):

https://v.wpimg.pl/QUJDREVGfjQrJiR2eTxzIWh-cCw_ZX13P2ZoZ3lxY...

It took a war in a neighbouring country for this madness to pause for a moment, but prices are already picking up again.

fastaguy883• 3 years ago

Perhaps this is true on average over all housing classes, but in my university town, there has been a tremendous increase in supply (luxury appts for rich undergraduates) and no decrease in costs. And now there is a proposal to remove all R-1 (residential) zoning, so large appts can be build anywhere, all in the name of making housing more affordable.

But past increases in supply have not made housing affordable, and the effect will be to convert older smaller (cheaper) single family homes into apartment complexes that are designed for students, not single families. It seems pretty clear that the up-zoning will not make housing affordable for the middle class. Perhaps it will be more affordable for less price sensitive students.

HDThoreaun8• 3 years ago

You're assuming prices wouldn't have increased by even more if the apartments weren't built. I'm not sure why. Increasing supply has absolutely made housing more affordable relative to where it would be if supply hadn't expanded. You're just not expanding supply fast enough to see a decrease in cost.

fastaguy883• 3 years ago

Perhaps more affordable on average, but if the apartments replace older smaller single family homes, then the supply demand thesis suggests that those single family homes would become less affordable.

So yes, things become cheaper if everyone wants to live in an apartment. But for modest income folks in small old houses, up zoning means moving out of the community.

rbliss• 3 years ago

The scope of potential impact from building luxury apartments is wider than a price decrease. It' likely your area has a far larger demand for housing than the amount that is being built + existing housing stock, regardless of type (luxury vs affordable).

Put another way, building the luxury apartments helped prevent an acceleration of price increases across all levels of housing stock. Students from high income families need a place to live, and instead of taking housing stock from the affordable pool, further driving up costs, they have additional desirable supply at their income level.

But! That only prevented price increases due to limited additional supply and was insufficient to drive down costs. Overall aggregate demand still exceeds supply. The simply answer is to build more at all price levels. Small incremental increases of supply are unlikely to drive down costs.

gottorf2• 3 years ago

Besides the other commenter's point (that had the apartments, luxury or otherwise, not been built, prices would have gone up), I think college towns are an exceptional market, especially depending on what type of college it is. If it's an elite, highly selective university, a lot of the students going there are largely price-insensitive. Same for universities with a lot of foreign students.

And in general, college towns are highly desirable places, with a blend of small-town feeling and cultural amenities that punch way above their weight due to all the students. It's hard for prices to fall in situations like that.

coding1232• 3 years ago

Well no, the demand is so high that your proposal makes no sense:

1. High demand on labor and materials from builders makes the cost of labor and materials go up

2. If the demand for the actual home reduces, and the cost of labor does not go down because those workers are now offered better prices as a Walmart worker, material costs may go down, but since materials are about 25% of the cost, it will make the price of the house go down very little.

3. The airbnb/landlord/second-and-third homes from Google stock holders demand seems to be insatiable. If that changes, the entire thing may then finally collapse. However that collapse is much more likely than builders being able to supply the housing with labor and material costs so high right now.

louwrentius• 3 years ago

The fundamental issue is that we allowed housing to be abused as an object of speculation.

No wonder the people with tons of money started to buy up homes, only to rent them out to people who are then not able to buy a home for themselves.

The rich get richer

The poor get poorer

If you’re young, what future is there to look forward to, I wonder.

staringback• 3 years ago

Repeat after me: building new lanes reduces traffic for all

ajkjk2• 3 years ago

It can't be this simple. I know that at a strictly mathematical level it feels like it must be true, like the "Calories In = Calories Out" model of weight loss, and yet, like CICO, feels useless as a principle.

(CICO's problem: as a mathematical relationship it has to be true, but it's too dumb to be helpful: what controls calories out? all of: exercise + resting metabolism + how many calories you hold onto + how much you exhale + how much you excrete, and most of these are regulated by your desire for exercise, eating, etc. -- so while it is the value of d(weight)/dt, it tells you nothing about the first-order term that you should actually control; it's a mix of terms of different orders.)

Similarly, there are clearly multiple "first-order effects" at play that are producing the final housing costs. It's not the case that there is one first-order effect, supply and demand, and then a bunch of 2nd-order corrections. I wish I could clearly see what the full equation is though.

My poorly-informed guess is that the actual first-order model looks like this: "real inflation" is actually much higher than the reported numbers and is best reflected in housing prices (and healthcare prices). The reported number of inflation is much lower because certain sectors --- electronics, food, and other mass-produced consumer goods --- have had their prices heavily suppressed by exploiting global economies or controlled by policy. So lower-income workers, because they can afford smartphones and food, don't feel as poor as they actually are. But housing prices are tracking money supply, which is mostly (incredibly disproportionately) going to high-earners, like many of the tech employees here and all the economic winners of the last fifty years; the incongruity explains why everything is so expensive. At the margin, more supply just gives the rich people more places to park their money -- because they have so much money. I expect that's the best model of e.g. Toronto and NYC.

Put differently: if you took tech salaries and San Francisco rents and divided them both by four, they'd feel like reasonable numbers. Everyone else is getting burned by that.

HDThoreaun8• 3 years ago

No. It really is that simple. There are x units and y people looking for units in an area. If we had enough housing it wouldn't be seen as investment because the returns would be terrible since landlords would be competing for renters instead of the other way around. Leaving housing vacant only makes sense if you've cornered the market or are a land speculator. Most American cities do not have a cornered rental market so we just need to stop land speculation.

ajkjk2• 3 years ago

I think you missed my point entirely. I'm saying that supply-and-demand is too simple to be useful, not that it is untrue. It does not point directly at the dominant effect that is causing housing to be priced the way it is, although it is part of the overall equation. I still believe that building lots of housing is a great idea (and finding a way to make more cheaper non-luxury-priced housing get built would be even better). But it's not a good-enough theory of housing prices.

dalbasal• 3 years ago

In the feisty spirit of this article: Balderdash!

The basis for this articles' argument^ is not really empirical. It's theoretical. And rational in the sense that it models theory to create predictions... It is quite a cherry-picked collection of published studies, not a metastudy.

Anyway, the crux of theoretical argument is "supply and demand... duh." This is often true, depending on the market, but... it really depends on the market. For real estate, "focusing on supply" often leads to understating the significant "out of theory" factors.

For example, real estate "demand," is largely determined by mortgage availability. That's the source of funds. Besides this, British real estate is an investment class with prices affected by rates, performance of other asset classes, and such. These are big factors.

Dublin city, not far, basically conducted an unscripted experiment in this space during 2008-2015. Lending collapsed. Demand collapsed. Lending was gradually restored, and median house values tracked median approved mortgage max outs. IE, if the average bank agreed to lend $X to the average applicant with an average income... that became the average price. Where the banks (CB, really) created subcategories with special rules (eg single bedroom apartments were mortgage disqualified for a while), those special rules dictated average prices for those categories.^^

This is not surprising when you consider the various leverages and flexibilities of the demand side, compared to the flaccid supply side of the equation.

"When asked about the impact of a 10 per cent increase in regional housing supply, however, 40 per cent say prices and rents would rise, while only a third say they would fall."

Sounds to me that most people just guess. But... this is a disingenuous frame. A 10% increase in (London) housing supply doesn't happen often. That's the point. When it does happen, it rarely happens unless prices hold up. There is no realistic scenario where London is exploding into the sky while a flood of supply crashes prices. This is tunnel-vision, model-only thinking. The supply "lever" he wants to crank is good for fractions of a percent, not 10%.

None of this is to say not to build. If we don't build housing, we cant have more housing. But, house prices are not made in the the council's planning permission basement. This is fantasy.

^"Studies show" is a cop out. Make the argument yourself. Base your arguments on the studies, if convincing. Shots fired :-)

^^In Ireland, this has led to the opposite extreme, and equally erroneous belief that supply is always irrelevant to price.

FranchuFranchu• 3 years ago

The best solution to this problem is taxing land value instead of taxing property. Land value taxes have a lot of advantages. They incentivize construction, disincentivize vacant lots, and they also remove the profit that can be earned by being an idle landlord, which is unearned income.

With property tax, improvements on your property are taxed. This makes construction less profitable / housing more expensive. With a land value tax, they aren't.

HDThoreaun8• 3 years ago

LVT also encourages nimbyism from people who don't want to move. If the value of their land goes up they have to pay more taxes, so they're incentivized to ban anything new from being built.

solatic• 3 years ago

Not true if new housing stock is snapped up by speculators/investors/foreigners. Housing, like freeways, can suffer from induced demand, if the target market of the housing project is for people who do not live in the project's geographical region.

Repeat after me: building any new homes reduces housing costs for all

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