Supply constraints do not explain house price, quantity growth across US cities

Essentially if the young and upwardly mobile want suburban sprawl, it's easy to build more of it until the price comes down. If they demand city-center condos, that's a little trickier.

lr4444lr2• 1 year ago

Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is the actual profit on home construction constant (or even shrinking)? One would assume it would be, if their data also controlled for confounding factors like regulatory limits, economic stagnation, etc.

In other words, it is my position that the burden of proof should rest on people who claim that the laws of supply and demand fail to explain what the obstacle is to equilibrium in the market they're studying: why if I increase supply does price not come down? My instinct is that it's just more expensive to build homes on the same profit margin than it was over 40 years ago, when their data sampling begins. I don't believe that the real estate industry suddenly had a collective awakening to greed.

ddorian43• 1 year ago

Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.

mouse_• 1 year ago

Good answer

absolutelastone2• 1 year ago

Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices).

But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.

llamaimperative19• 1 year ago

It's the land price. Rising land prices are the problem, and land is in completely fixed supply. You cannot induce more supply with rising prices. Land is the dominating factor, ergo local variations in housing elasticity don't really matter. Clearly there is some inelastic thing that is eating all the increased local income without inducing more supply: it's the land.

Edit: To the people saying "you can build more on each piece of land!" sure you can. And that should definitely mitigate price increases, but that's exactly what this paper says actually isn't predictive of prices, clearly because cost is dominantly driven by something that isn't affected by this elasticity. The value of higher density development gets immediately baked into the land prices, which then does not induce more supply of land.

lazide8• 1 year ago

Land prices have been rising because of easily available funds.

calvinmorrison2• 1 year ago

with enough price you can raise supply of anything.

masterj• 1 year ago

Land is fixed, but land-per-dwelling is not if you build more densely

ipsento606• 1 year ago

land is in fixed supply, but the amount of land needed per housing unit can be reduced by easing regulatory limits on density

inglor_cz• 1 year ago

Lots of people can live in a single unit of land, unless local zoning rules actively forbid that.

Tokyo occupies about twice as much land as Los Angeles, but has four times as many people.

Too many American cities forbid even relatively modest density such as duplexes or small apartment buildings (with, say, 6 apartments per building).

Demanding that people in metropolitan regions build exclusively single family homes on large lots is insanely uneconomic, and, arguably, a failure of democracy at a local level.

ben_w• 1 year ago

To add to your edit:

Lots of land is, literally, dirt cheap.

There's externalities in having a home that aren't just the land itself, but also the infrastructure per person. The infrastructure costs are why very few people are buying up land in e.g. California City[0] and popping a cheap concrete[1] or steel[2] box (depending on your preference of 3D printing or prefab/shipping container houses) in the desert for less than many people here earn per month.

Did you want a road with that house? Running water? Electricity? Internet? A police force?

Yes, these things are all doable. But they also add to the value proposition of a property ("it's in a good area"), driving up demand, meaning people can charge more for the land, and if you're going to spend a lot more on the land anyway then you might as well make the structure of the home itself a bit nicer, and it all blows up rapidly.

Police in particular are currently getting more expensive thanks to Baumol's cost disease, because policing isn't automated: https://en.wikipedia.org/wiki/Baumol_effect

I'm not sure how costs of sewage etc. change with increased population density. Pipes have to get wider per person, but low-density also means they're longer.

[0] https://www.landwatch.com/kern-county-california-recreationa...

[1] https://web.archive.org/web/20180926121023/https://www.busin...

[2] https://www.alibaba.com/showroom/prefab-container-house.html

mrangle4• 1 year ago

Respectfully, why would data be controlled for "regulatory limits" and "economic stagnation"? Regulation is a constant factor, historically, not something that would be controlled for. You could have something like a "regulatory constant" but then you would need one, historically, to make it meaningful. It would also likely have to be local. None of that will exist. How exactly do you define "economic stagnation" and how would one control for it, assuming for one second that would be desirable to do so?

There is no "law of supply and demand" in the real market, only in textbooks. There is only the factor of supply and demand. Therefore, raw supply and demand is not an assumed default explanation for pricing. No one is obligated to explain why supply doesn't seem to explain price. Though, anyone is welcome to pitch as to why it might for a particular circumstance.

Other variables that are sometimes interlinked: international cash buyers, institutional cash buyers, global dollar and therefore asset and commodity value in USD (inflation), skilled labor costs and availability, interest rates, the white and blue collar unemployment rates, changing lending criteria, the cost of gasoline, regional population fluctuations, the bond market, etc.

johngladtj• 1 year ago

Regulation is not a constant factor.

btilly2• 1 year ago

Regulation is not a constant factor. It varies from place to place, and has generally increased over time.

rattlesnakedave• 1 year ago

why would data be controlled for "regulatory limits" and "economic stagnation"

because they significantly impact housing markets but aren't the primary variables being studied

Regulation is a constant factor

Wow

ToucanLoucan• 1 year ago

There is no "law of supply and demand" in the real market, only in textbooks.

Louder for the people in the back.

If sellers are not in a particular rush to part with a given good, for whatever reason, there is no reason for an over-supply to lead to lower prices. They will simply hold stock until such time as it sells, confident that it will. Does that always pay off? Not necessarily but with housing both in the selling and renting markets, it does so often that I don't think any particular holder of real estate is too worried about it. You can sit on vacant property to your heart's content and somewhere down the line, someone, or some company, will likely meet or exceed what you're looking to get out of it.

Real estate also has the handy benefit in it's basically guaranteed to hold value, and it's unexpected if it doesn't increase in value year over year.

lr4444lr2• 1 year ago

That's like saying "there are no perfect spheres in the real world, ergo Newton's Laws are bunk."

I am not a simpleton. I am aware that perfectly elastic supply and demand curves pushing to static equilibrium is not how the world works in practice. But if economics as a study of resources and its markets is going to be a rigorous field, it has to start from some general principles and then explain how paradoxes are consistent in a general framework of limited resources and unlimited wants. Otherwise it's not a serious discipline, just ideologues playing with SPSS on data sources of quality we can only guess at.

If there building more houses does not lead to an easing of prices on houses, then we deserve an explanation and a rigorous confirmation, not speculation.

DrillShopper• 1 year ago

why if I increase supply does price not come down?

Over what window?

There's clearly already a pent up demand for housing due to it currently being unaffordable. There's also clearly already a demand for speculative investment real estate, some of which is also pent up due to rising prices and constrained supply.

If the investors are still going to be in the market at the current price, and they snap up all available supply, then the price for housing is not going to come down immediately. It will only come down if you increase the supply to more than the demand of the investors. Only then will the price come down, and then people who just need a place to live may engage with the market.

The prices coming down isn't a simple on/off switch, especially in a market as complex as real estate.

epistasis6• 1 year ago

Are investors buying and keeping places vacant? There has always been talk of that in places like Vancouver, but I have not heard of that in the US. All the conspiracy theories about vacancies are about the for-rent new buildings, which doesn't make sense either.

100% agreed about there not being an on/off switch for pricing, real estate pricing sticks high, and it takes a shock to make people reevaluate what they thought there property was worth. The very very minor increases in supply when there is massive pent up demand will not alleviate prices much, even if it staves off price increases.

JKCalhoun• 1 year ago

why if I increase supply does price not come down?

We're making more and more luxury cars, why is the price not coming down?

From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.

thechao• 1 year ago

I know a number of builders in my neighborhood. There's a number of compounding issues: labor costs are higher, which means the customer wants to maximize resale value by amortizing lot costs. This dovetails (in Texas) with carried property tax rates; so, lots in city boundaries increase in price faster than you'd think just sitting around. Second, the builders tend to buy material on futures, which means you lock in price + volatility. There's been a buttload of volatility over the last 12 years, adding to the cost of materials. Inflation has hit building materials pretty hard (wood, concrete, steel).

Last, and this is really hard to convince some people: the amount of rebuilding due to natural disasters has skyrocketed. Due to the way insurance & federal relief works, that work is far preferable to labor than spec work. This has put a huge distortion in the new build market.

jaredklewis3• 1 year ago

We're making more and more luxury cars, why is the price not coming down?

Because more people are buying them. If you make more and more of something and you can still sell all of them without lowering the price, it means there is still more demand for that thing.

We’ve under-built housing for almost 2 decades. The long term demographic trend is that people are moving out of rural areas and into urban areas like Omaha, so the fact that there would be more demand for than supply for housing in Omaha is entirely expected.

From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.

What you say is true, but also not a problem.

When I was college I lived in an apartment in Chicago with 3 roommates. Our apartment had a servant's quarters. The dining room (which we also used as a bedroom) had a metal tube with a bell that connected to the servant's quarters. Obviously, at one time this was a luxury apartment, but my share of the rent was only around $500. It became affordable housing. Today's affordable housing is yesterday's luxury apartment.

Not sure the details of Omaha, but where I live in Los Angeles, insane building codes make it incredibly difficult to profitably develop affordable housing. The very nice apartments I lived in when I lived in Tokyo would all have been illegal in Los Angeles.

ivewonyoung• 1 year ago

Any new housing brings down prices or stops them from growing up as much.

https://news.ycombinator.com/item?id=37524331

getnormality• 1 year ago

I understand you're making a brief comment outlining a position, but personally, I don't see how you can be satisfied with that explanation.

Say I have two opportunities, one pays $200/hour and one pays $100/hour. But I can only do the higher-paying one for 10 hours a week. If I have more capacity and I want to have more than $100k in annual income, I will work the less profitable job, even if it doesn't provide the maximum profit.

Similarly, in the market in general, if there's demand for housing at a lower profit margin, and there's spare capacity to build it, it should happen. People don't just take the highest profit margin opportunities and toss the rest in the rubbish. So I think there has to be a deeper issue, for example there are costs that make the profit margin so low (or even negative) that the opportunity doesn't attract sufficient labor to build the supply.

lotsofpulp• 1 year ago

We're making more and more luxury cars, why is the price not coming down?

I don’t think this is true, especially per capita:

https://www.statista.com/statistics/204208/north-america-veh...

Also, “luxury” car is relative. An entry level car today will have many features from a luxury car from 20 years ago. Also, “luxury” brands will intentionally not make too many cars to maintain the brand’s exclusivity. Otherwise, they would not be able to profit from price discrimination:

https://en.wikipedia.org/wiki/Price_discrimination

So price per car feature and per mile has certainly come down, a lot. But simultaneously, people’s expectations have gone up.

bluGill3• 1 year ago

We're making more and more luxury cars, why is the price not coming down?

Because supply and demand are carefully watched. Manufactures are not just making more and more luxury cars, they carefully study the market and adjust supply so that their price makes sense. Remember all the materials, labor, engineering, management and other overhead sets a floor to price of a car, they carefully watch the numbers to make them work. They might be making more cars, but they are not making infinitely more.

bobthepanda3• 1 year ago

it's worth noting that the opposite, not making any higher-end homes, doesn't actually work to increase affordability either.

we actually saw this when new cars became unavailable during the COVID supply chain crunch and then used car prices skyrocketed. the real estate equivalent would be literal tenements in New York renting at $4-5k a bedroom.

milesrout2• 1 year ago

Luxury cars are much cheaper than they were. Any new car today would have been a luxury car a couple of decades ago.

pj_mukh2• 1 year ago

Yes, this. Also, hate to use this argument but this simply doesn't match my lived experience. My rent and income have been going up for the last 10 years and yes that means I'm paying more and more for housing. However, my city rubber-stamped a glut of housing in one neighborhood and as my income went up, I was able to negotiate my rent down.

This phenomenon is a direct contradiction to the thesis of this paper. It is true, the people who people the glut of housing are currently freaking out because their margins are threatened. That's probably a good thing..upto a point [1].

The solution seems simple: rubber-stamp, nay, encourage developers into building gluts of housing so they demolish their own margins into dropping the price of housing.

[1] https://oaklandside.org/2025/02/14/oakland-downtown-apartmen...

epistasis6• 1 year ago

As somebody who has been involved politically with trying to increase supply (unsuccessfull), so that more people could experience what you are, I would note that Tori experience does not technically deny that supply is a big component of pricing.

It just says that there has to be something more too.

However, NIMBYs will use this paper inappropriately to argue against policies that enable your type of price drops.

kelseyfrog• 1 year ago

Can you help me understand your argument. It seems to hinge on the idea the existence of a counter-example proves it wrong? I could see how this would work for a logical argument or a proof, but I'm finding it difficult to see how it fits into proving ultimately a statistical finding incorrect. I generally see statistics as being able to tease apart situations where there are counter-examples and we're looking at things like proportions between categories and such.

Retric2• 1 year ago

Markets depend on both supply and demand, and there’s been a massive decline in the number of adults living together.

So the underlying explanation is likely that your personal salary has basically zero impact on the housing market, once you make enough to cover rent you end up paying the market rate. What matters in terms of short term trends is the marginal increase or decrease in people’s willingness to have roommates, live with their parents, etc.

When times are good and more people are gainfully employed the demand suddenly shoots up, in a downturn people suddenly move in with others become homeless etc. By comparison adding 2% housing units just doesn’t have nearly the impact it seems like it should.

tokai2• 1 year ago

Fits with my experience. Its mainly the bank's willingness to loan money that drives house sales. Home buyers are some of the best protected groups, so its no wonder that its a speculative market driven mainly by available funds and not supply and demand.

lazide8• 1 year ago

Or perhaps another way of stating it - available funds largely determine demand.

plantain3• 1 year ago

I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts?

Seems more to me like, because there is a shortage, the marginal price gets bid up to the maximum people can possibly pay (which is decided by the banks).

HPsquared• 1 year ago

And keeping in mind dollars are a limitless, renewable resource.

electriclove• 1 year ago

Same here. I hope we get some good comments from those who believe it is all about creating more affordable housing. I’m interested in reading their counter argument or reading if this changes their thinking.

hylaride• 1 year ago

(Availability of and access to) Debt is definitely a driving factor. It grants access to a larger group of people and if supply can't keep up (for a variety of reasons), it'd drive it up prices in the short to medium term.

In the postwar era, any time you saw a country ease mortgage lending rules, home prices would inevitably rise, which would inevitably be made worse by further lessening of standards to "expand affordability". This was the TL;DR of Canadian housing prices (compounded by high immigration, lack of trades people, and high resource costs due to at the time demand from China).

epistasis6• 1 year ago

Why would anybody pay any more with that extra money from the bank, unless there's a supply shortage?

There is no leverage for sellers to demand excess new money unless there's a shortage.

bryanlarsen4• 1 year ago

This paper suffers greatly from US-centrism. There are too few examples of proper Austin-like YIMBY cities in the US for proper statistic analysis.

A more world-wide search would quickly find counter-examples of low-wage high-price cities like Vancouver, BC.

lazide8• 1 year ago

Or Hong Kong, Singapore, any major Indian metro, etc.

sidewndr46• 1 year ago

"Austin-like YIMBY cities" is that a typo? Surely you meant NIMBY?

skadamat• 1 year ago

Nah they mean YIMBY :)

Austin did a great job with opening supply.

https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_ba...

https://therealdeal.com/texas/austin/2024/05/20/austin-forge...

I went to school in Austin back in 2009 and surprisingly, rents for my same college apartment only grew a few % a year since then! Crazy

hnthrow903487652• 1 year ago

This is a paper meant to explain what is happening in US cities and will obviously be US-centric.

bryanlarsen4• 1 year ago

That'd be nice if it was possible. However it runs into the standard social science problem -- you can't run experiments, so you have to rely on natural experiments. If the natural experiment doesn't exist, you don't have any data and you can't draw conclusions.

plantain3• 1 year ago

Income determines house prices because there is not enough supply.

Without enough supply, what stock is available gets bid up to the maximum people can pay (largely decided by banks).

This is like a basic cornerstone of economics!

dbspin4• 1 year ago

This would be true were private equity not buying up housing stock. That being the case income is now to some extent detached from housing prices.

[1] https://www.washingtontimes.com/news/2024/mar/15/in-shift-44...

mtoner23• 1 year ago

private equity is no different than any other buyer in a diverse market of buyers here. it sounds bad but they are just bidding like any other buyer

rafram2• 1 year ago

Washington Times is not a reliable source, and that 44% claim has been thoroughly debunked: https://www.housingwire.com/articles/no-wall-street-investor...

Workaccount2• 1 year ago

I'm so tired of people parroting this argument as if removing PE would solve the housing crisis. PE bought something like ~15% of new homes in 2024 (using the metric "flipped" is just a dumb way to get a headline), which turned around mean 85% of new homes were purchased by regular people.

But even that doesn't matter. Because PE is just investors, and guess what, the regular people buying the other 85% are investors too.

I live in an area where there is almost zero PE owned homes, and guess what, home prices are still exploding. There are still bidding wars and still crunchy moms chaining themselves to dilapidated warehouses to stop new builds from going up.

Analemma_2• 1 year ago

These companies literally say in their SEC filings that "this is profitable only because municipalities artificially restrict supply; allowing more housing to be built would be a material threat to our business":

“We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States.” [0] (emphasis mine)

"The continuing development of apartment buildings and condominium units in many of our target markets increases the supply of housing and exacerbates competition for tenants." [1]

You have the power to wallop the private equity housing buyup strategy by building more houses! Building fewer in order to spite them is literally giving them exactly what they want.

[0] https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/a154763...

[1] https://www.sec.gov/Archives/edgar/data/1562401/000119312513...

graemep• 1 year ago

Income. Incomes determine the repayments people can afford, and interest rates (together with term and regulator requirements) determine how much can borrowed that can be paid back with those repayments.

tmnvix2• 1 year ago

Yes, interest rates and serviceability are key.

A related theory that I find intriguing is that the benefits of productivity gains have largely been claimed by the financial industry. As productivity improves, more credit is made available, people take on more debt to purchase a home because if they don't someone else whose can also service a larger debt will. This ultimately just drives up the price for everyone, leaving people no better off than they were before. The winners are those collecting the loan repayments.

Earw0rm6• 1 year ago

It's a positional good, in effect there can never be "enough" supply. Short of a socialist/communist system, people will always compete for the best, using whatever resources they can bring to bear.

mjevans2• 1 year ago

For the Best? Yeah, that's still in competition now among places for the 1%...

For the median and low end? There's enough when people have a _real_ choice of moving to a unit house or apartment a mile away and leaving a bad option UN-SOLD on the market.

Sufficient means there's slack in the market, so the free market works.

no_wizard16• 1 year ago

Land Value Tax creates what would otherwise be a market pressure dynamic to sell. Since real estate isn't a normal (nor decidedly functional) marketplace - because you can't simply make new land in any realistic quantity - it comes as close as it can to creating a situation that increases utilization and decreases inefficient use of land.

The incentives under an LVT system run in the opposite direction of what they do now.

mitthrowaway22• 1 year ago

I don't know about this. If I were the median family and supply was sufficient that I had 4 bedrooms, a garden, storage, EV parking and a workshop space, biking distance from my workplace, I think I'd invest the rest of my resources into enjoying those things rather than spending them on bidding for an even bigger and better home.

closeparen4• 1 year ago

Sure but the objective characteristics of the housing you're competing for, at whatever level of resources you can bring to bear, can be dramatically better or worse depending on supply.

energy123• 1 year ago

Studio apartments are not positional goods, and yet...

s_dev• 1 year ago

This is like a basic cornerstone of economics!

You can reduce demand by limiting speculative investors and that doesn't involve increasing supply.

plantain3• 1 year ago

Speculative investors aren't removing the house from the market, they're renting it out. Houses produce Housing. Sure, some people specifically want to buy Houses, but all of us need Housing.

(I do completely agree we should get speculation out of the housing market - housing as a memecoin, buying because line-go-up is not healthy)

protocolture5• 1 year ago

Increasing supply will burn speculators out too.

matwood2• 1 year ago

It should also be noted that housing is super local. Building a bunch of new supply in the mid-west isn't going to lower the prices along the southeast coast. And for a less extreme case, adding a new house across town from me isn't likely to impact my house's price at all.

What would impact pricing is if people left an area (look at the 1 euro houses in Italy in towns where everyone has left). The mass migration to the US coasts and south doesn't seem like it's stopping anytime soon which will continue to put pressure on the local housing supplies.

GoatInGrey2• 1 year ago

I think that premise assumes that residents never move from areas with lower housing supply to areas with higher housing supply. A behavior rooted in economic gradients.

Migration in response to price differentials, voting with your feet, spatial arbitrage, spatial equilibrium, geographic mobility of labor, the Tiebout model...the phenomenon goes by many names.

derbOac• 1 year ago

This paper was discussed in another forum, and people raised that point.

However, it was also pointed out that this paper isn't really about supply, it's about supply regulation and supply constraints:

"... We also use the measures of the Wharton Residential Land Use Regulatory Index (WRLURI) by Gyourko et al. (2008), generated at the MSA-level by Saiz (2010), which capture variation in the regulatory environment across MSAs. We multiply this index by minus one so that increases in the value indicate a less restrictive regulatory environment and so, ostensibly, a more elastic housing supply function."

You could eliminate housing supply regulations and still have poor housing supply for other reasons.

thescriptkiddie• 1 year ago

what you're missing is that the demand curve for housing is basically a vertical line. most people will never buy/rent more or less than one unit of housing, and they will pay literally anything to keep it from being less. therefore even if there is a surplus of supply there isn't a competitive market.

llamaimperative19• 1 year ago

Ah, Henry George was right once again.

Land Value Tax solves this.

genpfault• 1 year ago

https://en.wikipedia.org/wiki/Georgism

https://en.wikipedia.org/wiki/Land_value_tax

anonfordays2• 1 year ago

LVT encourages sprawl. States that have high property taxes implement some of tenants of LVT already and it hasn't solved anything.

llamaimperative19• 1 year ago

1. Property tax is not land value tax, and "high property tax" does not behave at all like a quasi-land value tax even if land value is a component of the property tax.

2. No, it specifically makes sprawl very expensive relative to density, and economic decisions are largely made on a comparative basis. LVT makes it free to increase the density/productivity of your existing lot, while taking ownership of another lot (more area) introduces a huge new tax burden that you have to put to very productive use very quickly.

It's way, way cheaper to increase density than sprawl under LVT.

ss64• 1 year ago

Why do journalists and economists never understand that it is the supply and demand of CREDIT which they need focus on.

lazide8• 1 year ago

For the same reason alcoholics can never understand the reason they tend to drink is as much because of the hangover, as it is whatever they did to start drinking.

bildung• 1 year ago

Feel free to explain to explain to these economists what they did wrong in their paper

intended3• 1 year ago

This is a paper from NBER

Der_Einzige• 1 year ago

I'm VERY glad to see some evidence that rebukes the reddit/liberal hive-mind belief that we can fix the housing crisis by just "doing housing first policies" or "build more" or "kill all NIMBYs".

In general, most similar platitudes that appear like easy explanations for social problems are at best extraordinarily incomplete and are often dead wrong.

buttercraft• 1 year ago

platitudes
reddit/liberal hive-mind

Do you hear yourself?

mrangle4• 1 year ago

Both can be true at the same time, and are:

Housing costs in the US are much more complicated than consumer supply and demand measurements indicate

The US housing supply is embarrassingly ancient, overpriced (especially considering condition), and deficient in volume (especially given quality).

You don't really have an argument when $1500 gets renters baseboard heating in a 40+ year old building in a secondary city.

lucaspm98• 1 year ago

As I understand it the "liberal hive mind" believes the exact opposite - that some bogeyman, typically either corporations or foreign investors, prevent functional supply and demand dynamics. Therefore they don't support a free market, typically more right-leaning, solution of deregulation and relaxed zoning restrictions.

donatj• 1 year ago

What determines housing prices? The seller and to a much lesser extent the buyer.

How does the seller set the price? To what they feel is market price.

You can flood the market with new houses all you want but if the construction company isn't selling at a lower price than existing houses in the area, and they won't be, that's not going to push prices down. Because it's not a traditional commodity. Beyond that, it's pretty much an open secret at this point that new construction is a lower quality house at a premium.

Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years.

The big difference between houses and a traditional commodity is that holding one even when you want to sell can still be a net positive. You can continue to live there, you can rent it out. It just doesn't have the same motivation to sell as a traditional commodity.

naasking• 1 year ago

Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years.

The people wealthy enough to do this are a small enough group that this cannot have such an outsized effect across the whole market. People typically have to sell their home to afford the one they're moving into, so they can't just sit on it until they get the price they want.

bryanlarsen4• 1 year ago

Many people are willing to just sit and wait for the right buyer even if it takes years.

I think that's only a large minority. IIUC, a majority of sellers are motivated sellers, people that are selling because life circumstances are forcing them to move and sell.

But even if only a small portion of sellers were motivated sellers, "prices are set at the margin". In other words, if most people aren't selling because the price is too low, the people who are selling are the ones that are setting the price.

PedroBatista• 1 year ago

The rivers of ink and all the gymnastics we do to avoid saying the obvious: Houses/Real Estate has become the main asset where most people store/keep their wealth.

It has been this way for quite a few time, the banks like it, the boomers love it and the local governments can't live without it.

The chickens are coming home to roost on this one, and I'm talking about society in general not just a"correction in the housing market" at this point that is more or less meaningless when looking into the big picture.

ThePhysicist• 1 year ago

Probably needs to be taken with a large grain of salt and might be exaggerated but I recently heard a claim (https://www.youtube.com/watch?v=iKdtyDnGM-o) that the FHA program basically prevents a large number of foreclosures from happening as the government effectively keeps paying for loans where borrowers are already in default, and without the program many homes would be on the market again suppressing prices. If my understanding is correct the home owners get the interest payments made by the government tacked onto their mortgage so once they would go into default they would be faced with a home that is not worth enough to pay off the mortgage due to previously inflated market prices and all the added interest payments. Not sure if we have a new subprime crisis in the making here, it seems unhealthy in any case. But then again, never believe stuff influencers tell you on Youtube, so I take it with a healthy dose of skepticism.

JohnFen4• 1 year ago

without the program many homes would be on the market again suppressing prices.

At the same time, though, the people who lost those homes will be on the market looking for a different place to live, increasing demand.

This is not my field of expertise, but on the surface it appears to me that this kind of thing is a wash. A housing unit is made available, increasing supply, at the same time as a new demand is created for a housing unit, decreasing supply.

recursive• 1 year ago

people who lost those homes will be on the market looking for a different place to live

At a lower price point obviously. There's still a net movement to lower prices.

aprilthird2021• 1 year ago

Foreclosing on a house probably means you are not going to buy another one for a while

tbrownaw• 1 year ago

Subsidies do raise the demand curve for whatever's being subsidized.

ibejoeb• 1 year ago

our findings imply that constrained housing supply is relatively unimportant in explaining differences in rising house prices

I guess it's something worth investigating, but is anyone really under the impression that this is a simple supply and demand system? We have algorithmic pricing all over the housing markets, and there is an artificial floor on prices. (Check out the realpage actions for a glimpse into this stuff.)

duxup2• 1 year ago

I can't say I understand this paper / I'm not very good at reading these kinds of papers.

I will say that in my area the municipality has had to set development rules for various price ranges for houses ... otherwise all we would seem to get are developers who want to sell luxury houses. Obviously there is some demand for those luxury houses, but the incentives to build "starter houses" or even affordable apartments just did not seem to be there unless encouraged / required by government.

Once required we had a lot of WAY more affordable and seemingly appropriate housing being built. Still subject market forces, but at least there were choices now.

It seems to me the margins on luxury / larger homes makes building luxury homes far more desirable than more affordable homes, even with demand for more affordable options.

JohnFen4• 1 year ago

all we would seem to get are developers who want to sell luxury houses

This is how it is in my part of the US. Not so much houses as large luxury apartment buildings aimed at the wealthy (and being built with taxpayer subsidies). They are doing nothing to address the very real housing shortage.

bryanlarsen4• 1 year ago

AFAICT, in my metro and others, pretty much all the cheap housing is luxury housing from ~100 years ago. Cheap housing built 100 years ago has been torn down and replaced, but the good stuff built 100 years ago is still standing and being used.

The problem is that we weren't building luxury apartments 50 years ago, it was all single family housing. So there aren't any luxury apartments that can degrade into cheap housing. Building luxury apartments & condos now will help the cheap housing situation in 50 years time.

Cheer2171• 1 year ago

This is the second biggest piece of economics misinformation, behind people who believe their net income will go down if they get a raise into the next tax bracket.

Just like cars, all new housing is luxury. No one working minimum wage can afford the cheapest new car on the lot. But those new cars get bought by people who sell their used cars.

culi• 1 year ago

What's considered a "luxury" apartment in Bay Area is considered normal in many other parts of the country. I've heard it's mostly a scheme to avoid certain regulations but I can't find anything from a quick lookup. Regardless, while searching for an apartment recently, the term "luxury" was completely meaningless. I found luxury apartments that were cheaper and/or had less amenities/features than "affordable" ones. The biggest factor seems (often slight) differences in location rather than differences in the quality of the apartment itself

Analemma_2• 1 year ago

"Developers are only building luxury houses!" is a symptom of supply being forcibly prevented from meeting demand. An unrestricted market on housing will build houses up and down the price spectrum. Now introduce an arbitrary cap on the number of houses which can be built. Which houses are the ones that get built? Obviously it will be the ones at the top of the spectrum: they are the most profitable, so that demand gets met first until it is either fulfilled or developers can't build anymore.

Consider, if a car company was only allowed to build 100 cars per year, of course they would build only million-dollar hypercars. In order to profitably meet demand at the bottom end of the market, they need to be allowed to supply in large quantities.

duxup2• 1 year ago

Isn't housing inherently limited by space, city's ability to plan / permit, and setup / install services?

Even housing builders seem limited in their ability to build.

I'm not sure an "unrestricted" market is a realistic or even desirable concept here.

hnthrow903487652• 1 year ago

An unrestricted market on housing will build houses up and down the price spectrum.

I don't know, it would seem land costs would make up a higher proportion of the total cost of small low-cost individual houses, and if that's true then you'll need to buy a lot more land and start running into people who won't sell or quote ridiculous land prices, which makes those builds unfeasible.

My guess would be they'd still go for bulk, high density builds for low cost housing. The biggest issue there is that those are almost always apartment rentals which don't build wealth, which leads to less buying power further along in life, and that hurts demand for medium individual homes.

ajkjk6• 1 year ago

I always felt like this was kind of obvious. People love to say housing supply will lower prices, and it's probably slightly true, but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money. In the US the rich have comically more money than the poor--100s or 1000s of times as much, comparing the surplus that a wealthy tech employee has to put towards a house fund compared to a person living paycheck to paycheck. And then the rich will then buy vacation homes, pied-a-terres, etc, with their huge excess. Who would put money into building for people who have no money when those people are out there?

Rent on the other hand is likely more supply/demand based because it is actually possible to have empty units due to overbuilding if the local economy shifts. But even still they are motivated to hold units empty and keep the price high to wait for a rich person who can afford it to come along. (Not to mention algorithmically colluding so as to not actually compete on price.)

I cannot imagine how housing could ever become more affordable for the poor unless the income disparity lowers, short of some sort of price-fixing governmental action.

jaredklewis3• 1 year ago

short of some sort of price-fixing governmental action. Well rent control has a long, well documented history of bad outcomes. Doesn't exactly make me eager to let the government set all the prices.

I think a sufficiently high land value tax would either discourage excess housing speculation by the rich, or raise enough revenue to support wealth redistribution schemes that erode what you identify as being the cause of the issue.

verteu3• 1 year ago

Really? https://i.imgur.com/BMsPrKY.png

Seems to correlate pretty well to me. Per [1] and [2], YoY home prices are decreasing in most regions with high % change in homes built ("New housing units authorized per 1k existing (2021)"), eg: Austin, Jacksonville, Houston, Phoenix, Nashville, Phoenix, Raleigh.

[1] https://constructioncoverage.com/research/cities-investing-m...

[2] https://www.zillow.com/home-values/10221/austin-tx/#/

ajkjk6• 1 year ago

It seems more correct to say that supppy/demand drives a ~second order effect. But the first order term has to do with how much money people have (well and there's the interplay with where those people want to live). That is what distinguishes low vs high cost of living areas, after all. It's also what differentiates prices today from prices twenty years ago. And gentrification is not driven by supply/demand per se but by the hand-in-hand growth of desirability and income.

closeparen4• 1 year ago

The 95th percentile household income in the Bay Area is $250k. That corresponds to a house around $1.2 million: well below the median. Your relative position in a housing market that's outpacing inflation is mostly based on when you got in, not your relative income.

ajkjk6• 1 year ago

True. But it's only really interesting to think about what people are presently buying houses for (and what makes them want to move) when thinking about pricing effects.

crooked-v3• 1 year ago

but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money

Yes, because there's not enough housing, so housing prices end up being set by the upper averages of whatever people can theoretically pay.

Who would put money into building for people who have no money when those people are out there?

The builders who are still looking for work after there's actually enough housing to match demand by the wealthy.

ajkjk6• 1 year ago

Yes, if that state was reached, we would see supply go up and prices drop. In the HCOL areas I'm aware that state seems ever further away, seeing as how they're still building luxury stuff everywhere.

aeblyve2• 1 year ago

Households with two PMC-type spouses earning PMC-type salaries with generational wealth, set prices in US cities. Preference for cash buyers, as well as buyers that waive inspection (they can afford to), often get precedence in bidding, making the value of cash over credit higher.

etrautmann• 1 year ago

what is PMC?

aeblyve2• 1 year ago

"Professional Managerial Class".

yonran2• 1 year ago

It’s surprising that they took measurements at 2000 and 2020 and did not mention the Great Recession at all, which severely reduced ability of households to get a mortgage and disrupted both demand and supply. I don’t think their attempt to control for the “kinked” supply curve by dropping the bottom 25% of metros by income growth is sufficient to eliminate metros that were devastated by the Great Recession.

Also, I am not sure whether comparing to median value of constraint index (e.g. Wharton residential land use regulation index) is a particularly good way to categorizing metros into constrained and unconstrained, since it’s hard to know which specific constraints of the “regulatory hydra” are important for future development (https://twitter.com/TheJakeSchmidt/status/157220787234744729...). One metro may need to reduce minimum lot sizes to allow the next increment of development, whereas another metro may need to allow lot mergers and relax density limits instead.

So I think this paper is basically concluding that land use constraints are harder to measure than income growth.

epistasis6• 1 year ago

There are many many many flaws with the correlative analysis of this paper, and the flaw you have identified is an absolutely key flaw.

Here's a great Odd Lots podcast on that specific issue: https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-...

It's also interesting to note that the guest identifies lack of supply as the other key thing to fix, but finds that the idea that YIMBY policies could actually be put in place too politically infeasible to consider.

yonran2• 1 year ago

Yes, Kevin Erdmann’s writings were what I was thinking of when I said that lending has been restricted since the Great Recession. He does identify “Closed Access” supply restrictions as the original sin that the Fed misinterpreted as a speculative bubble. I highly recommend his blog and books.

dogline2• 1 year ago

As somebody who lived in Northern California in the communities which first started spiking in the early 2000's, I've always had a pet theory from the time.

Housing Appraisers realized they could tack on $10k per house when appraising, and they realized that nobody would stop them. Realtors loved that because they got more commission, buyers realized that houses were going up fast so they'd better get in while they could, appraisers got called back more in a tight market and everybody made money. There were *no* controls on the appraising.

to11mtm2• 1 year ago

Ding ding ding!

Still remember how when I bought my house, there was a clause for 'if the house appraises under X, buyer will pay up to Y out of pocket to match the difference' (This was to help make the offer 'stronger' according to realtor.)

Lo and behold, my house magically appraised exactly for X, despite it likely being more like X-5,000 based on realities and other sales in the area...

nine_zeros• 1 year ago

Yes, appraisers make their best effort to make the sale happen - because that is what their payers (banks) want. All they need is plausible valuation.

rco87863• 1 year ago

At least in my state there is no incentive for appraisers to do this. 99% of appraisals get assigned to random appraisers. There is no such thing as “repeat business”, at least within the realm of your typical home sale where the buyer is financing through a bank.

dogline2• 1 year ago

In California, at least at the time, Realtors called the Appraisers they knew could be a little generous with the numbers to make the clients happy. Speed-dial. Inflated numbers were easy to make plausible, and as time went on, the cycle became self fulfilling.

Appraisers knew this, they got lots of easy business for an afternoon's worth of work, and grew their businesses. Realtors would shrug and say "That's what it appraised at." Banks were happy. Sellers were happy. Lots of money. There was no natural regulation or push-back stopping any of this.

Source: friend made lots of money doing this at the time. They probably made out better than the Realtors.

TexanFeller• 1 year ago

There are definitely laws and lender requirements that should make appraiser selection somewhat random and their findings somewhat neutral, but based on my house buying experience I don’t believe for a second that they’re effective. We made a bunch of offers and somehow the appraisal was always right at the offer price or ~5-7k above. I’m convinced that the appraisers somehow have knowledge they shouldn’t and covert/indirect mechanisms exist to motivate them to play ball to make deals go through.

Besides small sample size giving me a skewed sample, the other explanation I can think of for this is that appraisal is a fairly exact science and realtors have mastered pricing based on it. Considering the volatility of my market, lack of comparable sales, and the IQ of the realtors I’ve met that seems laughable.

julienb_sea• 1 year ago

I mean this is true, but I think its more realistically like the appraiser doesn't want to create a situation where it tanks a sale if they can avoid it. When I bought my house in 2022 there was a bidding war (like every house sale in Seattle), I paid 150k over asking price which was relatively speaking pretty reasonable as the other houses I bid on went for 250-500 over.

That said it was on the very high side of valuation. My agent told me if the first appraisal wasn't enough to cover the purchase price, we would just get another appraisal. The first appraisal went fine, compared to other properties it was within range of reasonable so they approved it and the mortgage went through without issue.

driverdan• 1 year ago

Unless the houses were sold monthly adding $10k would be below the rate of inflation and have no impact.

no_wizard16• 1 year ago

Residential zoning laws in most California cities (and frankly, across the country) do no favors either. They're tuned tightly to encourage home values to go up not to stabilize the cost of housing and maximize housing accessibility.

This strictness is the backbone of what allows everything else to happen. There's no market dynamic - because cities (or more specifically, city residents) don't seemingly actually want a functional real estate market for a variety of reasons - therefore there is no way for enterprising developer to come in and build and sell at a price target they look to set.

Instead, it all has to go through this machinery as you describe. It has always been ripe for exploitation as a result.

intrasight9• 1 year ago

There's no market dynamic

Yeah there is. You could choose to move to a different market. And within a city, there's no market dynamic because of the laws of geometry.

adamredwoods• 1 year ago

Taxes are suppose to keep this from going out of control. but the only way to appeal a tax appraisal increase (here in Washington) is to use OTHER home values in the area that are similar, but less.

lsllc• 1 year ago

Mortgage appraisals are far higher than the local tax appraisals which seem to run 20-25% lower than say Zillow says. Local tax appraisals are also typically only updated once every 10 years or so (depending on the jurisdiction).

Besides, I think these days the appraisers don't actually do appraisals, they just look at Zillow.

timewizard2• 1 year ago

No income no job loans.

That's _why_ the appraisers could do this.

The banks got greedy, realized their mistake, and then promptly blew up the market on purpose. The secondary effects were not the drivers of the crisis. This is one of the most documented and unpunished crimes of the century.

jfengel• 1 year ago

The best part: it may well not have been illegal. The economy is a constant cycle of upswings caused by new forms of crime, followed by a crash and then new laws. They then set out to research new forms of crime.

laweijfmvo• 1 year ago

why does this sound like what the credit agencies were doing during the subprime crisis?

wat100003• 1 year ago

Appraisers don’t set prices, though. In my purchases and sales, they’ve only been involved after an offer is accepted and the lender wants to be sure that their collateral is worth what it needs to be. Even if some people are using appraisers to set their asking price, that doesn’t mean buyers will offer it.

mgkimsal• 1 year ago

The network effect of the prices going up seems to permit the appraisers to add their bumps up as well. I don't think it's as influenced by appraisers as some think, and it might vary by region a bit. If prices in a region are rising (for a number of factors) I don't think many appraisers are going to round down in their judgements.

m4632• 1 year ago

I kind of wonder if there could be some kind of antagonistic pricing checks, by finding parties opposed to inaccuracies.

For example, actuaries have to be accurate about the costs of using a vehicle. If their estimate is too low, the insurance company will lose money. If they are too high, they will lose business to competitors.

But probably insurance companies are not the opposed party, because they will sell more insurance, and losses may be lower than inflated costs.

On a different note, california prop 13 has made people keep their house longer or forever.

intrasight9• 1 year ago

Longer yes. Forever no.

Also you don't need a proposition in your constitution to affect the same outcome. Where I live they almost never do reassessments, so we effectively have the same result.

The great thing about having states is that we can experiment with lots of different models of how to run society. If you don't like your particular, society then you can move to a different one.

xenadu02• 1 year ago

I've explained this before but the players involved don't really care. The bank just wants to make sure they aren't on the hook for a worthless shack. If the appraisal comes back inflated by 10-20% that's fine. The goal is to prevent loaning $1.4m against a house worth $700k.

jlhawn9• 1 year ago

This paper primarily considers house prices and quantities in terms of single-family homes. They use data sources like the single-family repeat-sales index and the median home value from the American Community Survey, which mostly tracks single-family homes.

This focus limits their analysis by not fully accounting for multi-family housing units or rental markets, which are far more significantly impacted by supply constraints.

This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent.

They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s.

[1] https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/...

no_wizard16• 1 year ago

I also don't see a detailed run down in the paper of zoning laws and other local regulations and how that contributes to cost. They looked at a lot of top level numbers (from what I could tell) without diving into the specifics.

Zoning laws while not completely uniform, do seem to follow patterns across the country. The long and short of it is, the more desirable some place is to live, the more restrictive zoning laws and harder it is to get approval for builds and it depresses housing inventory over time.

llamaimperative19• 1 year ago

All of which, they argue, ends up not predicting the movement of prices.

Meanwhile, simple income level does predict the movement of prices.

cycomanic• 1 year ago

This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent.

But that's what people are typically complaining the most about, so fair enough that they focus on it.

They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s.

That' supports their point though, if the supply constraints differences have been small between 1980 and 2025, but the house price increase has been large, then supply constrains can't really explain house price increase? Or am I misunderstanding your point?

jlhawn9• 1 year ago

From the abstract:

These results challenge the prevailing view of local housing and labor markets and suggest that easing housing supply constraints may not yield the anticipated improvements in housing affordability.

If their finding is that increases in incomes leads to increases in demand which then increases prices, that’s not surprising. But their claim is that reducing artificial constraints (onerous land use regulation, discretionary entitlement and permitting, etc) would not have any impact on the supply curve. That’s highly suspect.

To make a plainly true statement which sounds similar to the paper title, "Increasing Incomes Coupled With Supply Constraints Explain House Price and Quantity Growth Across U.S. Cities." Spot the difference.

h0l0cube6• 1 year ago

rental markets

Specifically because the paper is about house price, not rental price. For most people, the issue of achievable secure home ownership is different to rental affordability.

multi-family housing units

Not really the kind of place that most people want to buy to live in for the remainder of their lives (unless starved of options).

oblio• 1 year ago

Not really the kind of place that most people want to buy to live in for the remainder of their lives (unless starved of options).

This is such a true, yet sad, reflection of American society.

manishsharan• 1 year ago

>Not really the kind of place that most people want to buy to live in for the remainder of their lives

That is purely subjective. I would rather live in a condo in Manhattan than a single family home in Long Island.

jlhawn9• 1 year ago

home ownership is directly tied to rental affordability, as the rental market is always going to be the alternative. Even if people aren't perfectly rational agents, everyone has their own subjective present value function or heuristic to compare the cost of owning vs renting. They may be separate forms of tenure, but they do in fact compete with one another on price/value. If the price of alternatives to ownership were to fall, the price homebuyers are willing to pay would also fall.

[multifamily housing units are] not really the kind of place that most people want to buy to live in

this is a descriptive norm - observed or perceived behaviors, preferences, and trends among a group of people who, typically, don't really have a choice to buy anything other than a detached house. Family-sized condos are actually highly sought after in dense urban areas where a detached house is an overt luxury, while in suburbs and rural areas they're a rare choice simply because it's illegal to build them.

throwaway5456733• 1 year ago

There has just never been much reason to believe that supply constraints were the primary driver of housing price increases. If they were people would have moved, or somewhere would have ended up being a lot better.

It used to be that housing costs tracked incomes. If you had a medium to high salary you had decent housing. Since the 90s with urbanisation and increased wealth not only do more people want to live in the same places but some have a lot more to invest. So you now need high wealth to have decent housing.

What many really want is housing below market rate so they either don't have to work thier entire lives or can also become wealthy, and preferably both. Which is understandable but not realistic.

Anyone who doesn't believe this should note that this has already been discussed on HN for at least 10 years and still hasn't been solved anywhere I know of globally. But instead still roughly tracks local wealth (and income). And will likely continue to do so.

Because that is what the housing market does. Allocates valuable assets to those who pay the most. Nowhere on the tin does it also say that it promotes social mobility or equality. Maybe it should, but it certainly won't as long as there is the idea that it already does.

That said, is there some effect of supply constraints? Sure. But ultimately it would increase urbanisation, making the situation worse. Affordable housing is already available on the market. Just in places with lesser jobs and living conditions. Which again it is understandable that many don't want to live in. But it isn't a market issue.

jlhawn9• 1 year ago

If they were people would have moved, or somewhere would have ended up being a lot better.

sorry, I am not going to bother reading the rest of your comment before writing this reply because reading this part stopped me immediately.

Gentrification and displacement has been a growing issue for decades. Especially in California, people who grow up here can't afford to stay here and end up moving from high cost coastal areas to exurbs in the central valley or inland empire or just leave the state entirely for places like arizona, nevada, texas, or beyond. These are the places that have been growing most over the past couple of decades. Population in the high-cost areas may be increasing too (or at least staying the same) but that's because higher-income people who can afford it are willing and able to move there.

protocolture5• 1 year ago

An australian study focused on our cities determined that up to 70% of a houses price is due to supply side issues. Largely zoning and land release.

vannevar4• 1 year ago

Because that is what the housing market does. Allocates valuable assets to those who pay the most. Nowhere on the tin does it also say that it promotes social mobility or equality. Maybe it should, but it certainly won't as long as there is the idea that it already does.

You've hit on the hard reality that neither political side in the US has been willing to squarely face. The housing crisis is not the result of housing policies (though as you say there is probably some marginal effect there). It is the entirely predictable result of unregulated capitalism. In an unregulated capitalist system (defined as a system without any regulation on the accumulation of wealth), income growth accelerates with increasing wealth, and all assets are increasingly owned by a smaller and smaller fraction of the population.

WalterBright• 1 year ago

That's why economics is the dismal science - it is impossible to isolate the variables.

milesrout2• 1 year ago

No it is why malicious research designed to mislead is useless. This research was done with the goal of reaching a particular conclusion, clearly. You can do that with any subject.

AStonesThrow• 1 year ago

There are some really interesting supply issues here at the level of multifamily tenant.

Now imagine you're a landlord with 500 units and they've all got the same appliances and fixtures. To keep everything in repair for 40 years or so, you'll need a consistent supply chain of all the parts that are ever going to break and be replaced: toilet flush mechanisms, handles, switches, motors in fans, grilles and plates, the shelves in the fridge or range. You name it.

And rental tenants can be especially hard on fixtures we don't own. Every time I clean something I manage to also break something, I guess. It's embarrassing.

When I moved in, I felt like I had thoroughly inspected, and the landlord graciously replaced+upgraded nearly every AC outlet and everything was like-new. But long, long afterwards I noticed that pieces and racks were missing from both the range and fridge, and prevented me from maximizing their usage. But landlord is unable to replace stuff like that for everyone.

When a few things broke around here, I decided to DIY and rocked up to some hardware-supply websites and my local store. Come to find out, these items are special MFH brands, and ordinary mortals cannot obtain them at any price, or they're simply "always sold out" on the open market. And just think about all that's been discontinued or deprecated in 40+ years and landlords trying to conserve the costs of ripping out and replacing HUNDREDS of instances of those because they've become unmaintainable. Now think about landlords who install Amazon Ring or some cloud-based crap with planned obsolescence.

SFH owners can replace appliances and fixtures at a whim, at least more readily than a landlord could, and the costs are all pushed directly to the consumer in SFH cases, so a homeowner should be as savvy in order to map out their long-term maintainability.

And I realized that it would be a disservice to landlords if tenants could indeed DIY, because we'd stop reporting damage or breakage to the office, and self-repair can be horribly detrimental, and landlords have a right to know what's going on with their fixtures and appliances. So I was rather relieved to find out that I simply couldn't replace parts at my own expense.

dionidium• 1 year ago

This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent.

People generally seem to struggle with the fact that it's the land, not the house that's on top of it, that's valuable in desirable metro areas, but this reality suggests something really quite lucky, which is that eliminating land-use restrictions probably won't tank single-family housing prices, even as it lowers rents.

Incumbents get richer, because looser zoning rules mean the land is more valuable. Renters and those who otherwise couldn't afford to be incumbents get cheaper rent. It's a fortuitous win-win.

jlhawn9• 1 year ago

yeah but one of the reasons why land value for single family homes is even higher is due to the zoning constraints which cause what I like to call "land value spillover" effects. Land value in suburbs an hour from a city center is higher than it naturally would be because zoning constraints closer to the city center cause housing demand to spread out across a larger geographic area. To give an example in the bay area, the cities of Livermore and Concord primarily exist in the form and population they do today because more homes could not be built closer to the core of the bay area, not to mention places like Antioch, Brentwood, and Tracy.

frollogaston• 1 year ago

This is what I've been saying for years. The valuable part is the desirable land, which can't be built like a house. Also the rent and value are pretty disconnected.

postalrat• 1 year ago

You know why housing is so expensive? It's because building a house is so expensive. If it wasn't people would be building houses left and right in the many thousands of empty lots scattered throughout the country.

johnnyjeans• 1 year ago

Which is particularly interesting, because the quality of the buildings themselves have taken a steep nosedive since the 1940s. Something like 98% of all new builds are complete teardown crapshacks. It makes you wonder where the money is going if the materials are dogshit and the labor is incompetent.

anonym29• 1 year ago

"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."

- Milton Friedman

One need look no further than the correlation between M2 growth and house prices to see this in action.

For the Keynesians and MMTers in the room, downvote me if you must, but please read this before you do: https://www.econovis.net/post/house-price-vs-money-supply-in...

hayst4ck• 1 year ago

The American/western aristocracy has nearly perfectly entrenched their power with housing policy.

Housing is the major wealth store for the middle and lower class. Most in the middle and lower class will spend major portions of their income on this for many years of their life.

If supply goes up, then the middle and lower class loses significant amounts of their wealth immediately since buyers have more options. If supply goes down or fails to keep up, then housing becomes increasingly unaffordable and the wealth of people who already own goes up.

What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable.

So because housing policy discussion takes place under these conditions, it's nearly impossible to have a reality based discussion because almost everybody loses except societies richest.

"Housing can either be an investment or affordable."

Almost everyone in any position of power or with institutional reputation has an extremely vested interest in both keeping the broken status quo and convincing people that absolutely anything other then basic economic theory of supply and demand is chiefly responsible for housing prices.

jwagenet2• 1 year ago

Housing might be the major wealth store for the middle class (although I doubt the lower class is collectively storing much wealth in housing), but its the rich who own most of the land and collect rent from most of the lower class and some of the middle class. The rich may not care so long as they collect checks, but I think they stand to lose the most in absolute dollars if more housing is built that they don't own.

IMO, its the middle class holding up the show because they are actually owning homes, and even though they may never actually sell their home they cling to an ever rising hypothetical valuation.

wahern2• 1 year ago

I doubt the lower class is collectively storing much wealth in housing

Doesn't directly answer your point regarding wealth, but FWIW 47% of people in the bottom quintile own their home. https://www.minneapolisfed.org/article/2024/homeownership-am... It's actually near a 35 year peak.

youainti• 1 year ago

I've been thinking about this for a long time and am going to try to explain it as best I can.

"Housing can either be an investment or affordable."

This an important point although I'd describe it slightly differently

Housing can either be a speculation backed by NIMBY or affordable.

In general parlance, an investment is something you buy that makes you money. I think this terminology is overly broad. In economics, capital is something that helps you produce something else, e.g. tools and locations to produce. The proper price of capital is tied to the returns on investment over time. Usually when economists talk of investment, they are talking of capital purchases.

Housing (e.g. a house, apartment, condo etc) is an asset, but it doesn't really do the thing that most capital does because -- much like food -- past the basics to live it is a lifestyle consumption good. Housing is consumed as you live in a place, the wear and tear that occurs. We produce more as we repair housing or build new ones. But the housing doesn't really provide a return, unless you sell it to others through renting.

When people are told to "invest" in a house, they are being encouraged to purchase _and speculate_ on their own consumption good. This speculation is based on the assumption the price will go up, not that you will earn a stream of payments because it improves your ability to produce. The only way for this asset to grow in value is for the supply to be artificially constricted.

So the fact that people have been sold an investment lie and tie up so much of their wealth in it leads to exactly the political results you have pointed out.

intrasight9• 1 year ago

sold an investment lie

But it's not a lie if the majority of people do it.

nine_k2• 1 year ago

Part of the "invest in your future through buying a house" is a notion of investing into your own safety, as contrasted to renting. Rents may go up unsustainably, but your house is still yours. Nobody can evict you from your house for not paying rent. A house is a relatively liquid asset, so if something really demanding happens, you can move and downsize, unlocking some of the wealth invested into the house. If you rent, you can also move to a cheaper place, but it won't free up a lump sum.

So the idea of "investing" is not purely speculatory.

chii2• 1 year ago

Housing is consumed as you live in a place, the wear and tear that occurs.

the building is consumed. But housing is more than just the building - the location is also part of said "housing". Location doesn't get "consumed". And in fact, it is the location that appreciates (while the building itself does depreciate over time).

The investment is not in the building (tho you do pay for it - minus the depreciated portion i suppose, if you're a savvy buyer). It is in the location.

scoofy5• 1 year ago

I mean the problem with this argument is this: nobody in the affected areas who owns property is actually middle or lower class.

Homeowners in areas where housing is totally unaffordable area either extremely wealthy, by definition, because of their property ownership, or they're wealthy enough to pay a mortgage on an absurdly expensive property.

Where housing-as-good-investment is successful is really only in areas where shortages exist. You're not going to harm the middle class folks in Tracy by fixing the housing crisis in San Francisco.

intrasight9• 1 year ago

extremely wealthy, by definition, because of their property ownership

That's not true today and probably has never been true

nine_k2• 1 year ago

OK, assume some old lady currently owns a house if SF that would cost $1M to buy. She bought it, say, 50 years ago, say, for $50k. It's an impressive 20x ROI, no doubt.

But does it make this old lady wealthy, if she is not selling her house and moving to Arkansas, where $1M would go much farther than in SF? May it be that she's struggling with her day-to-day expenses in SF?

crooked-v3• 1 year ago

that would be devastating in the short term to the middle class

Well, the thing there is, that wealth doesn't really exist for most people. Housing "wealth" in the US is basically imaginary because you can't use it without moving somewhere else, and everywhere else is equally expensive!

chii2• 1 year ago

you can't use it

you can't "consume" the wealth. But you can use it by leverage into loans, which can be invested elsewhere to make more money.

And if you owned more than 1 property, rental income is an additional vector.

The wealth isn't imaginary. It's just illiquid.

justin66• 1 year ago

HELOCs are a thing.

antman• 1 year ago

Exactly, it is an artifact of the definition of wealth. If a family needs a house to live whether that goes up or down is irrelevant for them.

It will be useful wealth once they die or they are forced to sell and move out to the countryside in their old age. Available income or what can be liquidated without affecting once life is actual rich peoples wealth.

directevolve• 1 year ago

Anyone who owns a house can sell it, move into a rental, and reinvest the proceeds in the stock market. They’ll be better diversified and can expose themselves to a wider spectrum of risk/reward profiles.

If Americans are clinging to their house because they perceive it as a “store of wealth,” they are not thinking clearly about the full spectrum of their financial options.

bob1029• 1 year ago

You're just trading one kind of risk for another. When you own real estate you have a lot more control over your cost of living.

That said, I think it would be fair to distinguish proper ownership from paying a 30 year mortgage. There's really not much difference in economic terms between renting and 3 decades of structured payments once you factor in insurance, fees, etc.

If you own real estate outright and it's homestead in a place like Texas, your total monthly burn rate could easily be <$1000. Why kill yourself with delusions of grandeur in the market? It's significantly easier to control your own consumption habits if you want to wind up with a net gain.

greenie_beans• 1 year ago

life is so easy. just plug numbers into a spreadsheet so the math will make rational decisions for you.

globular-toast• 1 year ago

The only reason it would be devastating is because of mortgages. People don't want to liquidate their homes, they just want somewhere to live, so shifting house prices would be totally inconsequential for a homeowner. The market price of your house would be lower, but then so would the ones you want to buy. Makes no difference.

This is because houses don't really lose or gain much value. The worst that can happen is the building falls apart.

Houses aren't worth a number in a made up money system. Their worth is real, tangible: shelter, warmth, comfort etc.

Why can't more people see the banks are the cause of this? They can print out money for houses at their leisure. It's not like it's a conspiracy or anything, there's tons of information out there about how 2008 happened including major Hollywood films. They do this openly. Of course it looks like house values are going up more than they should, you're measuring value in numbers that can just be made larger by the banking sector.

vannevar4• 1 year ago

What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable.

This is true if the "hit" on wealth is linearly distributed. But since income growth is not linearly distributed (it goes up with wealth), it's reasonable that the tax (or whatever form it takes) should also be progressive, perhaps to the point where it excludes properties under $1M, for instance, thus sparing the bulk of the middle class.

wan23• 1 year ago

If you only do something about homes priced higher than $1M it won't solve the problem that no one can afford a starter home any more.

ericmcer• 1 year ago

Same thing with people’s retirement accounts. If everyone’s savings were just in the bank getting 1% interest no one except the wealthy would care if the stock market eats shit. Instead we can’t stop the insanity of individuals with 100s of billions of dollars due to the entire worlds retirement savings fueling insane market prices.

marcusverus• 1 year ago

Independent retirement would be impossible with 1% returns. With the market's historic rate of return (around 6% after inflation), an investment doubles every ~12 years. A dollar saved at 30 years old is worth ~8 dollars by 65. In a scenario where 1% returns were the norm, a dollar invested at 30 would only be worth $1.40 at 65!

Also, since you wouldn't get much income from investments while retired, you'd have to save way more in that scenario to be able to retire. Sounds like a miserable alternative.

foxglacier• 1 year ago

It's obviously not all supply and demand because school zones are a zero-sum part of house prices. Only the richest people can afford to pay the good school zone premium. If too many houses get built there, the schools shrink their zones so you can't increase housing supply to get out of that. You also can't increase the supply of good schools because that's mostly determined by the relative income of the parents, which can't be increased, by definition because it's relative.

wegfawefgawefg• 1 year ago

houses are assets, and the fed prints money.

when you print money the dollar loses value and assets are worth more dollars.

this is pretty basic. our government is intentionally inflating the currency at 4% a year.

houses prices will always go up then.

tptacek• 1 year ago

I'm not all the way through the paper, but two questions I have from the jump:

The core finding of the paper is that income growth predicts housing price growth reliable regardless of how elastic each local housing market is (say, Austin vs. SFBA). It also uses the "work-from-home" shock during the pandemic as an example of the same kind of measurement.

I don't understand the mechanism the authors are suggesting. The WFH shock occurred over a span of 1-2 dozen months. Housing starts are measured over years and years. Regardless of relative differences in elasticity between markets, all housing markets have bounded elasticity as a result of how long it takes to site and construct houses. In a desirable landlocked community, it can take forever just to find current residents willing to sell and thus open up land for denser development (not something this report appears to study).

I'm also confused at how they're looking at permitting. It appears like they're using it as a metric of housing growth between regions. But permitting rates also define much of the supply constraint within a region. Highly elastic housing markets issue lots of permits. If everyone's issuing comparable numbers of permits, aren't the just observing that (for whatever reason) different regions are just converging on similar constraints and elasticity?

jmpman2• 1 year ago

Increasing rental taxes will actually lower housing purchase prices in capacity constrained markets. In such markets, landlords are already demanding the maximum amount their renters can bare. By increasing taxes, the total rent paid by the renters doesn’t increase, but the amount going to the landlords decrease - driving down the price of housing stock. Politicians should be advocating for raising rental taxes, instead they’ve been captured by the rent seeking landlords who fund their campaigns.

naijaboiler• 1 year ago

works in the short term. Long run, it constrains supply of rental housing.

jmpman2• 1 year ago

The policy could just be for rental taxes on SFH. I don’t see a reason society should encourage rentals in the SFH market.

tmnvix2• 1 year ago

The article points out the correlation between rising income and rising house prices. I suspect the real cause involves both incomes and credit availability/price. Incomes are just a proximate cause - as debt serviceability improves, people borrow close to their limit, which increases. The limit increases when income increases, but also as interest rates fall.

BenFranklin100• 1 year ago

What they are showing is that if wage growth is stagnant across all levels, people can’t afford to pay more for a home. So prices don’t rise or at least not nearly as much. This is a recipe for keeping us all poor as a means to control housing costs.

On the other hand, if wages rise, but supply expands, home prices remain relatively decoupled from wage growth. This is the situation we want, but which zoning prevents.

The old Alfred Twu cartoon captures the current dynamic of rising wages and rising home prices very well:

https://www.instagram.com/cbinsights/p/B7v07LRFBqI/

throwawayUS9• 1 year ago

People buy houses by taking loans with high interest. Next year, the house they own increase in valuation equal to the amount they paid interest.

House owner is happy - their asset has increased in value. Bank is happy. They got the money. City is happy. They got their taxes for the higher valuation of the house.

After sometime, The middle-class becomes lower class and moves to rent. The lower class becomes homeless as they cannot afford the rent.

The cycle repeats.

bjoli• 1 year ago

We have heard that housing shortage in Sweden will be solved by the market. The housing prices have increased by 300% in 25 years, yet we are building even fewer housing units today than back then.

typ• 1 year ago

Homes are not a homogeneous commodity. New homes cannot be perfect substitutes due to locations, amenities, access to jobs (commute time), etc. Also, government spending on infrastructure will be capitalized into the neighborhood's land (location) value. You cannot 'undo' this capitalization simply by building more homes.

seethishat• 1 year ago

Gary Stevenson (UK economist and author of the Trading Game) has a good explanation for this. Both his book and YouTube videos.

In short, everyone (governments and ordinary people) are insolvent and in debt to ultra-rich people (especially since Lehman and Covid stimulus programs) and the only way to return asset ownership to governments and ordinary people is to tax the ultra-rich like Western Governments did in the 1950s and 1960s so that ordinary people and governments can actually afford to own things again without extraordinary debt. Tax wealth, not wages is the basic idea.

When you have 700 million dollars earning 5%, the only thing to do with all of that passive income is to buy assets. That's why house prices are so high.

https://www.theguardian.com/books/2024/feb/22/the-trading-ga...

johann8384• 1 year ago

The housing market has been heavily manipulated for a long time. Why would anyone be so naive as to think supply constraints would model it?

Supply constraints do not explain house price, quantity growth across US cities

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