What happens when housing prices go down?

https://clmarohn.substack.com/p/what-happens-when-housing-prices

by chmaynard • 1 year ago

153 331 1 year ago

clmarohn.substack.com

billy99k• 1 year ago

"If “build more” was going to bring prices down and stabilize the system, we wouldn’t be seeing these mixed signals."

Where have we seen anything close to 'build more'? Regulations in many major cities have prevented building more for decades and I haven't seen any loosening of these regulations (they were only increased during the Biden administration).

"Prices are softening. Delinquencies are rising. Builders are walking. And instead of asking what this reveals about the fragility of our system, we’re preparing to paper over it—again—with liquidity, leverage, and euphemisms. "

This is the plan from the potential future mayor of New York: Builders and investors will flee as a result of price controls and home value will plummet.

Detroit is a good example of what happens in the long term when investors and businesses flee the city. I lived there for 20+ years and it still has never really recovered.

atherton33• 1 year ago

Cambridge MA just had a major shift on zoning towards "build more" in Q1. It will be an interesting natural experiment to watch.

https://www.boston.com/news/politics/2025/02/11/cambridge-el...

kasey_junk2• 1 year ago

It’s not just regulation either. Housing companies are not building as much as they did prior to 2008, which had substantially the same regulatory environment in most places.

The idea that we’ve started building enough to bring prices down is a non-starter.

PretzelFisch• 1 year ago

Why would the builder want to build enough to let prices drop? They seem to play a lot of games to give buyers incentives that do not lower the sales price.

drewcon• 1 year ago

Austin. They’ve built more and prices have declined.

nancyminusone• 1 year ago

Where I live, there are about a dozen new housing development sites. I pass by 3 of them on my way into work, and my drive is only 10 minutes long. I've lived here 15 years and haven't seen anything like it. Someone somewhere must think it's worthwhile.

Disclaimer: I don't live in a major city, I live just outside a minor one. It's all condos.

lenerdenator3• 1 year ago

Detroit is a good example of what happens in the long term when investors and businesses flee the city

Let's be honest: it's a good example of what happens when some guys with a lot of money find a cheaper place to make something.

Same with St. Louis, Baltimore, Chicago, Cleveland, Buffalo, Camden, Gary, and so on.

hollywood_court4• 1 year ago

Yep. They moved their operations to the south where they don’t have to worry about unions or those pesky worker’s right.

I experienced this first hand when I worked for a Korean company that supplied parts to Hyundai and Kia.

They sent line workers from Detroit to train people in Alabama.

My coworkers in Alabama just could not believe the Detroit folks when they talked about how much money they earned.

We were being paid half as much in Alabama. And our area of Alabama had a much higher cost of living compared to Detroit and its suburbs.

soylentbeige• 1 year ago

Mass upzoning in Auckland, New Zealand resulted in a rent reduction of 22-35% for three-bedroom apartments and 14-22% for two-bedroom apartments

https://cdn.auckland.ac.nz/assets/business/about/our-researc...

micromacrofoot• 1 year ago

The problem is that housing is a major investment vehicle, people in these cities always complain about what's going to happen to their property values so they prefer exclusionary zoning.

Developers have a hell of a time building in these areas even once they get zoning variances, because abutters will show up and complain about every single detail and try to make the property as small and unprofitable as possible. You start off with a 12 unit building with no parking and you end up with a 6 unit building with 12 parking spots in a garage that no one uses.

There's one instance in my neighborhood where the city and developer have been meeting with residents over the course of a year to try and come to an agreement on what should be built. There's just a derelict single-family house on the lot.

kiba2• 1 year ago

The problem is speculative investing, not making a profit per se. If your incentive is to prevent improvement of your community, then you're going to prevent making it worthwhile for anyone to come in and invest their effort. That could often means deterring developers, for example.

Aurornis• 1 year ago

Where have we seen anything close to 'build more'? Regulations in many major cities have prevented building more for decades and I haven't seen any loosening of these regulations (they were only increased during the Biden administration).

Housing prices are high everywhere, not just major cities.

Interestingly, in my state we have a lot of land for building houses if you drive to nearby cities. Some people uproot themselves and move 30-45 minutes away so they can have a much bigger, nicer, newer house. Most often when they start a family.

If you’re willing to move an hour away you can even get these big new houses for very affordable prices.

Many people don’t want that, though. They want to live in the city. So these big new houses remain cheap, while housing in the city remains expensive.

It seems like an easy solution would be to start knocking down houses in the city and building tall, dense buildings. Except that is happening, and the same people don’t want those either. Even condo complexes are having a hard time selling units.

What people here continue to want is the one thing that cannot be scaled: Full houses of their own that are in the city. No amount of demolishing buildings and building density will fix that, because it’s not what they want.

I was completely wrong in guessing that COVID and remote work would help housing prices by allowing people to move anywhere. Most of the people I knew who relocated due to remote work took the opportunity to move toward cities where their friends lived, not to cheaper areas.

I think we must continue to build, though. Eventually new cities and interesting locations will be bootstrapped. I think housing prices in popular areas will remain stubbornly high, though.

zahlman• 1 year ago

Housing prices are high everywhere, not just major cities.... So these big new houses remain cheap, while housing in the city remains expensive.

nemomarx3• 1 year ago

If the condos aren't selling, shouldn't we see the prices go down? There's gotta be an equilibrium at some very cheap rent for them

carlosjobim6• 1 year ago

Even condo complexes are having a hard time selling units.

Because instead of purchasing a house, you're just purchasing the right to continue being a renter. Meaning that the only reason to buy is that you expect an even bigger sucker to buy it from you later. And with rapidly declining population and widespread poverty among the young generation, there aren't that many bigger suckers around anymore.

indymike4• 1 year ago

"If “build more” was going to bring prices down and stabilize the system, we wouldn’t be seeing these mixed signals."

Bringing prices down is usually a losing idea with existing asset holders. Even a financially strapped homeowner does not want the price of her/his home to go down. Politically, this is a complete non-starter. Also, appreciating home values serve as a very strong way to attract talent to a city.

"Prices are softening. Delinquencies are rising. Builders are walking.

What do you expect. Why would a homeowner send 1-2 paychecks a month to pay interest into an investment that is losing value? Why would a builder start making an asset that will be worth less than when they started building?

avmich7• 1 year ago

Why would a homeowner send 1-2 paychecks...

Can't the asset holder - the homeowner in this case - get rid of the asset which stopped performing? Why such a strange financial behavior? If the houses are financials - why not to deal with them as such?

avmich7• 1 year ago

Builders are walking.

Why? Builders are supposed to be doing the paid work, why would they walk out of it?

projektfu3• 1 year ago

Perhaps because they signed a contract and want to buy another house sometime.

aprilthird20216• 1 year ago

Bringing prices down is usually a losing idea with existing asset holders

Good. They should lose because they abused government policies through NIMBYism to inflate their assets prices. Happy to see them lose

femiagbabiaka• 1 year ago

I’ve never seen a comment that so reflects that the writer did not read the article as this. There are 3 or 4 examples quoted in TFA, all cited.

freejazz2• 1 year ago

prevented building more for decades

What planet do people live on? Go to any neighborhood in NYC and you are going to see tons of construction.

sim7c00• 1 year ago

i am sure lots of ppl on this planet dont have the option to go around NYC to check out the construction. for various reasons.... also, lots of construction does not equal fixing lack of housing. it has to keep up with and overtake new ppl moving into the region, which often times it does not (so it has no impact on prices or availability, just population growth...).

idk about NYC specifics ofc. but thats how it work in my country. they build new houses, new ppl come in. still nothing available generally, and everything about 2x price over 10 years while income doesnt rise to compensate.

there is a lot of constructions of homes here too. but for the wrong reasons and with the wrong intensity.

bryanlarsen2• 1 year ago

Where have we seen anything close to 'build more'?

It's considerably easier to build in Canadian cities than most American cities. Not easy, but easier.

Over the past ten years Canadian cities have seen incredible growth, due to high immigration levels. Toronto is the fastest growing city in North America. Vancouver isn't far behind.

Yet Vancouver has seen flat housing prices over the last 10 years. [1] (Though flat at a very high level). Toronto housing prices are down 5% in the last 12 months.

1: https://realestatecoalharbour.com/blog/vancouver-house-price...

2: https://www.nesto.ca/home-buying/toronto-housing-market-outl...

gilbetron• 1 year ago

Median houses in Vancouver are $2-4m ?? Wow.

9rx7• 1 year ago

Toronto is the fastest growing city in North America.

Wouldn't that be more apt to be Langford? https://www12.statcan.gc.ca/census-recensement/2021/as-sa/98...

East Gwillimbury, the fastest growing municipality in Canada, is within Toronto CMA. Perhaps that is what you were thinking of? But Toronto CMA is not a city, neither legally nor colloquially. Its mostly rural area. Growth in the City of Toronto is relatively slow.

tenthirtyam• 1 year ago

In Ireland, politicians (make appearances of) are making a lot of noise about building more houses to address the severe shortage of housing supply (and consequent runaway house price inflation). However, my take is that the root of the problem is exactly what the author here describes, to wit, the minimum housing a person can buy is (for the most part) a semi-detached two- or two-and-a-half-bedroom* house on two floors. There are precious few one-bedroom apartments or anything similar on the market, meaning that single persons entering the market are competing with couples or young families.

I don't understand the details but I'm told the origin of this is that regulations have rendered apartments of any size unprofitable to build (anyone with more insight here?). Pretty much the only housing Ireland gets are sprawling suburban housing estates. I'm reminded of this graphic, 100 houses Vs 100 apartments [1].

* By 2½ bedrooms I mean two bedrooms plus a very small "box room" barely big enough for a single bed and a small wardrobe. Frequently used as either a storage room or small home office.

[1] https://i.pinimg.com/originals/78/f5/94/78f594ebb9216e50e396...

andrewstuart3• 1 year ago

There’s no such thing as “demand” in housing.

Only supply.

Housing has its own economics in which supply is the only solution ever put forward.

Not a single politician or economist ever says that most dreaded and awful word “demand”.

Property developers, politicians, economists, demographers, real estate agents, landlords all agree that supply supply supply will …….. errrr it will…… ummmmmm more supply will definitely……. something.

ragebol2• 1 year ago

Demand can be affected by people living together, or encouraging that in some way.

Be it having roommates, elderly parents living in, staying with ones parents longer, communes. None of them popular long term I think. Hence: supply

ta12439• 1 year ago

having roommates

People in cities and colleges have done that for decades. Not just "roommate" in the Friends sense where you have 2 people living in a 2 bed flat, but roommate as in sharing the same room - indeed 20 years ago I knew of some places where there where 5 people sleeping on 3 single mattresses in a single attic in London, with nuclear-dub style bunk sharing.

Demand for what people want (a place to call their own without having to live with strangers) is far in excess of the supply, and has been for at least the 25 years I've been an adult.

andrewstuart3• 1 year ago

But not the rich, right?

The rich don’t need to cram more people in, everyone else does. True?

echelon• 1 year ago

Demand is someone's desire to make the jump from renting to owning. Demand is someone's risk tolerance for moving. Demand is someone's appetite for a house just slightly out of budget. Demand is someone's desire for a second or third home. Demand is all of the buying forces in aggregate, regardless of the cause.

You can want a house, but if you can't pay the market price then there's no demand from you at that price point. So maybe you make a lower offer or look elsewhere.

Demand is simple. We're watching what low demand is like right now.

Inventory has been low (people like their locked in low interest rates), but it has been inching steadily up as people move, die, change or lose jobs, etc. The minute the supply significantly outstrips demand, the pricing will collapse.

Demand will stay low until the economy and housing market improves.

nemomarx3• 1 year ago

I feel like we talk about demand a lot - Just in the form of first time home owner subsidies or etc. Subsidizing demand of course doesn't help the situation but I'm not sure how you sell reducing demand to the public exactly

conception• 1 year ago

Restricting foreign and corporate residential purchases, tax increases for multiple home ownership are a couple of ways to lower demand as well.

9rx7• 1 year ago

I'm not sure how you sell reducing demand to the public exactly

Especially when the current political pressure is to increase demand. The populace are complaining that, because of high prices, they can't afford to be a part of the demand.

ta12439• 1 year ago

Are you saying that people routinely buy 5 or 6 houses to live in (thus excess demand)

Or are you saying the only reason houses are expensive is because people refuse to live in cars in high enough numbers?

What do you mean by demand?

philipallstar2• 1 year ago

It's because it would mean looking at immigration numbers. If immigration creates far more demand than there is supply, as it does in various first world countries, then it makes house prices shoot up. But this is not a popular topic, as voters with houses don't care about their house prices going up, and voters without houses are generally younger and don't have the capacity to hear economic statements on immigration without auto-converting them into racial statements they've been warned about on CNN.

rcxdude• 1 year ago

There's two factors that have driven an increase in demand for housing above population growth: fewer people per household and a strong bias towards living in a city. Some of this is cultural: a stigma against living with your parents, for example, and higher expextations for what someone just starting their career should be able to afford, but it's also economic: cities are where the jobs are and they're often not where people grew up, so if they want any independance they pretty much must move away into a city with everyone else.

Nursie• 1 year ago

They know about demand and do all they can to stoke it.

All the various government schemes in the UK and Australia (I have no idea about other countries) that are aimed at helping primarily young people to buy homes - low deposit schemes, part ownership schemes, tax discounts etc etc, they all masquerade as helping but they stoke demand and add to price inflation.

O5vYtytb• 1 year ago

Huh? Demand is local. Where I live there's a lot of demand because it's a desirable city and leaders talk about this demand consistently.

9rx7• 1 year ago

Demand isn't talked about because demand is solved by high prices.

But, politically, we want to increase demand (by offering lower prices).

ta12439• 1 year ago

The demand is still there, it's just restricted. Someone living in the back of a van in a gym carpark on an industrial estate is typically doing that because the cost of a 1 bed flat is too high. Lowering prices allows that demand to be seen.

In the UK 8.5 million people in England are facing some form of unmet housing need. That's more than 10% of the population.

https://www.housing.org.uk/globalassets/files/people-in-hous...

More than 1.9 million households are hosting a ‘concealed’ household – for example, adult children still living with their parents.

Even when it costs nothing, there's always a limit to demand. Just look at say a hotel breakfast. I could have 50 sausages, 20 cups of coffee, etc. I don't, despite it being costless.

Apreche4• 1 year ago

Now if you want prices to go down, are you really going to do it by trying to decrease demand? What are you going to do, make your neighborhood a slum on purpose? Absolutely nobody is doing that.

No matter how nice a place people live, they always want it to be nicer. They want better schools, nicer parks, clean streets, quality infrastructure. They want to attract nice businesses and cultural institutions.

The problem is that doing this necessarily increases demand, and increases prices. Unless you are an owner, doing this risks pricing yourself out of your own home. So what can you do to keep rent down? Well, increase supply to match the increase in demand.

Now you have a new problem. Increased density puts pressure on the infrastructure and makes it a less-nice place to live. That park sure was a lot nicer when it was half as crowded. Those new restaurants sure were a lot nicer when you could actually get a reservation.

It’s a very difficult dance to keep all these things balanced. Ultimately everyone wants to make the place they live nicer, no matter how nice it is already. You can never try to manage this problem from the demand side unless you find a set of crazy people who love living in a sty.

carlosjobim6• 1 year ago

No matter how nice a place people live, they always want it to be nicer.

I'm trying to make sense of your argument. No matter how nice a vehicle people have, they always want to have a nicer one. But we don't see normal cars costing 50-80 years of your life to purchase.

dmix2• 1 year ago

You're just describing population growth and competing incentives, entirely normal things. They can be incentives from completely different sets of people at different times in their lives. Plenty of people are fine with density as long as the place they live is maintained and law is enforced, likewise plenty of other people grow tired of noise or have kids and move to quieter areas (areas w/ people who will then complain of urbanization).

Again none of this is something that benefits from heavily centralized control, unless you want cities to be expensive exclusive zones, and force poor people to only live in rarely built (and poorly maintained) government housing while the rest are forced out into sprawling suburbs, with just as restrictive building rules, which can only forever expand outward consuming forests and farmland + forcing more cars onto the highways.

Then everyone has to drive into the city for work, meaning a political base who doesn't care about downtown infrastructure like public transit that only serves a highly exclusive downtown.

That's a system where no one wins.

bach4ants• 1 year ago

Are you saying that governments should try to reduce the number of humans?

intalentive3• 1 year ago

By enforcing immigration law and prioritizing your own people? Yes.

Apreche4• 1 year ago

The problem can not be solved by trying to manage supply or demand. We must ban the concept of the landlord entirely.

https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-...

A landlord gets a loan from a bank to develop a residential property. That loan is paid by the tenants who live in that property. At the end of the day, the landlord owns the property. This is fundamentally unjust. If the tenant paid off the mortgage, they should own the property, or their portion of it.

Can you imagine this for anything else? Imagine I got a loan to buy a television. The television is yours in every sense but in the legal sense. It is in your home. You are the only person that uses it. Over time you pay me back the cost of the TV, and some extra for interest. Yet, even after you have paid me back, you have to keep paying. It’s still my TV, and will be forever. If any month you don’t pay, I can come and take the TV away.

Another way of looking at it is that a residential development in a high demand area is basically a guaranteed money-fountain. Banks buy them and gift them to whoever they choose. They always choose people who are already wealthy and low-risk, causing an increase in wealth inequality. A bank could choose a homeless person instead for such a low risk project.

Another idea is to only allow renting when it is rent-to-own. A developer may build a large development, but over time that development will eventually become a co-op.

Remove profit motive from housing entirely. When the only interest someone has in a home is living in it, prices will make sense.

Ekaros2• 1 year ago

Rental services? Any online service? What you mean you pay your development costs from my fees and get to keep them at the end? Or same with streaming services.

jaccola• 1 year ago

Obviously the landlord offers something of value or the tenant would just do what the landlord did.

Your analogy is also somewhat unfortunate since people did, in the past, rent TVs! Now that supply is far greater than demand, a quality TV can be purchased for very little money.

Apreche4• 1 year ago

The tenant can not do what the landlord did only because they are not already wealthy enough for the bank to give them a huge loan. Even if a bunch of tenants band together to collectively develop a property, a bank will not choose them when a wealthy developer is available instead.

xyzzy1233• 1 year ago

Obviously the landlord offers something of value or the tenant would just do what the landlord did.

I mean, yeah, they had access to capital.

As I understand it the traditional answer to this is "the landlord took the risk", but in practice I find that explanation questionable when propping up and supporting housing markets is basically political job #1.

I think the landlord was just richer, and was able to use that to exploit the renter.

jdsnape• 1 year ago

Yes, I can imagine this for other things. We have exactly that model for TVs, other appliances, and most especially cars. Getting something on a lease is by no means restricted to houses. Sure, it's not always a great idea, but there are definitely circumstances where it is useful.

poulpy1232• 1 year ago

None of them increase or even keep their value during their lifetime. (Also: you really rent TV and appliance long term without leasing in the US ?)

newsclues2• 1 year ago

So you want the government to be the only landlord or does everyone get their own home from the government (if they can’t afford one)?

rpgbr• 1 year ago

[…] does everyone get their own home from the government (if they can’t afford one)?

Uh… yes? I mean, housing is a basic right in most countries. Also, a humanitarian, right thing to do. That housing became big business (or business at all) is the real tragedy here.

ta12439• 1 year ago

Price is kept low so everyone can afford one, so the limited supply is rationed in other ways. I remember the local MP where I used to live boasting about how when she was a child her father managed to get a nice council house with the help of then then Local MP.

I.e. rationed based on party loyalty. Or nepotism.

We currently mostly ration on money, which is the least worse option if we refuse to increase prices. There is also rationing based on sexual favours, which I'd assume everyone would agree is terrible.

Many would prefer to ration on place of birth -- if you are not born in the city then you don't get to live in the city and don't get the job opportunities of the city.

If supply in say London suddenly doubled overnight though (magically make every borough the same density as Westminster - with all those big open parks), that would put downwards pressure on prices.

It would release the currently suppressed demand as those currently living in overcrowded situations could afford to live on their own, those currently living outside the city who don't want to could move in. I'm not sure what the supply would have to be to raise main-home occupancy in London to 90% with prices down at the same level as it is in Stoke, but it's far far higher than it currently is.

electriclove4• 1 year ago

Or limit people to owning 1 or 2 homes. Does it make sense for one person to own 100 homes and rent them out? Think about the distinction that permanently creates for people who live in that community. Something like that only benefits the landlord class.

poulpy1232• 1 year ago

Why not ?

changoplatanero• 1 year ago

Can you imagine this for anything else?

You mean, like, cars?

throwaway98797• 1 year ago

karl marx called he wants his argument back

thiagoharry• 1 year ago

Adam Smith also would agree with the argument.

jennyholzer• 1 year ago

landlords sounding like mussolini in the replies to this comment

partypete• 1 year ago

The idea that a home loan is risk-free ignores decades of recent history. A quick google search for "2008 GFC" will bring you up to speed.

Given that home loans are not, in fact, risk-free, how do you expect anyone to risk the large up front cost of financing a home if they do not have any expectation of profit? The small profit that landlords make off of these investments is mostly that risk premium. As a tenant, I am not liable to the bank for hundreds of thousand of dollars if any one of hundreds of calamities outside of my control were to occur rendering my home worthless. In exchange for this relative lack of risk, I gladly pay the 2% premium to my landlord. This is not to mention the benefit of mobility, among others.

Home loans are one of the most accessible loans in modern western civilization, so no, banks don't "always choose people who are already wealthy."

I assure you that if we were to remove the profit motive from financing the development of housing stock, there would be far less of it and home prices would certainly increase.

carlosjobim6• 1 year ago

how do you expect anyone to risk the large up front cost of financing a home if they do not have any expectation of profit?

This is done already, and it's not complicated: A property development company will present a project and sell subscriptions to people who want to invest (usually people who want to live in the apartments). These people will start paying a monthly amortization to the property development company, which uses that money to purchase the land and start building. People start paying this amortization a few years before construction commences, and continue to pay it a few years after construction is finished. After that, they own their real estate outright.

Yes, the property developer expects some profit from this. And most people who are subscribing except profit as well. They can sell their investment / subscription at any stage of the development. But the financial risk is spread among all investors.

electriclove4• 1 year ago

I agree with your sentiment and I wish there was more discussion on how to actually solve some of the issues at the core of this. I believe that home ownership is a strong positive for our communities. And our government does incent home ownership but it is still difficult for many. I also think we need to heavily disincentivize home hoarding.

Eisenstein3• 1 year ago

You know what always happens when the status quo everyone is depending on to get money changes? People freak out and they overreact. Everyone loves it when they can keep doing the same thing and make money and they hate it when it looks like that is going to change. You what what always happens a bit later? They adjust to the new normal and make money slightly differently and then get used to that and don't want that to change.

The sky is not falling. Let's keep moving towards what will benefit everyone and not get distracted by the totally predictable reactionary market signals.

andsoitis6• 1 year ago

Let's keep moving towards what will benefit everyone

And what is that?

Eisenstein3• 1 year ago

You can't think of anything?

blitzar• 1 year ago

What Happens When Housing Prices Go Down?

Government bails homeowners out and prices go back up.

_heimdall4• 1 year ago

At least in the US, the government could care less about bailing out homeowners.

Banks are another story, we'll bail them out all day but tax payers and homeowners are left holding the bag.

andsoitis6• 1 year ago

During the 2008 crisis, the primary focus of the government response was to stabilize the financial system, which was seen as necessary to prevent a deeper economic collapse.

onlyrealcuzzo• 1 year ago

If you drop interest rates to 0%, it's hard to argue you're not bailing out everyone who's in debt (which is every home owner with a mortgage).

Sure, maybe you are PRIMARILY bailing out banks.

But you are also bailing out everyone with a mortgage and enough brain cells to refinance and cut their by-far-largest monthly expense by 30-50%.

andrewstuart3• 1 year ago

We all know it’s just a big game of lies and charades in which the winners keep winning and control the message and the policies.

Without renters there would be no housing Ponzi scheme, so gotta keep the renters renting.

carlosjobim6• 1 year ago

Even without renters, most owners would prefer being house-poor rather than selling any extra houses they own.

dcow• 1 year ago

House poor means you can’t afford to furnish the house you live in, not that real estate is your primary asset class.

sillystu04• 1 year ago

Without renters there would be no housing Ponzi scheme

If by "housing Ponzi scheme" you mean house prices increasing then this isn't necessarily true.

Even in a world where private renting was illegal and people were forced to choose between home ownership and homelessness, house prices could increase over time because of restricted supply, increased populated and wage growth.

roenxi• 1 year ago

The theory says we should be celebrating and accelerating home production even more to get prices to levels that would actually be affordable. The reality demonstrates otherwise.

Reality demonstrates the well known - the people who celebrate house prices going down don't have a loud voice in political circles and are ignored. Almost by definition they're going to be representatives of the world which doesn't have vast amounts of money and influence.

Price Drops Don’t Lead to Supply. They Kill It.

And I love this one, it is the inverse of "nobody goes there any more, it is too crowded". If the price is low that means there is more supply than the market thinks it needs and more people who want a house are finding a house to live in. That may well cause less new builds, but more builds probably aren't necessary if the price is dropping. More people are being homed. At some point prices drop low enough that new builds should cease altogether.

zesterer• 1 year ago

Right, and if the original statement is true - that price drops are killing supply (without providing houses at a sufficient level) - then that implies that housing does not work like a traditional commodity. Which it doesn't.

AnimalMuppet4• 1 year ago

Could you expand a bit on "which it doesn't"? How does it not, and why does it not?

I strongly suspect that 1) higher housing prices make builders more likely to build (or at least to max out their ability to build), and low prices (at least below some threshold) cause them to be more hesitant to do so, 2) high prices make people less willing to buy, and low prices make them more willing (or at least able).

So far, so much "working like a traditional commodity". Where do you see it working differently?

epistasis5• 1 year ago

That's faulty reasoning. If the price drops stop new production, but there's still "demand", it means that the cost of providing new production is higher than what this demand can afford to pay.

But a big problem is that people try to view housing as not a commodity. They think that people don't move, don't change housing, don't need different things at different stages of their life.

If instead we actually view housing as the commodity it actually is, we would realize that the reason old cars are cheap is because we build new cars that are more expensive. That day old bread is only cheap because new bread was made today. Houses fall apart, the housing itself is actually going down in value every day. The land is the only part that rises in value, because we restrict its use so much.

New housing is nicer and more expensive than old housing, yet for some reason we are saying those with the least ability to pay should only be allowed to buy new housing. There are a ton of aging people in gigantic old houses that would like to downsize into something newer and smaller so that they don't have to walk as they age, yet that sort of non-car-dependent community is largely banned.

aprilthird20216• 1 year ago

the people who celebrate house prices going down don't have a loud voice in political circles and are ignored

It's changing though. I'm seeing more people, even homeowners joining this chorus. Insane housing prices make everything expensive, and people are sick of everything being expensive. Even homeowners.

I agree that builders leaving is good. It means the prices have come down and demand / supply is getting better

disgruntledphd2• 1 year ago

I agree that builders leaving is good. It means the prices have come down and demand / supply is getting better

Not really, it just means that the builders can make more profit elsewhere.

btbuildem• 1 year ago

This is because the overtly stated goals and the actual incentives are not aligned at all, they're closer to diametrically opposed.

The stated goal is "build more housing so everyone can have a place to live", but the current incentives are "bundle these materials and labour under guise of another product so you can sell it for a profit".

Of course developers walk away when prices drop -- their objective is to make money, not housing. The fact that they build homes people live in is purely incidental.

projektfu3• 1 year ago

I usually like Chuck Marohn, but it is a glaring problem when you claim that housing prices are falling in Dallas, and then talk about housing prices skyrocketing in Dallas, within a couple of paragraphs.

vel0city2• 1 year ago

Both concepts can be true, just at slightly different times. As someone in Dallas, let me share what I've seen in housing prices.

DFW was seen as a pretty affordable place a while ago. In 2015 could get a 2,200sqft 4-bedroom house with a larger lot and a pool for $250k pretty easily. By 2020 that price was $320k, still decently affordable, still seen as a pretty cheap place to buy a home. By 2022 the valuations had exploded. Houses down the street of similar quality were selling days after listing at $550-600k. This then leveled off, settling around $550k. Houses around that price were still seeming to move pretty quickly.

Now I have neighbors cutting prices. A neighbor trying to sell has had their house on the market for months. They've already cut about $70k from their original listing price. Three more houses nearby have also entered the market and have been around for a few weeks. Compared to just a couple of years ago where the average house was on the market for maybe a couple of weeks.

gota2• 1 year ago

Yes, that read weird to me, too, but it's because the 'lowering prices' are a snapshot, or recent trend (evidenced by the source being an index for April 2025 [1])

The 'sharpest rises' are from a long-term trend of a decade [2]:

Over the past decade, the median home price has increased by 134 percent in Phoenix, 133 percent in Miami, 129 percent in Atlanta, and 99 percent in Dallas. (Over that same stretch, prices in New York, San Francisco, and Los Angeles have increased by about 75 percent, 76 percent, and 97 percent, respectively).

Here's my pictorial illustration of the curve because I like drawing silly plots in txt

  |
  |              ____
  |          ___/    \ } Jan-April 2025
  |      ___/
  |  ___/
  |_/____________________
  |        |        |
  2015.....2020.....2025

[1] https://www.realtor.com/news/trends/dallas-home-prices-case-...

[2]https://www.theatlantic.com/economy/archive/2025/06/zoning-s...

pchristensen• 1 year ago

"I like drawing silly plots in txt"

To thine own self be true!

projektfu3• 1 year ago

Increases in Dallas and Los Angeles are about average over the decade. (National average is 93.9%)

https://fred.stlouisfed.org/series/CSUSHPINSA

Here is another interesting chart:

https://fred.stlouisfed.org/graph/?id=CSUSHPINSA,SFXRNSA,LXX...,

Which place seems more expensive since 2000? Can you see the big drop in 2025?

I think the story of Atlanta and Dallas is a story of cheap housing being available for a long time until it started to get used up. In Atlanta, it's not just exurban development, a lot of in-city neighborhoods had some growing ability. But the mixture of people relocating to Atlanta and the constraints of a car-based city with difficult zoning have basically stopped new supply. Small single-family houses get replaced with larger single-family houses and the missing middle is harder to find.

spicybbq2• 1 year ago

Price Drops Don’t Lead to Supply. They Kill It.

Is anyone arguing that price drops "lead to" (i.e. happen before) increases in supply? It seems to me that it's the other way around: supply increases "lead to" price drops. This is what supply advocates hope to see in HCOL cities with expensive housing.

The author is concerned that builders will stop building when prices fall, but that's rational. Suppliers should respond to changes in prices.

Other policy goals are possible. For example, instead of "affordable housing", your goal might be to help the home building and financing industries never experience a down year.

maplant• 1 year ago

Right, these effects seem to lag each other. If prices are affordable, there's no reason to build more housing. We've achieved the goal of making affordable housing. Then, more people move in, prices go up, and the cycle repeats.

aprilthird20216• 1 year ago

100%, supply leads to price drops. If it's not profitable to build anymore because housing costs have sunk, then there's much less demand for housing that needs to be met.

The biggest political issue is that Americans have been led to believe their homes are assets which appreciate in value. The abundance mindset threatens the net worth of many such people, but they are not the landed gentry of a democratic society. And the people who have nothing and can barely afford rent outnumber them and should vote for their interests.

andsoitis6• 1 year ago

And the people who have nothing and can barely afford rent outnumber them and should vote for their interests.

my sense is they, too, want to buy free-standing homes with nice amenities that are not really necessary (not rent an apartment or buy a condo) and that appreciates in value.

crazygringo• 1 year ago

The author is concerned that builders will stop building when prices fall, but that's rational. Suppliers should respond to changes in prices.

Exactly this. Once you've built enough new housing and so the price has dropped to the point where it's not economical to build anymore, you're done. It's mission accomplished. The goal was achieved.

But the whole point is that you have to actually build all that housing to get there. Which is what we want. The author seems to be deeply confused about basic economic principles.

bandofthehawk2• 1 year ago

That doesn't solve the issue of housing being unaffordable to new buyers. How do you address affordability if the prices stop dropping before they reach a price at which an average young worker can afford to buy a starter home?

kjkjadksj3• 1 year ago

The fact that there are still companies building new homes in say Youngstown Ohio shows that prices can fall significantly, by an order of magnitude even, in high cost of living metros before a point is reached where cost of labor and materials makes any build not pencil out.

VWWHFSfQ• 1 year ago

You’re not the homebuyer; you’re the mortgage payer. The product that matters isn’t the home; it’s the decades of payments you have promised to make.

A very succinct way of describing the actual relationship. New homeowners are not "buying a house". This is a misconception. They are agreeing to pay _double_ the home's present value for the next 30 years and then get it.

andsoitis6• 1 year ago

New homeowners are not "buying a house". This is a misconception. They are agreeing to pay _double_ the home's present value for the next 30 years and then get it.

New homeowners, who take out a mortgage, are:

a) buying a home (they get it immediately, not 30 years later; their name is on the title, they can make changes to it, they can sell it, etc.)

b) borrowing money because they don't have the cash to buy outright (or prefer to borrow because it is cheaper than liquidating another asset that is increasing in value)

c) the loan is secured by the property (the lender saw a large sum of cash flowing out and there's a risk the borrower will default)

ajsnigrutin• 1 year ago

As long as people are willing to pay above land cost + government cost (taxes,...) + material cost + labour cost, houses will be built.

Land and government costs are well.. decided by the government, some by regulation (where can you build, what can you build there) some by direct taxation.

Material + labor costs depend on the labour and material markets directly.

Everything else is just excuses not to build more housing, that would bring prices down.

Yes, the financial markets and investors may suffer, but that their problem. Sadly, (at least over here in a small EU country) the government is focused on them.... the solution both banks and parts of our government see is based on getting easier credit and not bringing the prices down... but the problem is not in "It's hard for young people to get loans", but that the apartment that was 120k eur 20 years ago is now 450k eur, and that young people don't need a 70k loan anymore but a 350k loan (with a higher deposit).

yoden• 1 year ago

Price Drops Don’t Lead to Supply. They Kill It.

It really depends on how much you reduce costs. If you reduce costs enough, you can have increasing supply even in the face of falling prices. This argument sounds like one made by a hedge fund protecting its real estate investments.

The reality is that the housing market in the US (and most countries) is heavily distorted by government NIMBY regulations. Because of this, it's reasonable to expect that there is actually a lot of room to reduce the $/sqft if the market can build housing in general. Current costs are inflated by being forced into specifically prescribed solutions designed to grow the wealth of developers and landowners.

rossdavidh2• 1 year ago

Different states are very different in this regard; Austin Texas is considered the NIMBY-est city in Texas, and it's still building lots of houses even as prices drop, and have been for a couple years now. Other states do (mal)function as you describe, but not all of them.

cameron_b• 1 year ago

Price reduction against builder margins would be a more reasonable way to look at it than raw price change, and additionally factoring in the degree of financing vs cash and the cost of financing would possibly shed more light.

Stable firms, not out over their skis, can afford to entice buyers while still making a profit. Just like in a startup, the cost of money and the degree of leverage sets the [minimum] speed limit on the runway.

rwarfield• 1 year ago

This article is a mess. From the third paragraph:

What happens when prices actually start to fall? Because that’s not just a hypothetical. It’s already happening in places like Phoenix, Atlanta, Miami, Dallas...

Then two paragraphs later

In The Atlantic, Rogé Karma recently pointed out that housing prices are rising fastest in the very cities once seen as escapes from high-cost coasts, places like Phoenix and Dallas...

So which is it?

There is truth to the fact that the way the housing market is intertwined with the financial markets creates some risk, but those risks are manageable - a nationwide downturn in housing prices is exactly the kind of scenario addressed by the Fed's stress tests for banks.

The article is full of bizarre logic. An increase in housing supply leads to a fall in prices, which leads to a fall in supply? No, in fact the conclusion contradicts the premise. The author is making the classic econ 101 mistake of confusing the supply curve (which is supply as a function of price) and quantity supplied.

And finally the author explains his own solution which is... an increase in supply! But only the kind of supply he approves of ("small scale, incremental development"). Left unexplained is why this type of supply, if carried out on sufficient scale, wouldn't have the negative financial effects he worries about.

gota2• 1 year ago

Regarding the bit about Dallas being an example of rise & fall of prices it seems to be an issue of poorly worded (or explained) difference in time frame. I replied under another post with the details from the sources (https://news.ycombinator.com/item?id=44635228)

falcor84• 1 year ago

The author is making the classic econ 101 mistake of confusing the supply curve (which is supply as a function of price) and quantity supplied.

This seems to be just another good demonstration of Michał Kalecki's famous aphorism about how "Economics is the science of confusing Stocks with Flows".

bilbo0s• 1 year ago

I like the part where the author advocates that cities step in and juice the construction of housing when the author says:

3. Financ[ing] entry-level housing locally by using the city’s position to unlock favorable financing without incurring unprotected financial risk.

while performing the patented Obi Wan Jedi Hand Wave I would think.

bluGill7• 1 year ago

Also no discussion of interest rates - I bought my house just a few years ago at just under 3%, today I would be paying more than 6% - I couldn't afford the payments if I refinanced. I believe that interest rates are the primary driver of less construction: people who want to buy can't afford to unless they downsize.

andsoitis6• 1 year ago

I bought my house just a few years ago at just under 3%, today I would be paying more than 6%

Yes, the cost of money (interest) was cheaper a few years ago. But the cost of money has gone up, primarily because central banks are also managing inflation by making borrowing more expensive.

Der_Einzige• 1 year ago

The whole point of high interest rates is to get your economy unaddicted to cheap money and force economic efficiency.

This is why Trump is so angry about high interest rates and has threatened to fire powell again and again over it.

scotty793• 1 year ago

But you need higher interest rates to offset the risk if your collateral might not appreciate.

kjkjadksj3• 1 year ago

3% change really breaks your budget? Higher rates generally mean lower home prices anyhow making the effective mortgage rate more similar than anticipated.

andrewmutz• 1 year ago

It is indeed a mess. It's full of strawmen, like:

Price Drops Don’t Lead to Supply. They Kill It.

No one believes price drops cause an increase in supply. They believe an increase in supply causes price drops.

If “build more” was going to bring prices down and stabilize the system, we wouldn’t be seeing these mixed signals.

People believe that increasing supply will lower prices, not "stabilize the system". The current system is plenty stable, and thats the problem.

ch4s34• 1 year ago

Right clearly, as supply meets demand and prices stabilize or start to drop, new supply will slow down. You can easily have scenarios where lots of supply is being built at once and outruns demand by a lot and causes a short term drop in prices, but that still won't cause supply to drop.

I think arguments like the one in the article have over-learned the lesson of 2008. Yes the financial crash in 2008 wiped out so many home builders that capacity to create supply was lowered. But that's not the sort of event that is caused by high supply.

specialist• 1 year ago

This is an uncharitable reading of the article.

Investors & developers are motivated by profit, lower prices reduces (expectation of future) profit, so less housing will be built.

Right?

Yes, article is too wordy and lacks focus. Typical for us progressives.

OC prescribes "bottom-up" something something. I haven't read Housing Trap, so can't comment.

My prescription would be for policy makers to work with investors & developers, figure out how to make profits more stable and predictable, figure out how to institute those reforms.

I'd also consider restructuring the housing industry. eg IIRC in Germany, developers are often also landowners. So they have longer horizons for considering profitability. Seems like an obvious reform, especially considering climate crisis. Like design & build wrt total lifetime cost of ownership, so adopting passivhaus and activhaus innovations is a no brainer. (Just trying to say when landowner is also developer, they can capture more profit by incorporating better tech.)

B56b• 1 year ago

The increase in supply he advocates for is a viable solution because it is sensitive to different things.

Small, local development gets built and becomes profitable based on demand of the local housing market, but almost all housing today is built by large developers. These large developers are responding to the demand not for housing, but for the mortgage itself. Thanks to nationalized mortgage securitization the buyers the market cares about are those buying these securities: banks, pension funds, insurance companies, etc. When prices fall these securities become less attractive financial products, which decreases the demand for large development.

Chuck advocates for local building, which can ignore this macro-level demand and instead respond to the actual local demand for shelter.

have-a-break2• 1 year ago

A huge portion of why home prices dont fall is because most people dont pay for their homes up front, the actual cost of the home after the interest is 2x the total loan amount. So people dont want to sell for what they feel like is a loss.

I'd argue building more supply just makes the problem worse, since the builders almost always try to extract as much money from the potential buyers. With the internet and everyone reporting salaries most sellers price houses to extract as much money as possible included possibly expected "crypto" or other hidden sources of income.

The reality being we likely won't see a dip in home prices until the population holding homes ages out, saying there's a "housing crisis" is just spreading fear uncertainty and doubt to trick buys into unsatisfactory houses.

StableAlkyne• 1 year ago

the actual cost of the home after the interest is 2x the total loan amount. So people dont want to sell for what they feel like is a loss.

You're not taking a loss though; any payment above that month's interest goes to principle. If you sell, usually you take that money and kill the rest of the principle and and end the mortgage.

YMMV outside the US, of course.

tacticalturtle2• 1 year ago

As soon as I saw it was the founder of Strong Towns it all made sense.

Strong Towns, Not Just Bikes, and all those content creators are fulfilling the “hobby” of city planning (ie, watching hours of city planning YouTube videos, but never actually organizing at a local level)

This is a really great video about one man’s experience with trying to improve his community, getting involved in local government, and his criticism that the city planning YouTubers always gloss over what this actually looks like - they just point out what we’re doing wrong.

https://youtu.be/bUs0ecnbOdo?si=8dVweyWfvIF5ddg-

So I think that’s why the logic doesn’t make sense. It’s not meant to be actionable. It’s meant to be easily digestible so that people participating in the hobby can feel enlightened.

OldfieldFund• 1 year ago

HackerNews folks are getting hooked on ragebait recently

alexb_• 1 year ago

What? Strong Towns is not just their "content creation", they ARE local organizations. You might have a chapter in your city. This criticism tells me that you don't know what Strong Towns is, what they do, the actual specific policy guidelines they come up with and push that have real influence on local city planning.

Strong Towns gives actionable proposals all the time, and their main purpose is local organizations to actually do local change. To accuse them of being a content creation scheme that does no organizing tells me that you have not looked into this at all and are making immediate assumptions based on the aesthetics of their content.

Rendello• 1 year ago

Strong Towns is "not meant to be actionable"? The whole modus operandi of ST is bottom-up change from local chapters of advocates who organize for change at the local level [1]. The organization develops things like the Crash Analysis Studio, which is a structured model for local citizens and municipalities to respond to car crashes in a similar way to aircraft crashes, and redesign streets to prevent further deaths [2]. Here's a panel for a city I lived in, Ottawa [3].

As for NJB, he's abrasive and I don't agree with everything he says or how he says it, but he does talk a lot about his past advocacy work with the local government on Toronto. He encourages action, but I don't understand what he's supposed to do here, make videos for specific local advocacy of every large city in the world?

1. https://www.strongtowns.org/local

2. https://www.strongtowns.org/crashstudio

3. https://www.youtube.com/watch?v=i8OSNwo4KBU

Bukhmanizer• 1 year ago

I don’t think this tracks for me. Sure urbanist YouTube doesn’t really talk about local politics, but an extremely high percentage of people interested in city planning that I know have started doing something to influence local policy. One of my coworkers ran for city council recently. It turns out that people who are interested in watching multiple hour videos on the specific widths of roads are also not that bored by the ins and outs of local politics.

scoofy• 1 year ago

This is all based on a long and relatively technical book they published last year:

Escaping the Housing Trap: The Strong Town Response to the Housing Crisis.

https://www.housingtrap.org/

mcv4• 1 year ago

Is your argument that what Strong Towns and NJB are doing is somehow invalid because they're not also doing something completely different? Raising awareness is also a very important role. Sure, maybe 5 friends can get you elected to a local office, but first you need to convince those 5 friends. You need to get people to care.

Of course organizing is important, but so is awareness, and that's certainly what NJB is all about (I'm less familiar with Strong Towns). And organizing is especially unimportant to NJB, because he already lives in a country where this stuff is better organized than he'd ever been able to come up with. He's just spreading the good word and showing the contrast with North America. And he's very effective at that.

The witty snarky videos about organizing are better made by people who know more about organizing. If you think they're not emphasizing the thing you think is most necessary, why aren't you out there doing that?

scotty793• 1 year ago

An increase in housing supply leads to a fall in prices, which leads to a fall in supply? No, in fact the conclusion contradicts the premise.

That's econ 101. Or even common sense 101. If something is a worse deal because prices just dropped then people are less likely to start making it. Hence the supply stops rising and even drops because some people overshot in their business plans and now they stop making it because they just found out it's bo longer as profitable as they expected.

Aren't you the one that just sees the one side of how supply curve works and forgot to check back with how the real world works?

zozbot2343• 1 year ago

Even the title is a bit of a mess. What happens when the price of $THINGY goes down (where $THINGY is housing)? It depends. Did the price drop because of an increase in supply, a decline in demand, or both? That's what determines the overall effect (including something as basic as the change in quantity!), you can't just reason about a price change in isolation. If this article comes from the Strong Towns folks it's not making a very good argument for their POV, I'd expect way better.

bwanab• 1 year ago

So which is it?

It can easily be both statements are true. And a quick look at Zillow's data on Phoenix shows a huge run up in prices from 2015, but a leveling and interesting looking drop happening over the past year. The article certainly could have described this with a bit more elegance than it did.

The logic of the article is that people want more housing up to the point in which existing owners become terrified at the prospect of losing their equity and demand action. The logic is bizarre because the behavior its trying to describe is bizarre. Economy's are extremely complicated feedback loops and housing is part of the economy.

mcv4• 1 year ago

Oh, come on, man. Read the sources he points to before you invent imaginary contradictions.

The Phoenix housing market exploded briefly during the pandemic, when demand skyrocketed amid a housing supply shortage. Remote workers relocating to the relatively cheaper city brought up home prices and values. Between February 2020 and February 2025, home prices were up 53 percent in Phoenix and 56 percent statewide in Arizona, according to Zillow. During the same five years, prices grew by 45 percent nationally.
But the city has been experiencing a price correction in recent years, as demand slowed significantly with return-to-office orders and buying properties in the city became unaffordable for many—especially locals. "There's a mass sell-off occurring, as pandemic investors and snowbirds sell out,"

Did you know that prices can vary over time? They can go up first, and down later. That's what the article is referring to.

An increase in housing supply leads to a fall in prices, which leads to a fall in supply?

You mean basic free market reacting to a disruption and looking for a new balance? High prices make supply go up, high supply leads to more competition and lower prices. This is basic economics, man.

itake2• 1 year ago

The author says, increasing the supply pushes prices down which results in higher financial risks.

But then the author says we should also increase the supply… without addressing the underlying point that increasing supply creates financial instability

seanmcdirmid• 12 months ago

The ones that fall fast are the ones that have just risen fast.

But seriously, real estate busts used to be booms for artists, hipsters, entrepreneurs getting started with cheap real estate. The current mall bust is also turning out to be an opportunity of sorts. And Tokyo has long shown what creativity can do with surplus real estate and capacity. Not great for investors, sure, but it can be a net win for society.

eviks• 1 year ago

The whole article is a mess of basic misunderstanding and conflation of cause and effect and reasoning from a price change instead of understanding what caused it.

When prices actually go down, builders get nervous, lenders get cautious, financing dries up, and projects disappear.

No, it depends on the causes that drove the prices down. Some of those will get builders nervous, while others will make them giddy.

New construction has collapsed not because of a lack of land, permits, or even demand but because the financial risk has become unmanageable. High interest rates, shrinking margins, labor shortages, volatile materials costs… none of these are softened by falling home prices.

They are: if you can build a house in 1 day instead of 1 year waiting for some permit, your costs of capital goes down, so it can offset some of the other costs going up. If your permit doesn't force you to limit the size/number of units, you can spread your fixed costs over more units, raising your margins, which directly softens ... shrinking margins

tsunamifury5• 1 year ago

I find it funny how confidently hners criticize perceived incoherence with their textbook prognostications of how simple the models are when even the Fed and world renowned economics can’t give such confident solutions.

ecshafer3• 1 year ago

What do "Gamers" have to do with anything?

hattmall• 1 year ago

Permits and licensing is a huge factor, most of the southeast didn't even have licensing boards until the late 90s. If you wanted to build a house you could just do it. Now it's functionally impossible unless you are capitalized enough to spend a considerable amount of time and money on the permitting and approvals process.

One of the reasons there's so much gentrification is that it's much easier for builders to take a falling down house and replace 99.99% of it than to get approvals for completely new construction.

msgodel3• 1 year ago

I'm just building my house myself and ignoring the permitting process. It's extremely rural and there's no one to really report the violation plus the house is so small if I'm forced to tear it down it's no big deal. The expected value of "breaking the law" this way is pretty deeply positive.

stego-tech6• 1 year ago

Ultimately, there is no solution in which the core groups will all be appeased:

* If prices keep going up, then home ownership remains a luxury of the wealthy and an exploitation of the poor. Asset holders will be thrilled with returns, but the majority struggling to get or stay on the proverbial property ladder will grow increasingly angry at sky-high rents and prices with stagnant wages

* On the other hand, if prices come down then the broader economic engine will grow ornery and stagnate. Large home builders will cut back on builds, purchases, and labor, in an effort to push margins back up. Existing asset owners will be angry at losing (illusory/on-paper-only) money, and cut back on spending, purchases, or renovations until they see their valuations rise again. Only a small subset of prepared buyers will be able to take advantage of these lower prices before investors snatch most of them up and raise prices again anyway.

Housing is not a standalone crisis, but a symptom of a larger dysfunctional economic engine that simply does not work for the majority. Higher prices on core necessities should be met with a mixture of rising wages and price controls to reflect broader economic growth or support, but neither happens because of monied interests: if wages rise, companies will outsource and the problem perpetuates, while price controls prevent asset holders from maximizing their return on investment, a sin equivalent to murder in the eyes of the propertied class.

And so we have a group who benefits from nothing changing (asset holders, mega-builders, financiers), and a group that benefits from an all new engine design built for modern problems (the working classes, smaller employers, and - increasingly - insurance companies), fighting for the next century of housing policy.

I’m hoping the latter wins, despite the pain it would cause the former. Housing is a necessity first, and an asset class last.

almosthere• 1 year ago

Simple to make people sell, make property tax near Infinity if you rent it out in the first 5 years of property purchase.

Old rentals stay rentals, new construction is for people.

postalrat• 1 year ago

New construction is still very expensive.

stego-tech6• 1 year ago

It’s not that simple, although taxation is a lever I see more governments willing to tug cautiously on in this crisis. I do think multipliers on low-density housing that’s not owner-occupied year-round is an excellent starting point, though, one that would really only harm a smaller subset of landlords while loosening supply in the short-term (1-5yrs).

Still, tax policy alone won’t solve such a complex issue. We need deregulation in matters of zoning, and increased regulation in terms of rent-setting (both amounts and lengths). We also need higher-density housing near transit stops, regulations on sales of existing homes with fossil fuel heat (gas and oil) that promote their proactive replacement prior to sale, stripping HOAs of authority to police familial genetics or relationships in household makeup (to promote more shared housing in existing developments), and so much more.

It’s a complex crisis that requires a complex solution.

epistasis5• 1 year ago

Still doesn't solve the problem of having enough houses.

Rented houses are still housing people. The problem isn't renting, the problem isn't loans, the problem is there's not enough houses where people want them.

thinkingtoilet2• 1 year ago

Existing asset owners will be angry at losing (illusory/on-paper-only) money

I wouldn't be. I bought my house to live in it, not as a financial vehicle. I would be thrilled if prices came down and others in my generation could afford a house because I had the dumb luck of purchasing one in 2018 before the shit hit the fan. I couldn't even afford my own house now.

stego-tech6• 1 year ago

You and I are in a growing minority on this, I find. When I started my homebuying journey four years ago, I did so expecting to eat an on-paper devaluation of up to 50% during my lifetime - and was fine with that, because I wanted stability, not profit.

epistasis5• 1 year ago

Same for me, but that's not how most people view the housing market, especially those who take the time to influence local politicians.

lordnacho• 1 year ago

I think the same. I have a house, but the mortgage is not massive. If I can just live in it with no appreciation, that's fine with me. I even want to encourage building in the area, since we have a train station that seems underutilized.

There's a more selfish reason for wanting prices to not rise. I have kids. In a few years, they will be adults. If prices keep rising, how will they launch their own lives? I'll get asked to buy another house again.

tracker1• 1 year ago

Largely the same boat here, I refinanced in early 2020 near the lowest interest rates and eliminating the mortgage insurance payment. Of course since then, property taxes have gone up significantly. All said, I'm living here at a cost that I can sustain. I'd have trouble paying close to 2x the amount for a new loan of even the same total.

Way too many people got sold on the idea you could just flip a property every other year and move on/up... that kind of growth/inflation has never been sustainable in any industry ever for more than a couple years.

The closest, recent example I can think of is the cost of junk food. I no longer have it much at all, but even for calorie free soda options, the pricing seems to have more than doubled the past few years. More so than most food in general. They've maximized their profit margins and I don't think they'll be able to sustain it. People are cutting back on spending as a result.

I think the amount of mortgage defaults are as much about credit use in general as it is about the housing market. I've been unemployed 11 of the past 24 months, and currently working for about 60% of what I used to make. During that unpaid time, I built up a lot of credit card debt. Right now, it's not my mortgage that's killing me, it's the credit cart interest combined with a job that doesn't quite cover it all. I was working two jobs for a while and just couldn't keep it up. A LOT of people are in a similar boat.

Right now, I could sell my house, and just about start and 0 debt all over... but then I'm paying 2x as much for rent and not getting ahead without moving... and even with remote work, places try to pay "market" for where you live. The options are kind of crappy.

richonpaper• 1 year ago

We bought a house 17 years ago. We could barely afford it and struggled to keep it for years.

The house more than doubled in value in that time. Great right?

Well the kids grew up, and we sold it and bought a smaller place.

Just the tax (GST on a new build) and the realtors commission amounted to two years worth of my gross pay.

We sold our old place that had a $400,000 balance on the mortgage for $1.7 million, bought the new place for $1.2 million and now have a 175,000 mortgage.

Just the costs of the transaction are greater than what my parents paid for the last home they bought.

These sky high prices are not good for the middle class. I would be much better off if my mortgage payments for all those years were small enough to allow for retirement saving. I'm basically fucked if I want to live indoors in my town after I can't work anymore.

itake2• 1 year ago

On the surface, I feel the same as you but as someone that bought a house three years ago at 5.5% interest and has only lost money on the property due to significant home repairs it really doesn’t feel great that my capital is just evaporating.

I spent $50,000 replacing the pipes and removing asbestos 1 year after I bought the house. While I don’t expect the down payment and regular mortgage payments to grow and value, it’s very painful when there’s an unexpected repair that requires additional capital that isn’t recaptured in the home value growth.

It’s like driving a new car off the dealership parking lot and immediately getting your doors dinged. I’d feel a lot less about it if the car went up in value…

ch4s34• 1 year ago

On the other hand, if prices come down then the broader economic engine will grow ornery and stagnate

A rather small part of the economy relies on high long term returns on housing. You can build homes and sell them for rather small margins and that's good business. Many types of businesses happily run on profit margins that are single digit percentages.

Only a small subset of prepared buyers will be able to take advantage of these lower prices before investors snatch most of them up and raise prices again anyway.

In 2024 87% of homes in the US were bought by people who intended to live in them or use them as a second home. If you only want to count primary homes the number is still close to 80%.

but a symptom of a larger dysfunctional economic engine that simply does not work for the majority.

Factually the majority of US families live in homes they own, about [65% of US families own their homes])https://fred.stlouisfed.org/series/RSAHORUSQ156S) that is not only a majority but nearly 2/3.

stego-tech6• 1 year ago

You’re cherry-picking stats without offering a counter-argument, as if they alone dismantle the whole of the argument.

A rather small part of the economy relies on high long term returns on housing.

Directly, yes, but don’t forget the wider array of businesses dependent upon this minority to survive: hardware stores, contractors, many tradespersons, mortgage companies, real estate agents, brokers, closers, lawyers, and more, all of whom get paid/earn less if housing prices come down in the short term (until theoretical volume makes up for the drop of individual transaction values).

It’s a wider web that shores up a market valued at ~$50tn. That’s hardly a minority.

In 2024 87% of homes in the US were bought by people who intended to live in them or use them as a second home. If you only want to count primary homes the number is still close to 80%.

Taking those numbers at face value means a full 13% to 20% aren’t purchasing a home to live in them, which is problematic in a housing crisis. The fact you included second homes paints an even more distressing picture, because to have a second home means you not only have a primary home, but also the excess capital for a secondary domicile in the middle of a housing crisis.

Furthermore, those numbers - if true - are almost certainly national figures. Local ones can vary substantially, and the statistics show that affordable housing is predominantly being bought by investors for rent, not homebuyers to build equity.

Factually the majority of US families live in homes they own, about [65% of US families own their homes])

That’s a grossly misleading statistic on its face, because it ignores demographic data to make the case that somehow a full third of the country simply doesn’t want to own a home. It does so by hiding the average age of homebuyers (which only goes up, indicating only those on the property ladder already are buying homes in large enough numbers to drive the average upward), the types of homes being bought (what about mobile homes/trailers? Or people who live entirely on the road in RVs? Why is it “ownership” if they’re still paying a mortgage to someone? Etc, etc), and regional or local policies that affect these demographics. FRED data is awesome, don’t get me wrong, but that figure is like pulling the U-1 for unemployment and saying everything is rosy.

Don’t come in here to blindly spout numbers without a competing or complimenting narrative of your own.

doctorpangloss5• 1 year ago

A rather small part of the economy relies on high long term returns on housing.

Uh, my dude, real estate is the #1 sector in the Los Angeles and San Francisco economies...

sokoloff3• 1 year ago

Price controls work to ensure scarcity.

Flooding the market with new construction (at any price level, though ideally at all sizes and quality of housing) will do more to sustainably lower prices while leaving a functioning market.

doctorpangloss5• 1 year ago

a dreary part of this conversation is, nobody wants to play the game, what does random HN user sokoloff mean by the words "functioning market," "sustainably," "flooding", "ideally", "quality", and even "scarcity"? I don't know what you are saying, because you are leaning so deeply on an internal glossary known only to you, made worse by hijacking real words that everyone can look up in a dictionary.

intalentive3• 1 year ago

Housing is not a standalone crisis, but a symptom of a larger dysfunctional economic engine that simply does not work for the majority.

Great point. Healthcare, debt, and housing affordability are interlinked issues that stem from one root: a financialized economy that benefits a tiny minority of rent-seekers at the expense of productive activity and the public at large.

Three potential outcomes of this trajectory:

1. Permanent extreme inequality enforced by a "post-liberal" surveillance state.

2. A moderating force, an FDR-like reformer, who represses capital for its own good.

3. Political instability and violence a la Luigi Mangione or worse.

inglor_cz• 1 year ago

Here in Czechia housing costs are absolutely terrible, which is at least partly caused by an insane, Byzantine permitting process under which a basic block of flats in Prague can spend a decade in bureaucratic limbo before the construction can begin.

Yet this is not really a problem of financialized economy, the roots are elsewhere:

a. lots of NIMBYs, mostly curmudgeonly old people who want to block any change around them and, being in pension, have a lot of time to throw at thwarting anything. My personal experience is that they aren't really looking for money or profit, they just Simply Hate Anything New, Period,

b. the ease of weaponizing environmental and planning regulations against any building project, by the means of lawsuits,

c. local mayors have de facto (though not de iure) influence on the permitting process and they don't want to lose this tool of power over their constituents. It is an efficient way how to bash your enemies and reward your friends.

From what I know about the US, at least a. and b. apply in many places, too.

zozbot2343• 1 year ago

Price controls are a terrible policy. The nice things about rising housing prices is that they can be addressed in a way that also creates a nice tax base for local communities: Raise property taxes on the ground-rent portion of real estate values. For those living in California, this means you need to put an initiative on the ballot to get rid of the infamous Prop 13.

msgodel3• 1 year ago

Normally people deal with this naturally by having fewer children when supplies for basic goods like this are constrained so the population and prices would servo around an equilibrium.

High rates of migration upset this equilibrium. In the past it would normally cause wars and genocide because of that. I'm not convinced the current world is any different but a number of other people seem to be.

Workaccount22• 1 year ago

Transpose the problem into a Taylor Swift concert and the problem becomes clearer:

Everyone* wants to go see Taylor Swift. She comes to a stadium and the sell out is instant, the aftermarket is bloody and ruthless. The stadium has 90,000 seats, 2,000 floor spots, and they are gone before you can reload the ticket page.

Taylor Swift is the embodiment of "good jobs". The stadium is the local housing market. Those VIP booths side stage with room to move around? The mega mansions. The lower tier seats? Upper-middle class. Nose bleeds? Upper lower class/bottom middle class.

Now solve the problem of the true value of these seats being so expensive. You can add more seats (this stadium happens to be extremely modular) but the experience for everyone becomes worse in a multitude of ways. You can add seats above the nosebleed, but it doesn't really do much to affect the closer seats.

So how do you solve this? How do you handle people who want to sell their ticket? Is it even possible to give people who can hardly afford nosebleed a shot at mid tier seats?

*Yes, I know you have no interest in seeing Taylor Swift.

postflopclarity• 1 year ago

the experience for everyone becomes worse in a multitude of ways.

your analogy requires the assumption that the stadium is already "at capacity" for the maximum comfortable number of seats

99% of American municipalities are nowhere even close to this capacity.

Workaccount22• 1 year ago

Taylor Swift (and other super stars) don't play shows in 99% of American municipalities.

Companies want top talent for their workforce. They naturally will set up shop where they have easiest access to this talent (hence why you get industry hubs in different locales). The companies move to the spots for workers, and the works move to those spots for the jobs.

bethekidyouwant• 1 year ago

Analogies are always bad, but in this case, I would say that if I wanted to walk to see Taylor Swift within 15 minutes, then most municipalities are at this capacity.

have-a-break2• 1 year ago

Even worse, a lot of municipalities are losing population. But no-one wants to drop everything in their lives and move to a dying city, specially not high intelligence individuals who tend to gather causing home prices to skyrocket. Worse, those individuals tend not to buy into the types of housing typically seen by large developers building "relief" housing.

foobarian2• 1 year ago

Nice analogy. So it seems the solution would be to create more Taylor Swifts then, by investing in music schools and programs, talent shows, scouting, etc., where the analogous thing would be to create more "nice places to live" with all the desirable attributes like walkability, jobs, public transport, etc. It's a tall order since land and climate are the ultimate scarce resources, but there are probably some underutilized spots that could support it. The rest would also be difficult due to property rights.

bluGill7• 1 year ago

You cannot do that. Taylor Swift is what she is not because she it better at music, dancing, or looking sexy, or sleeping with the record label executives (I don't know anything about her: the above list are the common things done to get positions like her, but not necessarily what she has done). What Taylor Swift is that is special is that nearly everybody knows about her (I'm a rare exception) - you can talk about her to strangers and have something in common because you know her music.

If you want great live music you can find that in a 1 in 10 bars around the country. (less if you want original music instead of covers). Likewise if you want to watch a dancer, though perhaps a different venue. If you want anyone sexy you can see sex better at a local strip joint. If you want to sleep with someone you can pick someone up in any bar (you probably couldn't sleep with Tayler Swift even if she was the type looking for a one night stand). However the shared experience of being a Tayler Swift fan is not something you can find if you stick to the local scenes. That national/international shared experience can only belong to a few people at any one time and no amount of schools, talent shows, scouting... can change that.

epistasis5• 1 year ago

where the analogous thing would be to create more "nice places to live" with all the desirable attributes like walkability, jobs, public transport, etc. It's a tall order since land and climate are the ultimate scarce resources

We actually ban nice places to live with walkability in the vast majority of the country. Our urban planning in the US been entirely focused on keeping out mixed uses, keeping out dense housing, the things that enable public transport to function at all.

Land and climate are much easier to manage if we were to simple legalize density and mixed uses. We are reaping decades of bad planning for car-centric lives, without planning ahead for future generations and their ability to find a home.

nobody99995• 1 year ago

...where the analogous thing would be to create more "nice places to live" with all the desirable attributes like walkability, jobs, public transport, etc. It's a tall order since land and climate are the ultimate scarce resources, but there are probably some underutilized spots that could support it.

Absolutely. And in fact there are lots of places that could support such things. In the US we call them "small towns" and "rural areas" and "the rust belt."

Areas where a lack of good jobs (as manufacturing left and farming became much less human intensive) drove folks to where decent jobs are (were?) more available.

Which drove up the costs of housing and, well, pretty much everything else, in those places.

However, with the technological changes we've seen over the past eighty years or so (Interstate highways, compute/semiconductor industries, ubiquitous networking, etc., etc., etc.), revitalizing those areas that have been left behind could boost both local economies as well as broader ones.

However, ALEC[0] and its corporate backers have sabotaged efforts to do so in pursuit of destroying competition and maximizing rent seeking. a lack of infrastructure maintenance is part and parcel of that -- as a lack of economic activity reduces the amount of tax revenue available for necessary infrastructure repairs and investments.

If companies could get symmetric, multi-gb internet, decent office space with decent road and rail connectivity to/from regional hubs in small towns and rural areas, more people would move in, prompting more housing development, more local businesses, more tax revenue, better infrastructure, etc., etc., etc.

This type of investment could have instant positive economic effects in poorer areas, and longer term (coupled with more housing), reduce the insane housing prices you see in NYC (median apartment rent in Manhattan is ~$4500[1]), SF, Boston, etc.

Unfortunately, statehouses appear to be fully captured by big corporations wanting to maintain their rents by stamping out any competition, the economies of those states be damned.

Sadly, the above can't happen unless the folks in those areas stop voting (in municipal/state elections) for the folks who are supporting policies designed to maintain the penury endured in those places.

There are so many good reasons to reinvigorate these areas, but we keep electing folks that won't bite the hand that holds their leash.

[0] https://alec.org/

[1] https://www.brickunderground.com/rent/nyc-manhattan-brooklyn...

Edit: Added the missing links.

gausswho• 1 year ago

Please continue the analogy while including Ticketmaster.

paulddraper• 1 year ago

What adding a new showing?

Or taking a smaller venue and expanding that?

api• 1 year ago

I concluded long ago that the only solution to unaffordable housing is geographic diversification. You can only cram so many people into one city before costs spiral for a myriad of reasons. The root of today's housing unaffordability is geographic consolidation of opportunity into a handful of places.

There's a ton of affordable housing outside the top ten cities.

For the most expensive places I'd advise young people to consider going there temporarily to get your career started, but don't stay unless you are making serious money -- enough to offset real estate costs. E.g. for the Bay Area I'd say if you're not making over $350k/year by age 30 you should leave.

bluGill7• 1 year ago

Nearly every city in the world has plenty of room for more. Most cities in the US dedicate more than half of their space to just cars, a great transit system could nearly double the density of the city while increasing the quality of life. Even in cities with good transit, they all have a lot of space dedicated to cars for people who don't find transit good enough (most of that isn't about snobs not wanting to mix with poor people, it is quality of service)

pythonaut_16• 1 year ago

In many places though it's more like most of the stadium is made up of various levels VIP booths. So one of the options is to replace those VIP booths with more dense traditional stadium seating. Only it's not enough to convince the ticket holders of one VIP booth to sell their tickets so more dense options can be sold, for some reason all of the VIP booths around that one also have to agree, and they're not so excited that plebeians might get to sit in dense seats right next to their pristine VIP booth to watch the show.

kmeisthax• 1 year ago

You can add more seats (this stadium happens to be extremely modular) but the experience for everyone becomes worse in a multitude of ways.

To keep your analogy... well, analogous, this is also a stadium where you have to buy tickets in groups of at minimum four seats, with generous buffer zones of at least two seats between each group, specifically to cater to a handful of extremely vocal Swifties who couldn't bear to sit next to a stranger in their life. We could easily double the capacity of the stadium without impacting anyone's experience.

mcv4• 1 year ago

The real problem driving up prices, both in housing and concerts, is scalpers. They create artificial scarcity. If you want to fix these sort of problems, you have to do something about scalpers.

baggy_trough• 1 year ago

There is nothing to solve; this is the best overall outcome.

zeroCalories• 1 year ago

If cities won't make themselves more affordable, then people will simply stop coming. Maybe that's the goal. Who wants immigrants, right? Not gonna be so great when large companies decide that SV and NYC are no longer worthwhile to expand in, compared to Bangalore or Poland(sound familiar?). Prices must come down, and we've seen places that have successfully done it. Just because red cities are now falling into the same trap as blue cities doesn't mean that supply / demand doesn't apply. Yes people tied into the financial system will be hurt, but that's a price we need to be willing to pay to keep our economy healthy.

rossdavidh2• 1 year ago

While there is a problem in how we treat shelter as a financial product, the basic thesis (lower prices aren't allowed to happen) is incorrect, at least in some states. Florida and Texas (including Austin, my hometown) already have prices going down, substantially. Colorado and California seem to have started to follow suit. This did actually happen post-2008, nationally. There are places where we don't let housing prices drop, but there are plenty of others where we do.

queenkjuul5• 1 year ago

Where i live, NIMBYs just killed an ADU ordinance and were screaming just as loudly and about all the same things they would have if you were replacing their grandma's cottage with a high rise.

They can't be rationed with.

Social housing is the only thing that will really work.

tsunamifury5• 1 year ago

This was tried the 60s in the us and uk, which gave rise to the ghettos torn down in the 2000s. There is little appetite on any side to re do that

It’s amazing how little history people seem to remember or know. I think people might be open to trying again if you could address what went wrong last time (extreme crime and poverty traps)

arethuza2• 1 year ago

A lot of "social housing" in the UK was perfectly decent and still exists - I grew up in a council house as did a lot of my friends. The main thing that has changed is that most of those houses have now been bought and are privately owned.

Yes, of course there were a lot of grim council housing estates (particularly tower blocks) that had to be knocked down but the causes were often a lot more complex than the concept of social housing being fundamentally flawed.

queenkjuul5• 1 year ago

Post war UK social housing was a huge success, and US social housing was deliberately turned into ghettos through deliberate lack of maintenance.

It's amazing how little history people who think they know history actually know

nobody99995• 1 year ago

It’s amazing how little history people seem to remember or know.

Yourself included.

cf. Mitchell-Lama housing[0]. It was enormously successful in creating housing (both rentals and sales) for significant numbers of people. In fact, such housing is still (70 years later) doing so.

We could use a whole lot more of that!

[0] https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_...

anthonypasq2• 1 year ago

no, you just strip NIMBY's of their power. I frankly don't give a shit about grandma's opinion if the owner of the land wants to put a highrise there.

queenkjuul5• 1 year ago

Why do you care whether it's a developer or the city building it, then

fireflash382• 1 year ago

After that is built, they then become the NIMBY because new buildings after them are threats to their income.

nisegami• 1 year ago

Why can't we have luxury social housing?

FireBeyond• 1 year ago

Yeah, sounds like here. Homeowners on cul-de-sacs complaining about the rise in traffic and how it will keep them up at night. Complaining that improving the missing middle will lower projected year-over-year property value increases from 11% to 8%. Hyperbole and hysteria about having to widen streets to accommodate parking and traffic.

Akranazon• 1 year ago

When prices actually go down, builders get nervous, lenders get cautious, financing dries up, and projects disappear.

I think this is putting the cart before the horse. The entire reason that building/lending/etc should exist, it's raison d'être, is to make housing more affordable. If that is achieved - mission accomplished? I don't care about these parties otherwise.

CrimsonCape• 1 year ago

Isn't the point of the article to show that you "don't care" about the other parties, but nevertheless they control the market?

focusgroup0• 1 year ago

Housing prices will not go down due to inflation, unchecked immigration (ie, demand++), degrowth policies (supply--), and years of ZIRP. Be glad you got in when you did.

JJMcJ• 1 year ago

The usual solution to the paradox of lower home prices and the political need to not have home prices decline seriously is to tell people "a 70 mile commute is good for you". In the Bay Area that means Stockton, Gilroy, and the like.

At least we aren't in a situation like 2009 where people walk away from mortgages without making a single payment because they expected to be able to flip within weeks and had no cash at all.

Bluescreenbuddy• 1 year ago

Here in Chicago some Aldermen are trying to get more builds in their neighborhoods but some the boomer homeowners that go to the meetings always cry about it. oh and bike lanes. People hate bike lines. They're insane

TrackerFF• 1 year ago

Monotonically increasing housing prices is a privilege not everyone has. TONS of people, even in the rich western world, own houses that essentially lose their value due to inflation. Me and my siblings inherited a house in a rural town, which sold for less than what it was purchased for 30 years ago. Most houses in that town have seen stagnating prices, even brand new ones.

People still pour money into them every 10-15 years. But have to invest their money in other assets.

bandofthehawk2• 1 year ago

That doesn't sound like a problem of inflation. I think it's related to people migrating out of rural areas and into big cities. When you have a decreasing local population, home prices tend to fall.

psunavy03• 1 year ago

It's amazing the difference between different areas. I grew up in a single-family home in Ohio. Parents moved to New York when I went to college. I ended up in Puget Sound.

They bought their NY house by selling the Ohio one. Price was roughly equal, maybe a little higher. Now the NY one is double what the OH one is worth, and I couldn't afford to buy my own house today. Conversely, I could pay cash to buy the house I grew up in, despite the lot being 4 times the size of mine.

There's definitely haves and have nots real-estate wise in different parts of the country.

dismalaf• 1 year ago

Prices going down doesn't automatically mean building stops, and prices going up doesn't mean building automatically happens...

Whether or not a homebuilder builds homes depends on whether or not there's enough demand at a price point that's profitable. And markets aren't entirely localized, people will move for affordable housing if there's also enough jobs.

So lots of things affect whether or not homes get built: cost of building supplies, cost of land, cost of labour, growth rate of the municipality, demand for the specific unit type, zoning laws (which affect a bunch of the above), etc...

Remember, a house can cost as little as $100k to build, but nowadays costs $500k-$1M+. Price of land is a huge determining factor, cost to hook up utilities (if a new neighborhood, the builder often pays for it), interest rates (the homebuilder incurs a bunch of expenses before homes are sold and whole projects are financed, then it also affects the price buyers will pay), insurance, regulatory costs (the whole permitting process is $$$) etc...

aurizon• 1 year ago

Any buffer vanishes as prices fall = buyers pull back and wait for the dust to settle = a downwards cascade that can consume all equity= underwater, and buyer does not want to bail out a sunken ship. Lenders have recourse to whatever other assets the buyer has(depends on fine print, LLC etc) and some lenders sell at auction right away, some set a reserve below which they rent the home and the banks usually have management departments to manage that, but each case differs.

Glyptodon4• 1 year ago

Home builders being very short term doesn't seem related. If they won't build because they can only make mc mansions on tiny lots while land values inflate wildly, they're part of the issue and blasting land prices along with home prices to reset the cost of building should benefit them in the long run. But it does mean that they're paralyzed until land values stabilize at a lower value.

doctorpangloss5• 1 year ago

by all means, go invest in a REIT whose logline is, "We make money when land values go down!" How exactly would they be building housing in such a scenario? And why wouldn't an investor interested in this simply short real estate instead? Does this illuminate for you that you are right, short term isn't related, but you are wrong, and the truth is surely prices dropping is bad for investing in building houses?

Glyptodon4• 1 year ago

You seem to be ignoring that once land values reach some kind of floor it will be entirely sensible to build houses. Land values going up leads to FOMO, and going down leads to the reverse of FOMO, IE fear that the bottom hasn't been reached.

Clearly it is correct to short, but short positions expire - they are definitionally short term.

That said, the behavior is pretty expected: the current operators are operating on in inflated land value cost because the market has become distorted due to lack of supply. Altering the market by injecting supply will drive down land value and cause operators with money stuck at the current equilibrium to lose money or fail. But it poses no issue to operation or new entrants at the new market equilibrium. If it operates like a market should operators should be happy to begin providing houses on land at the new equilibrium as soon as it's reached. However fear of not knowing when it's been reached will mean that it does to take time settle.

ken47• 1 year ago

Those wealthy enough to invest or speculate in real estate incur a write-down they can likely afford - as Warren Buffett once said, don’t swim naked. The person of average or below-average means gets a chance at a standard life.

scotty793• 1 year ago

I guess we need a lot of research into limits of what free markets are good for. Non-perishable, essential, high-priced, non-fungible goods are probably one of the worst applications imaginable.

mlsu2• 1 year ago

Quite simply, housing has to be either affordable, or an investment. Those two things are literally, by definition, mutually exclusive. If something is an investment it means that it must appreciate in excess of inflation over time. That means, by definition, that it will become unaffordable over time. This is why, whenever you hear terms like "affordable housing" you can safely shut your brain off. There will never be affordable housing, the whole idea is preposterous.

Saying "we're going to build affordable housing" is putting the cart before the horse: it is the building that causes the affordable, not the affordable that causes the building!

So to understand this we look to the supply-side. Basically, scarcity causes the investment mindset. This is very very complex and interlocks with much broader structural changes to the economy that have taken place since houses were considered affordable, structural changes that are much larger even than housing.

Used to be, you worked for a company for 10+ years. A company would move into a town (by building a big factory, say), and work with the town to build housing for its employees. Think the Kodak plant in Rochester, for example. In the 20s and 30s, Kodak's employees were having trouble finding places to live. So, they formed the Kodak Employees Realty Corporation and built a couple thousand houses for their employees in Rochester. There are many examples of this in cities all across America.

Nobody would think to do this any more, because the economy has changed structurally. There are less people involved in building stuff and generally we have all decided that changing our physical environment is simply a thing that we don't do any more. Our entire economy has moved to one that's based on physical things (building things, producing things, moving things, in the physical world), to one that is based on information. You can move bits around and make profit without ever needing to touch the physical world *.

We created financial capital to accomplish the actual important thing, moving atoms around in the real world. Now, financial capital has in some sense "taken over" -- moving bits is no longer a thing that you do to make moving atoms around easier, but a goal in and of itself. Financial capital has taken the head of the table, pushing out physical capital. In essence what has happened is that the United States has gone from being a complete organism (lots of muscle, a little bit of brain to move that muscle around) to being a subset of a much larger organism (all brain). That we're "all brain" is why we can't move atoms here; our inability to move atoms here causes scarcity in housing; scarcity in housing causes investment mindset in housing; housing appreciates.

Causality of all of this, I think, is far more complex than some simple economic explanation. It's deeply cultural and involves the reorganization of the entire global economy. This is why you're never going to lose money on your house.

* this, of course, is _not actually true_, but rather a geographic illusion. The physical world is touched more than ever, its just that the changes to the physical world (which are often horrific) happen in other places besides the USA. Southeast Asia, China, Africa etc.

Glyptodon4• 1 year ago

I think it's possible to housing to be affordable and for it to behave more similarly to to something like gold than something like a bond or stock. That said, it's quite tricky because of property taxes - if they applied to gold imagine what it would do to gold bugs. Fortunately, real estate can be rented, which isn't really a thing for gold.

But to complete the analogy, it seems like the goal should be for residential values in terms of build price per some typical target like ~1500sqft/3br (regardless of form) to remain relatively constant adjusted for inflation and relative to % of median wage while allowing land value to adjust density to match. This allows people to gain from selling to convert from low density to high density, but keeps affordability relatively constant. This likely means that some kind of alteration in tax or sale regime to promote transition to higher density and not just transition to higher value should be present in the market. (IE in places where 1acre is going for ~$1million, it should make more sense for someone to buy and convert to multiple units than for someone to just buy.) This would lead to expensive areas starting to convert to higher density leaving lower value areas to the main option for single family inflows. (Of course this will have loopholes - obviously it incentivizes the "rich enclaves using a COOP" type of model if the tax pressure were assessed at sale - so it need to be thought through more clearly.)

Edit: That said, I do think there's something to your organism analogy. For example, all of what I wrote above given, it explains why it'll still be impossible to find a good plumber and that does interact with the price of building.

mlsu2• 1 year ago

I lean reflexively libertarian on housing (mostly just my psychological NIMBY backlash). Therefore my take is that the market would naturally accomplish the scheme you've described, no need for policy, if we simply remove constraints on supply. Basically, the "stop hitting yourself" policy of housing :)

Unfortunately it doesn't work that way and never will, not just because of NIMBY but because of the reasons I outlined above.

mlhpdx2• 1 year ago

The universal agreement that “we need to build more housing” baffles me. I see persistent vacancy rates, so the raw capacity is there. High commercial vacancy means more will come without new builds.

If the issue is ownership versus renting (which is very important), building new will lead to more overcapacity in the system at large, won’t it? That won’t serve new owners well (or existing ones).

It’s a difficult problem without painless solutions.

kjkjadksj3• 1 year ago

There is always some level of vacancy rate by virtue of people moving out or in and renovations. Even keeping a unit off the market if you don’t want to have to let it out at lower rent and devalue your asset which is priced in part on rent prices.

And further in terms of inventory. What does it suggest to you in high demand cities when we see e.g. in socal virtually all available space already built to the limits of the zoned capacity? No real room to add inventory based on zoning laws, job growth continues to happen, and prices are rising. Do you believe this is a sufficient amount of inventory, todays zoned capacity with no avenue to meaningfully add housing inventory?

This is why the situation is fundamentally different in socal than anywhere else such as texas. Dallas metro region has farms on all sides to continue to digest to create regional inventory without making large changes to zoned capacity. Socal has mountains and the pacific ocean.

mlhpdx2• 1 year ago

Isn’t that a bit of an aside? Folks not being able to afford to own a home is different than folks not being able to afford a home where they want. I’ve been in both situations and one is considerably more unpleasant (and difficult to escape).

vannevar• 1 year ago

In a sense, housing suffers from the same identity crisis that bitcoin does. Because so many homes are now being bought for investment purposes and not by resident homeowners, housing has become speculative and the historical slow-but-steady growth in prices has been replaced by a boom-and-bust cycle typical of speculative markets. Just as bitcoin can never become a useful currency as long as speculators dominate its trade, neither can the housing market go back to being the stable economic foundation it once was for the same reason.

eagsalazar2• 1 year ago

Very good article. However I think a huge factor is being ignored. The most pernicious side effect of falling prices isn't pullback in investment and construction. It's the immense leverage lender and builder lobbies will apply through decades of regulatory capture, and the massive outcry that will come from homeowners who have bought into the idea that real estate is a great way to build wealth. Anything that results in lower prices will result in damaging the wealth of millions, of the group of Americans that probably has 99% of the wealth and political power. Yeah that won't fly. And I agree the "correction" is overdue and those wealthy boomers whose wealth has doubled and tripled since retirement just by riding that wave (and the stock market, another ponzi scheme) should transfer some of that wealth back to the masses in the form of depreciation. But it won't happen. Not in America, not without something horrible happening to make them give up that wealth.

klipklop• 1 year ago

It's pretty simple I feel. As prices drop, the elite will buy more until most/all housing stock for the lower and middle class is owned by them. Then any labor done by most people will be used to pay them tribute.

When you have unlimited access to capital and at a lower rate than the average family, you "might as well" buy it up. If it goes sideways you are "too big to fail" and will be bailed out by the Federal Reserve...at the cost of the tax payer of course.

What happens when housing prices go down?

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