I think that what contributes to this view is that new construction always seems to be at the high end of the market. This makes sense, it doesn't cost the builder a lot more to build a $500k house than to build a $250k house, and building two $250k houses will take twice the time and close to twice the costs. So builders/developers are going to build what is most profitable, which is the most expensive houses that they think they can sell in the local market.
What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.
If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.
If someone in Chicago moves to Seattle, then our policy options are (1) no new condo in Seattle or (2) new condo in Seattle.
Under policy 1, the new buyer from Chicago must outbid locals for the fixed housing supply; they will wind up buying older housing stock, which otherwise would have gone to existing local residents. Prices go up.
With policy 2, the new entrant buys the new condo and does not compete for pre-existing housing stock.
In this scenario, whatever house is freed up in Chicago is irrelevant to the housing stock in Seattle. I'm not sure why you included it.
The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
> The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
Are you denying that induced demand is a thing for housing? That everyone who wants to move to Seattle will move there regardless of housing prices, and no one will leave because they get squeezed out of the housing market by new arrivals? Or is there a more nuanced argument that I'm missing?
That new condo allows one more family to live in Seattle regardless, whereas if they were competing with existing stock, some family would probably have to leave. We could play a few rounds of musical chairs to prove that fact.
Yes, people are going to get squeezed out of the housing market by new arrivals if new housing stock isn't built.
"Squeezing out" is done by a price mechanism: a family that would prefer to stay in Seattle decides to sell, because that new buyer (unable to buy the condo, because it hasn't been built) decides to offer a high enough price to induce the existing family to leave.
That's only done by reducing housing affordability (increasing prices) which is the public policy outcome we're trying to avoid.
It sounds like you agree that new supply is good, I think, because you believe new entrants would otherwise "squeeze out" existing residents and I assume you would agree that this is done by price, and so therefore you would also agree that new housing stock (which decreases the "squeezing") also suppresses price level relative to the alternative fixed stock scenario.
I never argued that new supply is bad. My only observation is that new supply does not always lead to price decreases since demand isn't fixed (e.g. Seattle isn't a closed system). I think another comment that mentioned equilibrium is probably a better way of putting it. It can take a lot of supply before the price point changes as new supply is added because a lot of people are waiting on the sideline to pay X that is already being paid for existing supply (but they are unable to pay X+1 to force someone out and take their place).
New supply obviously increases demand because shifting the supply curve to the right (more quantity) reduces the clearing price, which increases demand. That's econ 101. In this classic case, increasing supply both decreases price and increases demand.
But what you're arguing is different: that increasing supply has no effect at all on the clearing price. That would require an unusual demand "curve" that is perfectly flat, i.e., perfectly elastic, where there is infinite demand at a given price and zero demand at just a dollar above that price (or else that infinite demand would have already pushed prices up higher than the pre-existing price).
This clearly doesn't make any sense for the housing market; home buyers are sensitive to price, there is not infinite demand, some people have more or less desire to pay for a house. In fact, perfectly elastic markets essentially don't exist, and very low slope demand curves only exist in some unusual edge cases in markets (such as commodities that are near-perfect substitutes).
> that increasing supply has no effect at all on the clearing price.
I never argued that it has no effect, only. that it could have no effect. Obviously if you can build enough supply and get way ahead of demand, you will see prices fall. But that just isn't done in practice, so most of the time new supply is brought online, housing prices do not decrease. Well, that's just builders trying not to kill themselves in a market economy, so that shouldn't be surprising.
The argument is clear, but where you are coming from or going to with this isn't. You're describing a situation where Seattle desperately needs large amount of construction of new housing. If we're hypothesising this mob of people who will move to Seattle as soon as they see a house for $700,000, house prices in Seattle are going to have a floor of around $700,000. Someone is going to need to build houses for those people if anyone wants to pay less than that.
Thanks to the magic of Simpson's Paradox it is possible to have the average house price go up even if houses get more affordable for literally everyone, which seems to be the situation you're going to. Which is true and interesting, but not really politically important. Obscure mathematical effects do draw attention to the fact that one metric isn't enough to develop policy, but shouldn't eclipse the fact that more houses is what people want, need and should be getting. There is this crowd of people who want to move to Seattle and live in nice houses, let them do that and pay people in Seattle to build them. Otherwise everyone will have to compete for existing housing stock.
Builders aren't making much money due to material and labor costs in addition to land costs. It is probably impossible do a non-ADU project for just $700k, so dumping money into the problem isn't going to help make things cheaper. This is before we get to regulation and zoning, which are not even close to being the bottlenecks right now. I wonder if we could invest more in making building cheaper (via prefab?), and then more building would happen and prices would actually fall.
We (Seattle) are also completely built, new projects must overwrite existing housing stock and additional capacity only comes from increased density.
I've never understood the induced demand argument. Yes, when goods get cheaper demand increases. Or, to put it another way, when we make our cities more affordable more people want to live there. What's the problem? Sure, induced demand means that the marginal increase of affordability is less than it may have been if demand remained constant, but a. affordability still increases, and b. the solution is just to keep adding more housing until things flatten off. I truly don't understand why this is controversial; do you not want people to have desirable things? The rational response to induced demand is "great, people actually want this. Build more".
If your goal is to decrease costs, the amount of supply needed may be surprising of latent / induced demand is very large. If NYC cost 1/4th the price to live there it would probably triple in population, so you'd need 40 million new units to get the costs down that much, and the price of the penthouse looking at central park would probably increase even if mean and median costs go down a lot. If a city is at the equilibrium point where supply meets demand, more housing may only keep prices flat for a large amount of new housing.
The problem isn't one of "we shouldn't build new housing", but rather the one of "are we going to see prices really fall after 10,000 new units of housing are built?"
It is only controversial if you really expect prices to fall when new housing is built (or to say, if you think the only solution is to build new housing and nothing else). Otherwise, the "building new housing" part isn't controversial at all.
I'm talking about perception, not policy. OP's paper is about perception among "rationally ignorant voters", specifically:
> This paper suggests another, complementary explanation for the over-regulation of metropolitan land use: the failure of ordinary voters to appreciate that large, exogenous increases in regional housing stocks would put downward pressure on prices, coupled with voters’ tendency to blame housing providers (developers and landlords) for high prices.
and
> Studies of interregional migration in response to negative employment shocks have tended to find that mobility is lower than economists had expected (Autor, Dorn, and Hanson 2013; Greenland, Lopresti, and McHenry 2019; Yagan 2019; Choi et al. 2024). Similarly, US metro areas with greater regulatory barriers to new supply experienced less housing-stock growth and less in-migration, but no more out-migration, than less constrained metros from 1990 to 2000 (Molloy, Nathanson, and Paciorek 2022). Such frictions mean that regional housing supply shocks will have larger effects on regional than on national prices.
> But again, laypeople have no reason to know of these research studies. Nor do ordinary people have first-hand experience with large, sudden shocks to their metro-region’s housing supply. Regional housing stocks have changed slowly, especially in recent years. Between 2008 and 2023, the total housing stock in the United States increased at an annualized rate of only 0.7 percent, with much of the growth concentrated in only a few active markets (US Census Bureau and US Department of Housing and Urban Development 2023a). Meanwhile, national median home prices have risen consistently except during recessions (US Census Bureau and US Department of Housing and Urban Development 2023b). It would be no great leap for the layperson to infer that only macroeconomic factors and financial markets, and not local supply-side factors, such as land-use restrictions, determine housing prices.
Part of that perception is in locals' belief that new high-end local housing stock can help affordability _only_ if it frees up affordable units in the local market. If the perception is that new high-end units aren't freeing up lower-end units _in the same market_, then locals are going to complain to electeds and oppose new developments, regardless of whether it's rational to do so.
It's Sisyphean to prove to a local that an outsider buying up an attractive unit priced out of the local's reach is actually a good thing for the local; there's no visible benefit and they receive no tangible relief from it. They couldn't afford a home before the new stock is built, and they can't afford a home after the new stock is fully occupied. Either the benefits are on a long timescale, or there are larger problems than housing stock influencing affordability.
The "people moving in to the new expensive houses are leaving their old houses" argument then becomes a non-starter because of the "rationally ignorant" but anecdotally pervasive argument among locals that these new developments aren't helping them.
- Locals see an influx of people from other cities/states/countries moving into attractive units that were built with prices that locals already can't afford. It doesn't matter whether that influx is 10% of the new stock or 100% of the new stock; these new outsiders stand out in _perception_ regardless of reality.
- Locals likewise don't see a short-term increase in attractive housing stock that they can afford, else they'd have already tried to acquire it.
- Developers point to affordable, vacant housing stock, but when that stock isn't in equally attractive places to live as the unaffordable stock, locals don't consider it to be beneficial to them. The fact that the unattractive place would likely become more attractive over time is a hard sell in places where that pitch has failed to materialize in the recent past due to things unrelated to housing stock (COVID, local recessions, outmigration events).
- Locals seeking affordable housing in attractive areas start advocating for enforced rent modifications or pricing mandates that developers oppose.
- Locals are voters who can influence electeds that control policy, and non-locals who haven't yet moved here aren't, so the battle enters the political sphere with a tilt toward locals. Either the government caters to voters and enacts anti-development policies, causing developers to slow down in or exit the local market, or developers lobby the government, causing voters to rebel against electeds and protest harder against developers.
The cycle grinds local regulation to a standstill. Locals get no net benefit in the local housing market, perpetuating the underlying problems. Everyone's perception of everyone else in the situation degrades further, making further changes harder to enact.
> If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago
Is the existence of the $700,000 condo the limiting factor for those people moving? If it isn't built would they instead bid up an existing unit in Seattle and put it more out of reach of existing Seattle residents?
There doesn’t need to be a connection between the purchase and sale events. Any marginal unit of inventory added to a market will place downward pressure on the price of that inventory (i.e., make it more affordable). The reverse is true for a marginal bid for inventory.
The effect is so minimal when you zoom into a single sale of one home and purchase of one condo, but in aggregate this causes real noticeable price movement.
New construction is kept expensive mostly through complex rules that often exist to protect the interests of those doing the construction work, those owning existing houses and property, etc. It's a form of artificial scarcity. This scarcity is crucial to justifying real estate prices, propping up mortgages and the banks that provide them, etc.
There's no technical reason why building some shelter that keeps the rain out and the heat/cold where it should be is not something that could not be done cheaply at large scale using affordable materials. People have been building shelter for tens of thousands of years and it's easier than ever with modern materials. It's not rocket science to keep people dry and comfortable.
People routinely buy recreational vehicles that, because they have wheels, are not considered houses. So, suddenly there are much less rules and you can just produce those efficiently in factories. Except getting permission to park those and live in them is really hard to come by in many places. It's OK for recreational use. But not for living permanently. Which of course some people do anyway. But it's highly stigmatized.
Recreational vehicles come out of factories. Houses are built artisanally at great cost. The only functional difference that matters is mobility and wheels. Why should people not be able to get a nice second hand RV for a few thousand dollars and park it in a nice spot and live there?
Answer: it would immediately devalue the notion of owning brick and mortar.
Doesn't the price of land play a role? If the developer pays $100k for a parcel of land and builds a $500k house on it, they may have their margin on the $400k, but if they build a $250k house, it's only $150k, a more dramatic drop.
The minimum lot size requirements don't help the situation either.
It likely would be more efficient and profitable to build a townhouse, or even a mid-rise, and let more people live on the same parcel of land, but zoning restrictions often prevent that.
I would not use RVs as a good benchmark. They are super cheap for a reason. The biggest reason not to live in one full time is that they quickly degrade under that kind of use. They are not built for anything other than occasional use. That is on top of their steep operating expenses, even if you can keep it held together.
A better benchmark would be a manufactured home. Transported on wheels, built in a factory, but intended to be used full time indefinitely.
IIRC, stick-built homes are only like 15% more expensive than the equivalent manufactured home, and you have a lot more flexibility in the design. Probably this is most of why manufactured homes are only popular in particular niches.
Part of it is maintaining current real estate valuations, level of density and aesthetics.
Crime and social class segregation is another aspect. Who lives in a neighborhood matters as much as the physical assets. Bans on MDUs (multiple dwelling units), permanently parked RVs, and manufactured homes serve as a barrier to entry. It’s not explicitly stated but the effect is the same as saying “If you can’t afford a $410,000 house we don’t want you as a neighbor.”
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
As I commented elsewhere, that’s the paper math version that doesn’t resemble reality for those of us living in it. Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.
The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.
In every single reputable empirical study of housing, adding supply really does bring down prices. Your preferred policy solution would decrease housing affordability, hurting the very cause you profess to champion. If this truly is something you feel strongly about, you have a duty to yourself to investigate the evidence, otherwise you are shooting both yourself and your movement in the foot.
GP was incorrect that it doesn't increase supply, but correct on pricing. Besides, if I can't afford $3000/mo rent, it doesn't matter to me how many rental units are available at $4000/mo. With massive pricing collusion having been the standard for the last few years (RealPage) and the demand for housing always being extremely inelastic, the supply/demand curve is extremely complex.
But paper often neglects reality. A reality where it can be more profitable to simply hold the land rather than lease out the home on it. Where a constructive loss can improve tax savings. Where the intent is to have it vacant for some other perceived use or gain - like a vacation home, AirBnB rental, Pied-a-terre, or just letting the structure languish until it can be condemned and bypass red tape around teardowns/rebuilds.
Current incentives and structures do not mandate that homes are made available when someone buys another domicile. That’s one of the myriad of issues affecting the housing crisis.
All that means is, that building one unit of housing and selling it means that the pool of available housing is increased by less than one unit. It does not mean that the available housing supply did not change, or decreased.
So if building one unit of housing increases the housing supply by 0.7 units on average or whatever, then the same logic applies, just overbuild by 30%.
> how does renting out old stock not increase supply?
Raw and overall housing numbers can be misleading by their nature. That is, they can be technically true while being false for many/most people.
Declaration: Housing supply is increased!
Actuality: Increase is only in homes for >$100k income earners.
The declaration is true for >$100k.
It is not true for most <$100k earners.
(of those <$100k earners)
There could be a very slight increase in supply for $80k.
It'll be less, if any, for $60k earners.
There is no increase in supply for <$40k (25% of US households).
Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.
Generally, there is no affordable, reasonable housing for typical income earners.
It's still an increase. Rich people always have a house. If they can buy a rich person house it means they aren't outbidding normal people for non-luxury housing.
> Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.
Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.
>Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing
Ok, but they have finite leverage and financing. The market can easily overwhelm their access to capital, no investor class has anywhere near enough access to capital to fully corner the behemoth that would be a healthy housing market.
Doing similar things in Berlin (regulations instead of building more) put the housing market there to a crazy state. Yes, the rents are mostly affordable, but demand seriously outstrips supply, and it becomes a game of chance, personal connections, waiting for a year or two until a particular unit frees up, etc.
Also, they can only address the luxury market so much.
If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.
Right, but there's only so many people in that market. The reason it never seems to be saturated is that building more homes in expensive areas is typically very restricted and difficult and time consuming to do, mostly due to local/state regulations.
My take on it as a small landlord (have two houses on my farm, one has two rental units) is:
I don’t think a lot about the pricing of my rental units and I’m not quick to raise them but when some new development comes into town and puts up billboards with their eye-popping prices and runs ads in the paper and on web sites and on the radio I think “Gee…. I must be leaving money on the table because I could raise my rates 50% and it would still undercut what they’re advertising a lot”
Of course the money they are spending on advertising indicates that their pricing is aspirational and they may very well next year be telling the city that they can’t afford their property taxes because they can’t fill the units and might be telling their lenders the same in a few years.
In Ithaca we got “luxury housing for seniors” that was nuclear reactor late and they can’t fill
A few market rate projects had an affordable component which has been part of a surge which has taken a bite out of our homeless colony but it is now like that talking heads song where they’re “burning down the house”
>and building two $250k houses will take twice the time and close to twice the costs
Building densely is actually more profitable, there’s already incentive to build as densely as possible for developers. Adding an extra story and creating a duplex, triplex, etc doesn’t cost much more and means you can sell multiple more units. Building as tall as possible and getting more units into the same footprint is almost always more profitable than just building one single family house.
The problem is that zoning limits what type of building is allowed to be built on a site. Who controls zoning? Existing homeowners that already live in the area, so of course they are going to make sure that new builds are low-density, as it impacts them less (parking, traffic) and keeps their home values high.
Source: I tried to build dense housing myself and was stymied by zoning.
What you're missing here is that housing is only a good investment because it's in such short supply. If plenty of $250K houses were available, they wouldn't be doubling in price every few years, and "sitting on them" and eating the maintenance costs would just lose money compared to other investments.
Increasing the supply of the high end market often occurs while simultaneously reducing the supply of the low end market. This happens when landlords renovate their buildings. So it's very possible that adding supply can limit price inflation on the high end, while increasing costs on the low end.
Yes that’s gentrification of a neighborhood. Neighborhoods evolve over time. Displacement is bad but measures to fight it can be even worse. If no new construction can be approved over it being a gentrification signal, rents will zoom up even more. In the most competitive metro areas there are no cheap rent areas left within an hour commute.
I think we should start using hermit crab analogies. Everyone understands that you need more of the biggest shells to free up shells for the little guys.
There is also the recursive nature of a shortage
1. housing becomes a bit scarce for any reason, even a temporarily transient reason
2. prices go up
3. people point to high prices a reason new housing is bad, enact laws to limit it
4. housing becomes more scarce
5. goto 2
In such market fixation on inefficient single-family homes is very weird. In desirable and growing markets those might not ever go down. Population in such market should just accept more dense configurations.
The land value gives a strong floor. And nearby development increases the land value even if it makes the state of the house itself look worse and worse.
History shows us that there are many bear markets in housing. There's also Detroit.
I sold my previous home in 2000. It recently sold for 4x what I sold it for. A great ROI, eh? If I'd invested in the S&P 500 in 2000, it went up 6.61x. And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.
> And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.
And of course, had you let it sit empty the whole time, you still would have had to pay commissions, taxes, insurance, and maintenance (because an empty home goes bad very quickly).
There are very few scenarios where the appreciation at the end would be big enough to leave you with a profit after all those expenses, especially considering financing and/or opportunity costs.
> the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
This effect, in this context, is called "filtering."
so you are suggesting that one house is better than two to alleviate supply? this is exactly why market incentives isn't the cure. we would have more housing if we built more housing. if we built double the housing, then we would be in an even better place.
As your sibling comment says, there is only so much market for luxury housing. If the land, permitting, etc. exists to build two houses, then two will get built. And if there's only sufficient demand for one of them to be high-end, then only one will be. (In aggregate on larger scales of course, not literally any given two houses.) It's not necessary to force a given developer to build two houses instead of one; if the economics make sense, and are predictable, the developers will come.
What’s considered luxury housing vs upper middle class?
Like there are plenty of houses marketed as “luxury style” in my area and command $500k-$700k easily but it’s just fancy looking. Not built with any better materials, wood, concrete, drywall or brick that you can get any local Home Depot.
It’s just puffery for new construction. Every single cookie cutter middle class subdivision calls itself an “estate.” “Affordable housing” is a nicer way of saying low income.
the market logic just proves my point. logging off now bc i'm about to get flamed by YIMBYs and georgists! you can go read my comment history for my argument: https://news.ycombinator.com/item?id=44555384
It's better than none, which is what you'll get if you start mandating what developers can build. They'll just go somewhere else where they can make more money.
this was in a similar regulatory environment we face today. so if you take the market logic, then the market caused the problem as much as regulations.
> so you are suggesting that one house is better than two to alleviate supply?
No, they are saying that building one high-end house still has the slightly unintuitive effect of increasing the supply of low-end homes. They also give their reasons for believing this.
i'm very aware of how filtering works in the housing market. but if your goal is to increase supply, then 2 > 1. therefore, in my opinion, filtering due to market mechanics and developer incentives is not the most optimal or efficient solution.
I'm just saying that OP didn't say that it was the most optimal or efficient solution. They were really only saying that it had the filtering effect. If your point is that we should offer incentives to build two homes and disincentives to build one home then I'm with you; I was just pointing out that you were putting words in their mouth.
Maybe, but for people currently living who need housing, all that is academic. It's another case of "the market can remain irrational longer than you can remain solvent".
Supply and demand requires thinking about equilibria and intersecting curves and is out of the reach of a largely innumerate population. Most Americans don’t even really have a strong grasp on millions versus billions versus trillions.
Americans also think in terms of stories with actors, and supply and demand doesn’t have any obvious actors. “Prices are high because bad people are choosing to keep them high” is an easy narrative for people to understand. There’s an obvious villain, and the success simply requires the hero to defeat the villain. This leads to a funny meme: https://www.reddit.com/r/neoliberal/comments/13l1lmn/present...
People prefer a teleological explanation. It has the allure of a simplistic solution. Having a direct and complete solution out there is emotionally satisfying. Just like how subduing the villain saves the day, why not tax/ban landlords/immigrants/Wall Street/your favorite outgroup here? If there’s no simple solution available that’s not nearly as hopeful of a message. Politicians and marketers peddle simplistic “solutions” to a willing audience.
This makes sense in a world where the market adjusts rationally and there's an unbroken chain of people from different levels of wealth who can afford to buy houses. Unfortunately in the US right now, that is not reflective of the present scenario due to the immense generational wealth gap and housing bubble.
And in Canada there is a huge amount of backlogged demand. There are areas where rental listings for roommates show two beds to a room and 10 people crammed into a house. Unwinding that is going to take a long time.
> The houses are purchased by hedge funds and other smaller investors.
The hedge fund thing is way overblown. Even if they buy up homes in hot markets, their incentive is still going to be to sell them if/when the market cools. Corporations do not enjoy the same tax incentives as homeowners in this country, and the risks/costs to rent out older homes just doesn't pen out for non-local investors. If PE wants to get into housing, it's such a better deal for them to just build apartments.
Currently less than a percent of homes are owned by private equity. And the majority of those are owned for the purpose of turning around and selling them, like Home Partners.
(Zillow also tried buying up homes for the purpose of arbitrage and it ended up blowing up in their face).
I believe you are correct on the hedge fund point; I was confusing it with something else that's related but different (I recall investing in a platform that made some of its profit from financing the construction of homes). The effects that I worry about still seem to be actualized by the "smaller investors" I mentioned, such as the head of a household being able to afford to purchase another home as a rental or a replacement as they rent out their old home.
I suspect that people conflate "buying a house as an investment" with "investors bought a house", which is leading to the incorrect idea that hedge funds or private equity are somehow cornering the market.
I think the reality is that the main component of investor pressure is from people who hold onto an overly large/well placed home far past the point of utility, because they want to sell as late as possible and maximize their return. Follow that with small-time landlords, and then finally actual explicit investors buying homes as some kind of commodity. A lot of the dysfunction of capitalism (so-called "late stage capitalism") is induced by people trying to outsmart the market, time the market, etc. when they really don't have the knowledge or information to play such games.
If you reach a point where housing supply out paces demand plus the vacancy rate those investors are willing to tolerate, that's when rent prices will finally start to drop as the big landlords need to generate more revenue to keep up the capital and operational expenses. And if rent prices drop far enough then it will no longer be profitable to spend all that capital snapping up starter homes, and eventually may even be placed back on the market.
I don't see how that really matters. If you keep making homes and investment buyers keep buying them then the price will keep going up and regular folk will still be priced out. If you make so many homes via this strategy that institutional buyers are no longer interested, I think it's because the homes have somehow become genuinely worthless, at least to the investors. I don't see how to do that without legislation that makes the investment unattractive (unprofitable) to them. Policies such as rent control, "you can't buy that house because you're not living in it", etc., are the proper solution.
Investors have finite capital, and it's easier to corner a tight, pinched market than a large market with lots of liquidity.
You don't see PE making huge investments in gas stations, because you can always easily just go to another gas station, and there's way too many of them to easily corner the market. We could pretty easily make housing similarly unattractive.
Why would the price keep going up if more and more houses are being added? Prices go up when there is a shortage. Everywhere that has been building adequate housing sees prices falling.
> What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
Two things to think about when making this argument:
* Older housing could have been torn down to build new housing. So before, you had a rooming house with 10 or so low cost tenants, and now you have three town homes with three very rich families moving in. Life just became a lot harder for people in the lower end of the market. Gentrification of entire neighborhoods is an extreme example of this: a blighted neighborhood is great for cheap housing options, but then people start coming in and redeveloping it and...it is no longer blighted, the neighborhood is better, and the cheap housing is gone replaced by much more expensive housing.
* Demand is induced by new supply. We accept this as a fact for highway construction, but it is somewhat also true for housing in a hot market where everyone wants to live. So building a bunch of new housing in Seattle could attract new resident, causing the population to grow, rather than adding supply to deal with fixed demand. Yes, adding housing in Buffalo isn't going to run into that, and yes, overall the situation becomes better for the country (or world if you are inducing demand from other countries), but locally you feel like you are going nowhere with the problem. A more extreme example of this is handing out housing to your unhoused population (you'll almost certainly wind up with more unhoused than when you started even though you've given some housing).
> Demand is induced by new supply. We accept this as a fact for highway construction.
Induced demand is only a thing with highways because use of the highways is free; there's no counterveiling cost pressure unless and until traffic jams start forming. By definition induced demand doesn't exist where the market can set prices for using newly created resources.
Closer to your point (if we stretch really hard) would be something like lowering crime. If Seattle successfully lowers crime without, say, increasing taxes, then Seattle becomes a nicer place to live, and people can (and will) move there to enjoy lower crime without having to directly incur the cost of lowering that crime. One of the externalities of that "induced demand" would be an increase in housing prices. So obviously Seattleites who oppose residential development should just promote more crime.
The fundamental issue here is that people don't like being subject to market forces and the insecurity that engenders, particularly when it comes to housing and labor. That's understandable. They do like market forces when they get to enjoy lower prices, though. But the feeling of insecurity is particularly acute when it comes to housing and the issue of new development. That's also understandable, notwithstanding that it's simply irrational and empirically disproven that NIMBYism makes for lower prices than the alternative of allowing market development. You get higher prices with NIMBYism than YIMBYism, period; though there's simply no guaranteeing that absolute prices will come down, especially for a city that permits development where others don't. That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
> So obviously Seattleites who oppose residential development should just promote more crime.
I knew the fent addicts on the D line in Ballard were good for something! But seriously, you know, there are two sure fire ways to lower housing prices: make the place a crappier place to live, or just get rid of jobs/economic activity. My dad was in Seattle working for Boeing after Vietnam, and got hit by the "will the last person to leave Seattle turn out the lights" Boeing bust. It is kind of like falling oil prices: you know, drilling more doesn't really affect the price of oil as much as reduced demand due to an economic recession.
> That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
Isn't that the main problem? This is the main problem with progressivism at a local level: even if you are making the world a better place, you could be failing to improve your place (seeing no benefit for your money) or actually making it worse (seeing negative benefit for your money). How many of us are saints who are willing to sacrifice our own lives for the greater good?
One thing few people take into account is that demand housing is much, much more elastic than people realize - per capita people are consuming far more square footage than they used to. Houses that were built to be house multiple generations under one roof now only hold one generation. Usually elderly empty nesters. In our area we also see people buying up lots of older duplexes or triplexes and converting them into single-family homes.
So even areas where population is stable, and housing supply increases, it can result in very few tangible gains at the margin.
There was a brief time 15 or so years ago where the $200-500k homes in the six or so blocks I live in were being snapped up by young upper-middle-class families on long 3-4% mortgages.
Those families' kids have now grown up, and the houses have appreciated, sometimes as much as 2-3x, due to a nearby light rail development connecting the neighborhood to the city at large on cheap transit. So those families are cashing out their housing by selling primarily to out-of-market elderly wealthy downsizers, typically from California, Arizona, Nevada, Colorado, and Texas.
The result is a neighborhood of 3- and 4-bedroom homes that once housed families of 4 or more people now mostly inhabitated by 2 or fewer people (many left vacant more than half the year as these wealthy retirees frequently travel). They also refit these former starter or second homes to accommodate these elderly inhabitants' reduced mobility and/or increase the home's luxury.
When these residents die in 10 or so years, even if the market corrects prices downward, these homes will now be even less suitable for anything but wealthy elderly inhabitants. The intelligent thing for the city to do would be to tear them down and replace them with accessible and affordable density; the reality is that the wealthy elderly who haven't died yet will spend the rest of their lives blocking such efforts out of spite.
> per capita people are consuming far more square footage than they used to
^ This...
> demand housing is much, much more elastic than people realize
^ ...does not imply this.
If the only housing that is available is 3000sq.ft. for a family of 3, that family doesn't have the option to split it up and only buy 1500sq.ft. of it. They need to be able to afford the whole thing.
(Also, I question the extent to which this premise is true, at least in cities. Everything else I've been seeing is that people are living in much less space than they used to, due to the rising prices. Taking a studio apartment rather than a 1-bedroom, living with roommates, etc. But even if the premise is true, it doesn't imply your conclusion.)
Curious for a source on the sq footage per capita if you wouldn’t mind sharing. That’s very interesting.
Could that also be explained perhaps by the fact that people are willing to live farther away from cities (where land / homes are cheaper and larger) because they only have to work 3 days a week from the office? Or because commuting is less painful with newer cars?
Square footage per capita can be misleading because it goes up as an area moves from low density to medium density, but goes down as the same area moves to high density.
Square footage of land != square footage of real estate. A stack of apartments is high density, but each resident could enjoy more square footage than if they were crammed into a single family home with a ton of roommates.
I dont have sources, but the trend for larger houses was happening much earlier than the WfH trend.
It's a mix of car culture, proprty value being lower farther away from cities so develops can create a high margin on building neighborhoods marketed on big, new houses.
Colloquially you can see this in sentiments such as:
"All these developers are building is just expensive new luxury apartments"
And as the study mentions:
> To the extent that ordinary people form loose mental associations between “housing development” and “housing affordability,” they may well associate more development with higher prices rather than greater affordability. New housing, being new, tends to be more expensive than existing, depreciated housing.
It is just a perception bias thing. You don't really "see" everything around you aging because it happens slowly.
Yup, and the kneejerk response from economists is that the housing cycle suggests that new luxury stock would be inhabited by buyers who own existing stock, and what they sell would be more affordable to those buyers, and what those buyers sell would become more affordable to the next rung down, etc.
Except that’s not the reality. The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter, it’s used as a vehicle of growing capital. When that’s pointed out, suddenly economists blame the very same people who can’t get onto the “property ladder” for failing to “compete in the free market”.
In a vacuum, their original idea makes sense. In reality, it’s heavily exploited for the gains of those already on the ladder at the ongoing expense of those they actively prohibit from joining them. It’s societal exploitation leveraging the singular most basic human need after food and clean water: shelter.
> The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter
This is false.
It is absolutely used as shelter. It's used for renting. Investors don't generate just sit on housing and leave it empty (unless they're remodeling it or something).
Also it's not mostly private equity -- that's a tiny percentage. It's mostly small investors, like a mom and pop who own and rent two other homes to help fund their retirement.
Investors are not taking away living space. And many areas don't have enough rental properties (remember, not everyone wants to own, especially people on a short-term job or relocation), so conversion to rental helps here and brings down rental rates (as happens whenever supply increases).
But (the sound) financial models that lead PE and others to this investment are built around the assumption that supply will be artificially limited. If you build enough they will see reduced returns and back off.
Except those firms currently have enough money to lobby politicians to oppose any changes that would meaningfully increase supply, and also hold outsized stakes in the companies and suppliers who would build said stock.
It’s a rigged game top to bottom. A free market would’ve fixed this years ago, but this is not a free market anymore. The difference is I advocate control of necessity markets returning to government regulations around availability and affordability, while luxury markets remain relatively untouched.
Housing is a necessity. No market god is going to fix it.
The political system is particularly susceptible to capture and unfair policy when the public is disengaged and poorly informed (as the paper describes). It makes it very easy to business to get their way.
The solution is the (hard and slow) work to engage and educate voters.
Yup, but I also take the tact of educating the current winners of the increasing cost of their inevitable loss when the pendulum swings the other way. Pre-pandemic, the “loss” of home valuations might’ve been 10-15% in many areas once supply was increased and made available to homebuyers; post-pandemic, that loss could be as much as 50% depending on where you bought and what the actual local demand is. That results in fiercer resistance against change that would improve the problem even a modest amount, because now they have more to lose.
As I learned watching Union vs Non-Union labor interactions, it’s exponentially cheaper to do the right thing sooner than being forced to do a compromise thing later. The fact the crisis has gotten so bad that there’s campaigns for national rent control schemes and “homeownership as a human right” legislation means they have already lost by not doing the right thing sooner. Once organization happens, you’ve lost the game.
I agree, any change that causes sharp drops in real (inflation adjusted) prices will be a problem. I think the best we could hope for is a long period of gradual decline (when including inflation, so perhaps a slight increase in nominal prices).
This problem took (in some places) 30+ years to create, it won't be fixed quickly.
> The solution is the (hard and slow) work to engage and educate voters.
It is indeed hard work, especially if you want to influence people who aren't engaged in politics to vote. I find that people who aren't engaged with politics are most receptive to extreme messages that discourage them further. They're all ears if you tell them that the system is rigged and it's impossible for people to defeat the corporations or the elite. It's much harder to convince them that voting matters.
IMO, the best long term strategy is to improve the basic infrastructure of democracy. Non-partisan districting, single election rank choose voting, etc.
Yes, because unlike every single detractor here I’m not distilling a complex argument full of nuance into a “1+1=2” baby-splaining session.
Let me put it into simple numbers the detractors can understand:
I build ten homes in a market that needs a hundred. I price them affordably because I’m not an asshole and understand there’s a crisis.
* Statistically speaking, 25% of those homes will be bought by PE or REITs. I cannot deny them the sale because the law says so. Let’s round that up to three homes out of ten. Those homes may be rented out at market rate rent, which is far higher than the mortgage would have been, which doesn’t reduce pricing or improve supply - rent remains high because these groups have data to keep rent that high, and supply remains constrained because a fourth of my inventory just got sold to profiteers instead of people.
* Of the remaining seven homes, all are likely sold to actual people. Due to bidding wars and my obligations to shareholders however, I have to take the highest bids. Because of anti-discrimination laws, I can’t sell to underserved minority groups because that’s considered discrimination. So a plurality of owners will be higher net worth individuals, many of whom likely already own property.
* Because we’re in a housing crisis and everyone wants money for doing nothing, it’s likely that about half of the new homeowners won’t outright sell their existing home, but instead rent it out at or near market rates set by PE/REITs. They want that cash after all, and know there’s a lack of supply. Because their old homes aren’t being added to the market for sale, this doesn’t apply negative pressure on housing prices since a home for rent is not a home for sale
* So now we have just three homebuyers left who bought their only home, aren’t renting it out, didn’t have prior equity, and almost certainly overpaid for what was on offer. This places them in a precarious environment where a job loss could lead to eviction or having to sell the home - but because they’re in the midst of a crisis, they can likely get a quick cash offer from a PE/REIT without actually putting the home on the market, making their problems disappear and putting them back as renters. Maybe one to two homeowners are affected by this.
So out of ten homes built, only three go to people not already on the property ladder in some form, and of which as many as five are likely to end up in the hands of an investor at some point anyway. Ten homes for a net gain of five purchasable properties is not a meaningful increase because the market, government, and tax incentives value less supply and more demand.
Don't those other five now become more rental stock though? This is still 10 homes that didn't exist before, as 5 owner occupied, and 5 new rental properties.
Sounds like a great outcome! Let's do that some more.
If I build 4 houses, and someone speculatively buys 1 house, I've still added 3 to the housing supply.
As a solution to the housing shortage, building new is 25% inefficient? Great, it's 75% efficient. That's not bad for a solution. So let's do it, in volume, and actually make a dent in the problem.
And for the builders, they don't care. A speculator bought that house? It payed me just the same. But even better, the demand is still there, so I should build another one.
Again, ON PAPER your math works because you’ve narrowed down the problem to a conveniently limited set of variables that, in a controlled experiment, would produce ideal outcomes. And just like physicists keep learning time and time again of late, just because the math works on paper doesn’t mean the thing is real.
Yours (and every other detractor trying to eSplain Econ101 and market forces to me) ignores the complex realities of the marketplace. It ignores tax structures that benefit demographic groups over others in homebuying and wealth accumulation, incentives to hoard property for passive income through rent in lieu of releasing the property onto the market for sale, tax savings for owning secondary properties or rolling over capital gains, regulations that make teardowns harder until the structure is condemned and thus constrict supply, of homeowners who will go to extreme lengths to preserve paper valuations instead of building more housing.
Taken as a whole, with all the variables, and it’s readily apparent that it’s not “simply” a supply and demand issue.
There's theory and there's data, and both agree that building more housing lowers prices.
Sure, take care of all that other stuff too, but the data does lot match your theory, and it does match what you call "Econ 101." And I would point out that you haven't even attempted to show that these other things come close to cancelling out Econ 101 effects, you merely have hand waving on the theory without any substance.
Even if 25% are sucked up by speculators and not rented out, just left empty (which I don't believe), that still gets you 75% as increase to the housing supply.
It was a series of studies earlier this year that made media rounds; searching for “Wall street housing 25%” returns a myriad of results from mainstream sources citing a number of different studies and papers:
I’m on mobile and can’t dig into total ownership figures at the moment, but I do know that in the sunbelt states property acquisition by investment firms has been a real issue. Even slumlords are getting bought out at top dollar, and affordable housing is increasingly just a trailer rented on land owned by - you guessed it - PE or REITs at consistently inflating rents.
Is this housing that they are purchasing just being sat on? I would think that these are being purchased to be rented out (thereby still increasing housing supply), not just held. Homes are depreciating assets.
In the sunbelt, they buy it, jack up rents, evict tenants, and basically turbocharge being a slumlord until they find new buyers for more than what they paid. Due to supply constraints, they often succeed in this process (which repeats under new landlords) multiple times before the market becomes too pricey and further increases aren’t tolerated (which is why organization is on the rise - the rent is too damn high for no valid reason). On paper, yes, the homes should devalue, but take a look at places like New England where absolute shitholes can fetch half a million dollars and it becomes clear that property depreciation is happening far slower than pricing inflation.
That isn't a study, its just an article in fortune that says
> Nearly 27% of all homes sold in the first three months of the year were bought by investors
That isn't PE firms, it's all investors meaning anyone who isn't planning on living in the home. Most investors are regular people who own 2-3 properties.
They are one of many pragmatic solutions, though I’d strongly argue cities skip right to forced-divestiture schemes of vacant units for owners and landlords alike. We have a homelessness crisis, and if you own a property that’s vacant nine months out of the year in a major metro then that should be forcibly sold off, incur steep tax penalties, or be rented out at fixed rates and long leases if you want to preserve ownership.
There is not some epidemic of vacant rentals driving up prices. Vacancies right now are right around the long-term norm, 7%. Home vacancies are actually near all-time lows: 1%.
** right off. If I’m in a downtown metro near any newer development at night - rentals or owners - they’re largely dark and empty with little to no signs of life.
Your statistics are damned lies to those of us observing lived life in our cities. Nobody is hand-checking every single unit out there for accurate statistics on housing utilization, it’s all self-reporting.
People lie about high vacancies in new buildings almost compulsively.
There was a big splash of PR for a report on high vacancies in new LA apartment buildings a few years ago, and it had to be retracted within a week because the methodology was pretty much nonexistent, like counting lights in windows at night and not realizing that people visit friends, go to concerts, go out to eat, stay at their girlfriend's place, or any one of many other things that keeps lights off in occupied apartments.
I see it with every single new multistory building in my small downtown. People complaining about a building being fully empty shortly after it has been built, when in reality it's filling up faster than planned and there are only 20% of the units left.
Yes, there are lies, but in my experience the lies are only for too many vacancies.
And when your PE firm owns significant share of homebuilders, owns large tracts of land, and owns politicians, lobbying groups, think tanks, and economists, then you can effectively game the market to maximize your personal returns at the expense of everyone else.
They wouldn’t be buying 1 out of every 4 homes and bankrolling schemes to “unlock homeowner equity” (HEOCs, reverse mortgages, etc) if they thought this would be a resolved issue anytime soon. That’s exactly why government needs to get involved and force divestiture.
I see those going up all over the US West. I know people who live in a few. Always feels like they live in a mid-range hotel. IDK why anyone would want that.
Yeah, the point is that new apartments are ... new apartments. "luxury apartment" is meaningless marketing copy that every developer uses for every apartment building. What is marketed as a "luxury apartment" today will just be a "regular apartment" in 20 years.
Nowhere in the US does it at the scale to make a serious long-term dent in prices.
Nobody with enough money and exposure to large amounts of real-estate wants to kill the golden goose. Look at the post-Covid-migration build stories. Rents start to soften and development dramatically slows.
You would need continued serious government investment to make sure focus continues to be on total units and consumer price instead of investor ROI.
Because even adding four fancy town-houses or condos helps if what used to be there was single-family or duplex. But it doesn't help NEARLY as much as adding 100 units by converting an old shopping center or 30-unit apartment. But there are strong incentives against developers doing "too much" of the latter if they know they can make the same ROI by selling fewer, nicer units.
Individual residential property owners take a lot of blame here but they're not even benefiting THAT much - every crazy price increase is putting any upgrade to their own situation further out of reach. And fighting low-density residential NIMBY-ism is a slow process if you still only can buy one lot as a time as it becomes available. So focus on underutilized commercial and industrial near major hubs or transit corridors where most of what you're displacing is ugly parking lots and empty storefronts that contribute to crime as well.
This seems to be claiming something different, though? You are pointing at that development slows as prices go down. Which seems somewhat expected?
That is, adding supply lowers prices. And lowering price reduces potential profit such that fewer people will build. With fewer people building, prices should go up again.
Stated differently, thin margins reduce the number of people offering products in a market. Ironically, the main way to get more building is with bigger builders in that scenario.
Well I'm saying that in practice adding supply hasn't lowered practice it has merely slowed the increase in prices. And that's mathematically essentially the same thing, but it's importantly different in two big ways:
1) If people see their costs going up while they also see new construction, the correlation machine's gonna jump to the wrong conclusions
2) If costs are still going up people are still going to be unhappy and worse off
Supply can increase AND price can still go up, and so for people to be won over and convinced you need to crack the second part, not just the first part. In a libertarian "just reduce regulation" approach that's often pitched, the natural equilibrium will be closer to "supply increase and price go up slowly", and people skeptical of "just reduce regulation" as a solution are more accurate than they're given credit for. Gotta actively intervene to make supply increase enough for any sustained period of time - we only see it in cases of macro shocks. Like the 2008 recession, or the post-Covid-bullwhip.
Ah, fair. And I see how this goes in with your idea of government spending.
It is frustrating, as that feels like an easy argument to show why a lot of things decreased in price. You had governments spending a ton of money. Or incentivizing the spend. Usually both?
I think my approach there would be to say you can't use profit as incentive to lower housing prices? For the exact cycle we both spoke to.
This is my big "abundance pill" that I've swallowed. It isn't necessarily deregulation you need. But if you want a goal, you have to spend towards it. And "lower prices" is a goal. To get there, governments will have to spend money.
Is it that they truly don’t believe it or they don’t want more supply (since that changes their quality of life, neighborhoods, traffic, etc) but still do want lower prices in other ways (like by price caps or other things).
One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want. It removes the competitive piece. In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
This is another huge myth in the US housing market, that big companies own lots of the housing and are jacking the prices up. It's simply not true. Large corporations own a tiny fraction of the market while the vast majority is owned by individuals and small landlords.
There's a lot of synergy and overlap between small landlords, property management companies, rent-fixing companies, and Wall St. It doesn't matter to the renter that their slum is owned by a tiny LLC that is nevertheless part of the broader constellation of anti-social rent-seeking behavior that is bringing down this republic.
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
Big corporations don't have unlimited money to do this kind of thing.
And in practice, the expensive areas they do it in, are usually very limited in how much new housing goes up, they're still very much supply constrained markets.
If what you're suggesting was really happening, then what you'd expect to see is an area with a relatively high vacancy rate (due to all the new supply), like 8% or even higher, but stubbornly high prices in spite of that. And I can't think of any examples where that happened. Can you?
This is the propaganda they were pushing about RealPage too until it turned out that it was happening and the market was being distorted.
At any rate, if a buyer notices it happening in their area, then "it's not happening that much" is not only not going to make them feel better, it's going to also make them feel like you don't want to fix it.
Again, do you have examples where a ton of supply was added to a market, the vacancy rate shot up to high levels, but prices remained the same?
I agree that the algorithmic price fixing needs to end, though I think it's mostly gonna be strong in a market where vacancy rates are still low. Harder to maintain the cartel the more options people have.
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
No, its not. If only one big company was allowed to do that in each locality, and they had the ability to buy up all the supply no matter how much new housing was built, that would be a reason; absent monopoly power, they don't have free reign to price how they want, and can price higher the less supply there is, even if you assume all of it is owned by similar big firms and used as rentals.
>In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
Because all the same voters (demographically, if not also frequently literally the same individuals) voted for a bunch of red tape that's only passable for the big vertically integrated businesses and even then it's only profitable when they're doing cookie cutter single family on .25ac or 5 over one apartments.
> Is it that they truly don’t believe it or they don’t want more supply
If this comment section is anything to go by, there seem to be plenty of people that firmly believe that increasing housing supply doesn't actually increase housing supply, let alone the bigger leap that increasing housing supply decreases prices.
I think what people want is less migration (both domestic and international) but that's not an option. Since it's the primary thing they want they're doing anything they can to get it including essentially destroying their own neighborhoods.
They want to keep freedom of movement for themselves and restrict other people. Be careful what you vote for: a border keeping “those people” out sounds good until the day you are denied passage!
They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
There are other factors than supply. But most of the new supply is large houses. If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
Well, you would have to compare it to an imaginary world in which they didn’t build those homes since 2010. Prices may not have gone down, but in the imaginary world, they might have gone up markedly so it has still reduced housing costs compared to if they did not build that much.
OK, that's an interesting point. There's not "the housing market". There are several markets, with some overlap. The market for starter homes is not filled by building 4+ bedrooms, still less the market for studio apartments.
And my impression is that, when we talk about the housing shortage, we're talking about apartments to starter homes, not about 4+ bedrooms. So what we seem to have is a disconnect between what the market needs and what builders are building.
But maybe that's only "seem". I'd bet that a 4+ bedroom house sits on the market a lot longer than a starter house. Maybe starter houses are being built, but not enough to satisfy the market, and so they're going almost immediately?
I’m sure it’s not zero that are being built. But it doesn’t seem like a very high number, at least compared to the number of large homes being built in new subdivisions.
Single family houses are a premium product and continue to move upmarket. Cheap new construction house has become an oxymoron. Residential construction costs were rising at 5.5% per year before Covid (faster than inflation). If it were legal to build more condos, duplexes, townhomes, and apartments there would be less bidding up of SFHs. More people could live closer in meaning less traffic congestion.
This is not what the study says, it’s more nuanced. People do not believe that liberalising demand will solve the issue more efficiently than other measures.
If arguing about this on Facebook has taught me anything, it is that most people definitely do not believe it. They always make the same argument, which is that new housing stock tends to be high priced homes, so if what we need is low price homes why are we building high priced homes? Anybody who understands economics knows why this argument is wrong, but most people don’t.
Nonetheless, I don’t think this has much to do with the public policy as it stands because the people who make the policy do understand this. So while I think the assertion is correct, people do not believe it, I do not think that is a large factor and why the policies restrict housing.
If you could build houses for free then obviously adding supply would eventually reduce the price.
But I have been looking at the cost to build a home, it costs even more to build than to buy a used one. Who, exactly, is going to be able to afford to buy the new houses while selling their current home at a lower price than it would currently fetch?
Maybe if AI replaces all the software developers they can flood the home construction market in their quest to find new work and push the price of labor down, thus reducing the cost to build a house, but otherwise...
Presumably it's cheaper to build a home when a developer is building a whole bunch at once in a neighborhood, as opposed to a single person or family ordering something custom built.
Developer is also a professional with experience/refinement so he knows the magic specs to make things, magic things to say in the emails to the bureaucrats, magic words to put on the applications to avoid getting fucked by a bunch of "you need a survey for this" and "you need an engineer for that" and "akshually since you've done this you need a new septic" type landmines that cost $1-20k individually the little guy is gonna run right into.
Cheaper, sure, but not cheap enough to satisfy anyone who already cannot afford a home. Like cars, the used market is always going to be a reflection of the new market. Used houses are expensive because new ones are even more expensive.
I think it probably could be cheap enough. Part of the issue is actually just that new home sizes keep getting bigger. Like yeah, new homes are more expensive now even in relatively cheaper parts of the countries compared to decades ago, but it's also true that the homes are much larger than they used to be.
A lot of the homes from the 50s and 60s that people talk about being very affordable at the time they are made, were very small things by today's standards.
That is quite true. Early Americans had absolutely no trouble living in their 300 sq. ft. log cabin with eight children under foot. You don't technically need the behemoths we see today (or even what we saw in the 50s, which were still huge by historical standards). But it remains, if it was cheap enough, people would already be doing it. The law sometimes gets in the way, sure, but that's another subject entirely.
The issue is that localities have mostly made adding new homes a big pain in the ass. If the new supply is constrained, obviously you're going to target the higher end of the market with whatever you do end up building.
The pain in the ass has a cost, certainly, but isn't anywhere close to being the large portion of the cost. Even if you eliminated that cost, the houses still wouldn't be affordable to the average Joe.
I think they could be, but a place where demand is high for housing but it's easy to build a lot more housing, that doesn't really seem to exist anymore.
I suppose that goes without saying. If it were cheap and easy to build, there wouldn't be high demand.
Would it really be that cheap, though? Hell, even a single wide trailer built in a factory, which is about as ideal as it gets from a cost perspective, is still a home largely out of reach of the average Joe.
It remains unclear who is going to buy all these new houses unless they are sold at a loss — but who is going to build a home with a plan to sell it at a loss? You?
I'm seeing new single wides for around 40k new? The trailer not the land. Even rounding to an even 100k for a nice unit, delivered/plumbed/etc'd that's what, 500 hundred dollars a month on a 30 year mortgage? That's pretty darn affordable - less than any rent I've ever paid.
> Even rounding to an even 100k for a nice unit, delivered/plumbed/etc'd
Which is about the same as the value of the average used home, less the land. But remember, the average Joe can't afford that. If they could, we wouldn't be here.
> It doesn't follow from there that increased supply wouldn't reduce prices.
Increasing the supply of labor, thus reducing the cost to build the home, was spoken to.
The average construction worker makes $30/hr. Get that down to minimum wage and the cost of a house will come down pretty quickly. You still might not be able to afford one on a minimum wage salary, perhaps, but the goal of reducing housing prices is met.
> I genuinely want to see a breakdown on what is increasing building costs so much.
It is just general demand, really. Every step of the way can charge more, as compared to 15 years ago, because people are willing to pay more for their services.
Like the headline suggest, the solution is to increase supply. Except, not of houses, but the inputs that go into houses (materials, labor, etc.). Until supply is met there, the cost to build cannot come down, and until the cost to build can come down used homes cannot come down either. Alternatively, we could stop wanting so many houses, but that is likely less practical.
As mentioned, if you get all the software developers building houses instead the price would drop pretty quickly. But... good luck convincing them to do that. That is what has to be overcome.
> As mentioned, if you get all the software developers building houses instead
Back in the day I would often run into people who would mention something like "oh yeah, my Dad built our house." Wonder what happened to that? Thinking on doing this right now in our neighborhood, I can see lasting 5 minutes before busybodies and town inspectors showed up with stop orders
One problem that’s unaddressed is that there isn’t a house building, pricing and mortgage model for people making 50K or less.
One piece of data I’ve found is that 65% of Americans are homeowners (meaning American families, not rentals or investments), which is also about the percentage of Americans who make $50K or more per year (~68%).
For people with a middle class networth (not income, I mean networth, which is about ~1M-9M when compared with the top of US society), homeownership currently works as a wealth-building mechanism because of scarcity. There’s also the desire to live close to certain areas, but why not make more neighborhoods or areas worth living in?
Regardless, if the goal is to maintain scarcity for wealth building, then I think the scarcity mechanism will remain intact if homeownership is increased to a high rate while balancing the cost of materials and labor, and building houses specially for certain income levels, as mentioned already in other posts.
But no one seems to be doing materials innovation, or construction innovation. I don’t think 3D printing is there quite yet, and might be more expensive. Where’s the push on automating construction? Why not build with a genetically engineered bamboo that’s cheaper and more sustainable than wood? Seems materials innovation will help with both housing and sustainability goals.
In the past, people were able to buy a small piece of land and develop it themselves. Literally build the house themselves. Over a long period time if necessary to spread out the cost. They also built 2-4 family homes so they could bring in some rent or house a family member.
None of this is really allowed anymore and it's very hard to find a piece of land to do it with. Enabling this sort of construction and forcing or incentiving small plots of land might open up options for people on the lower end.
price of land + price of materials + cost of labor + margin + other (marketing, admin, fees, financing, etc.)
When you try to boost the number of homes, you also boost demand for construction labor, materials, and buildable land. Those inputs tend to rise or at least not fall much, so there isn’t a big, easy savings there. That leaves soft "other" costs or developer margin. Other is a relatively small slice, and typical margins aren’t huge push them too low and projects stop penciling, so fewer homes get built.
Even if margins were squeezed, the price drop would usually be too small to bridge the affordability gap for most households.
The bigger issue is that household incomes haven’t kept pace with housing prices over the last few decades.
>Why is housing supply so severely restricted in US cities and suburbs? Urban economists offer two primary hypotheses: homeowner self-interest and political fragmentation. Homeowners, who outnumber and have organizational advantages over renters, are said to lobby against development to protect their property values. The fragmentation hypothesis emphasizes that development's negative externalities are borne locally while most of the benefits accrue regionally or nationally, leading localities to block housing.
These two hypotheses sound like the same thing to me. Homeowners organize to protect themselves from negative externalities that affect their property values (and quality of life).
In the cost to build vs what would be affordable I think people on both sides over generalize.
Liberal land use and other rules would eventually bring down prices to affordable levels for most families. But not all of them. Every country has to have some strategy to provide housing for the bottom of the income range, since they typically won't be able to afford "dignified" housing based purely on the Capex/depreciation/opex value of the housing (they will always be renters).
So you need something like liberal land use to provide for 80%, and then some kind of government intervention for the bottom 20% (numbers will vary based on the location/nation/etc)
No matter, it’s still a demand and supply issue. It just depends on where on the equilibrium point we are. This takes time. And yes, based on pure economics, supply will fill in the most profitable sections first.
People believe what they can see. New development happens in desireable areas and price goes up all around them. Meanwhile (mom and pop) investors buy and own significant chunks of the market. Together they tell a story.
Disincentivize investor ownership, and it will be harder to tell the story of investors buying up all the property, and the rest may fall into place at best, and at worst you get marginally lower prices and less validation of the investor price inflation stories.
Adding supply would only reduce prices if it was added at the average or below.
Even if the number of units increase, the price can actually go up.
The relative market power matters most. A developer with cheap bridge financing and a large portfolio of unsold units has every incentive to hold prices to set expectations, while buyers who are occupiers generally are compelled to buy in a certain time frame and location.
I'm sorta convinced we need to strongly discourage homeownership (of homes you live in) if we want to fix our housing issues. It just seems like once ~50% of the electorate are owner occupiers homes are treated like collectibles instead of normal productive assets.
The housing market is different than most markets in many ways.
- Building cost is often marginal compared to land.
- Land value is highly correlated to economic opportunities around it.
- Economic opportunities are following a power law around economic centers (highly non-linear).
- There is a density ceiling, with some variations depending on cultural traditions but still constrained by transportation technologies and psychological factors.
- The location of economic centers is not randomly distributed but constrained by geography, especially access to water transportation routes.
Financial speculation and building restrictions are second orders effects of the inherent housing scarcity, amplifying it, but not a root cause.
Wow, I'm totally owned. A few weeks ago here I argued that no one blames landlords and developers for this. I was specifically arguing that "the left" doesn't, but I'm actually really surprised to see anyone does.
Developers build new housing when prices go up generally. Therefore when people see new housing they see higher prices in their regional market. So although folks may mix up causality, the observation is quite rationale.
Immigration is a similar debate where supply and demand goes out the window for political reasons.
Here in the UK it's really hard to convince people that it's really hard to address our housing shortage through building alone when we bring in about a million people every year. Even a lot of economists seem to think supply/demand doesn't apply when it comes to wages and house prices if you introduce immigration as a variable.
Unless it's undeniable I find people will just believe whatever suites them personally. Which is fair enough. I guess I'm just surprised at how unconscious this bias is for most people. Or at the very least they seem to truly believe that the housing market is an exception to supply/demand dynamics.
What would happen if real estate investors/developers by law also had to dwell in the most dense type of housing they built?
Hypothesis: Humans by and large are all looking for a bit more breathing room, privacy, and quality of life in their choice of home. (In other words, qualities diametrically opposed to the black hole compression cubicle end game of 'efficient housing for the masses').
I think another reason people think this is that people often do not notice there is a problem until rents have risen enough that they're noticeable less affordable. And when that happens, a small reduction due to supply increase is not really enough. It's not enough for rents to "go down", they actually need to become affordable.
In places where a third of renters are spending half their income on rent (as some stats have shown for CA), it is implausible to believe that nibbling around the edges of the problem is going to result in enough of a reduction to make a difference. I haven't seen any estimates of how many market-rate units would need to be built to, say, reduce the number of rent-burdened households to 10% or 5%, but presumably it would need to be in the millions. I haven't seen any studies of supply/price issues that contemplate anything like that scale.
Just as important, such studies generally ignore the issue of inequality. It doesn't really matter what rents are; if there is someone who can afford to own multiple vacation homes that sit empty most of the year, rents should be lower.
Private developers aren’t in the business of lowering property prices. And homeowners don’t want that either.
You need to also consider what is being built. NYC has built a lot of ultra-luxury property that really amounts to money laundering and will never increase the supply to ordinary residents.
The private sector will never solve this problem on their own.
It’s not that I don’t believe adding supply will reduce prices, rather that adding supply alone won’t reduce prices. As the paper gets into, it’s a combination of supply, and homeowner entrenchment, and government policies barring construction or teardowns, of zoning restrictions, but also of Private Equity acquisitions of housing stock and builders, of artificially manipulating supply to keep prices high and promote higher returns for builders or sellers at the expense of buyers.
The problem is that demand for housing is relatively fixed, in that every human needs a shelter, and every human wants a home. That doesn’t change outside of population statistics: in a vacuum, all things being equal, every human would buy a home.
The issue is that the supply side is so heavily gamed by existing players that the entire market is deliberately engineered for maximum extraction of wealth from new buyers to prop up valuations of existing owners and builder/landlord margins.
Relatedly, this is why I’ve stopped fighting each niche front individually and instead focused on the “nuclear option” of mandating affordable housing as a human right. That would open the floodgates to lawsuits against communities, states, and companies that hoard existing stock and bar newer, denser construction. It would add a sorely needed lever of pain to deter hostile housing practices, by threatening things like rent/price controls or forced divestitures unless the supply problem was meaningfully addressed post-haste.
You hear this shit all the time from politicians and activists. Somehow high density housing is built for corporate greed and won’t lower prices. It’s self contradictory at it’s base level but is driving the narrative. It’s maddening.
Edit: Here I am getting downvoted by people who don’t have the bravery to confront their own contradictions and realize that their own beliefs are being manipulated to ruin their own lives.
IDK, I think there's clearly arguments to be made against so-called "late stage capitalism", where capital is directed towards efforts that extract value rather than create it, and shareholder theory that prioritizes short term gains and creates externalities at the expense of other stakeholders.
But at the end of the day, everything is subject to market forces and it's folly to deny that.
Central London monthly rent for a 3-bed house is around £3500, but a 1-bed flat rents for £2100. So split the house into two flats and the landlord makes more money.
Hence relaxing zoning restrictions will push prices up.
None of these models work at such a small scale. The economics are regional. It’s likely that highly desirable locations like central London and manhattan will always be expensive. That’s fine.
"They will just buy them and rent them out" you have described investment. Funding the construction of houses using your capital and then letting them out to people without as much capital is how housing gets created. Just let it work! Let a guy build a house and rent it to someone.
Its also how wealth is transferred up. Because the investor pays gains rates, can do like for like transactions, etc, and effectively grows their wealth faster than the non investor. This means non investors need to continuously compete with investors but where investors are capturing an ever larger share of the wealth.
Eventually if supply keeps up that will change, and longer still the wealth may trickle back down. But imho it would be faster to focus on avoiding the concentration in the first place through SFH as investments, via simple tax policy that discourages mom and pop investors from purchasing extra homes.
No one's trying that policy. It's certainly not what's led us to this point. Building is nowhere near fast enough to keep up with demand, especially in the areas with lots of homeless people, and especially in the affordable price ranges.
Seems to me the policy that has the consequences you describe is, in fact, the policy you described in the GP.
Reminds me of all the posts I've seen with photos of things happening in America—a country which is, quite famously, under capitalism—with captions saying "this is what socialism gets you!"
Just think through the consequences of your policy proposal. What you are saying is you will outlaw investment in a second house for rent. The result will be that only the people who can afford to buy a house can live in one. Everyone else, which is half of American households, has to live somewhere else. You haven't specified where that other place is, but I guess it would have to be larger apartment buildings, built and operated by larger organizations (corporations, or at best cooperatives).
I rent my house from the woman who lives next door. I could not afford to buy this house. I have a nice garden and my kids go to great schools. Your policy means that this arrangement is forbidden. My family is not allowed to access this life because I am not rich enough. That is a bad policy.
I think that what contributes to this view is that new construction always seems to be at the high end of the market. This makes sense, it doesn't cost the builder a lot more to build a $500k house than to build a $250k house, and building two $250k houses will take twice the time and close to twice the costs. So builders/developers are going to build what is most profitable, which is the most expensive houses that they think they can sell in the local market.
What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.
If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.
This analogy seems confused.
If someone in Chicago moves to Seattle, then our policy options are (1) no new condo in Seattle or (2) new condo in Seattle.
Under policy 1, the new buyer from Chicago must outbid locals for the fixed housing supply; they will wind up buying older housing stock, which otherwise would have gone to existing local residents. Prices go up.
With policy 2, the new entrant buys the new condo and does not compete for pre-existing housing stock.
In this scenario, whatever house is freed up in Chicago is irrelevant to the housing stock in Seattle. I'm not sure why you included it.
The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
> The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
Are you denying that induced demand is a thing for housing? That everyone who wants to move to Seattle will move there regardless of housing prices, and no one will leave because they get squeezed out of the housing market by new arrivals? Or is there a more nuanced argument that I'm missing?
That new condo allows one more family to live in Seattle regardless, whereas if they were competing with existing stock, some family would probably have to leave. We could play a few rounds of musical chairs to prove that fact.
Yes, people are going to get squeezed out of the housing market by new arrivals if new housing stock isn't built.
"Squeezing out" is done by a price mechanism: a family that would prefer to stay in Seattle decides to sell, because that new buyer (unable to buy the condo, because it hasn't been built) decides to offer a high enough price to induce the existing family to leave.
That's only done by reducing housing affordability (increasing prices) which is the public policy outcome we're trying to avoid.
It sounds like you agree that new supply is good, I think, because you believe new entrants would otherwise "squeeze out" existing residents and I assume you would agree that this is done by price, and so therefore you would also agree that new housing stock (which decreases the "squeezing") also suppresses price level relative to the alternative fixed stock scenario.
I never argued that new supply is bad. My only observation is that new supply does not always lead to price decreases since demand isn't fixed (e.g. Seattle isn't a closed system). I think another comment that mentioned equilibrium is probably a better way of putting it. It can take a lot of supply before the price point changes as new supply is added because a lot of people are waiting on the sideline to pay X that is already being paid for existing supply (but they are unable to pay X+1 to force someone out and take their place).
New supply obviously increases demand because shifting the supply curve to the right (more quantity) reduces the clearing price, which increases demand. That's econ 101. In this classic case, increasing supply both decreases price and increases demand.
But what you're arguing is different: that increasing supply has no effect at all on the clearing price. That would require an unusual demand "curve" that is perfectly flat, i.e., perfectly elastic, where there is infinite demand at a given price and zero demand at just a dollar above that price (or else that infinite demand would have already pushed prices up higher than the pre-existing price).
This clearly doesn't make any sense for the housing market; home buyers are sensitive to price, there is not infinite demand, some people have more or less desire to pay for a house. In fact, perfectly elastic markets essentially don't exist, and very low slope demand curves only exist in some unusual edge cases in markets (such as commodities that are near-perfect substitutes).
> that increasing supply has no effect at all on the clearing price.
I never argued that it has no effect, only. that it could have no effect. Obviously if you can build enough supply and get way ahead of demand, you will see prices fall. But that just isn't done in practice, so most of the time new supply is brought online, housing prices do not decrease. Well, that's just builders trying not to kill themselves in a market economy, so that shouldn't be surprising.
The argument is clear, but where you are coming from or going to with this isn't. You're describing a situation where Seattle desperately needs large amount of construction of new housing. If we're hypothesising this mob of people who will move to Seattle as soon as they see a house for $700,000, house prices in Seattle are going to have a floor of around $700,000. Someone is going to need to build houses for those people if anyone wants to pay less than that.
Thanks to the magic of Simpson's Paradox it is possible to have the average house price go up even if houses get more affordable for literally everyone, which seems to be the situation you're going to. Which is true and interesting, but not really politically important. Obscure mathematical effects do draw attention to the fact that one metric isn't enough to develop policy, but shouldn't eclipse the fact that more houses is what people want, need and should be getting. There is this crowd of people who want to move to Seattle and live in nice houses, let them do that and pay people in Seattle to build them. Otherwise everyone will have to compete for existing housing stock.
Builders aren't making much money due to material and labor costs in addition to land costs. It is probably impossible do a non-ADU project for just $700k, so dumping money into the problem isn't going to help make things cheaper. This is before we get to regulation and zoning, which are not even close to being the bottlenecks right now. I wonder if we could invest more in making building cheaper (via prefab?), and then more building would happen and prices would actually fall.
We (Seattle) are also completely built, new projects must overwrite existing housing stock and additional capacity only comes from increased density.
I've never understood the induced demand argument. Yes, when goods get cheaper demand increases. Or, to put it another way, when we make our cities more affordable more people want to live there. What's the problem? Sure, induced demand means that the marginal increase of affordability is less than it may have been if demand remained constant, but a. affordability still increases, and b. the solution is just to keep adding more housing until things flatten off. I truly don't understand why this is controversial; do you not want people to have desirable things? The rational response to induced demand is "great, people actually want this. Build more".
It's push and pull.
If your goal is to decrease costs, the amount of supply needed may be surprising of latent / induced demand is very large. If NYC cost 1/4th the price to live there it would probably triple in population, so you'd need 40 million new units to get the costs down that much, and the price of the penthouse looking at central park would probably increase even if mean and median costs go down a lot. If a city is at the equilibrium point where supply meets demand, more housing may only keep prices flat for a large amount of new housing.
But the ultimate goal is never to decrease costs; it's to provide people housing.
The problem isn't one of "we shouldn't build new housing", but rather the one of "are we going to see prices really fall after 10,000 new units of housing are built?"
It is only controversial if you really expect prices to fall when new housing is built (or to say, if you think the only solution is to build new housing and nothing else). Otherwise, the "building new housing" part isn't controversial at all.
Induced demand is a very popular fake idea and conversation ender. Giving people more of what they want is a good thing.
I'm talking about perception, not policy. OP's paper is about perception among "rationally ignorant voters", specifically:
> This paper suggests another, complementary explanation for the over-regulation of metropolitan land use: the failure of ordinary voters to appreciate that large, exogenous increases in regional housing stocks would put downward pressure on prices, coupled with voters’ tendency to blame housing providers (developers and landlords) for high prices.
and
> Studies of interregional migration in response to negative employment shocks have tended to find that mobility is lower than economists had expected (Autor, Dorn, and Hanson 2013; Greenland, Lopresti, and McHenry 2019; Yagan 2019; Choi et al. 2024). Similarly, US metro areas with greater regulatory barriers to new supply experienced less housing-stock growth and less in-migration, but no more out-migration, than less constrained metros from 1990 to 2000 (Molloy, Nathanson, and Paciorek 2022). Such frictions mean that regional housing supply shocks will have larger effects on regional than on national prices.
> But again, laypeople have no reason to know of these research studies. Nor do ordinary people have first-hand experience with large, sudden shocks to their metro-region’s housing supply. Regional housing stocks have changed slowly, especially in recent years. Between 2008 and 2023, the total housing stock in the United States increased at an annualized rate of only 0.7 percent, with much of the growth concentrated in only a few active markets (US Census Bureau and US Department of Housing and Urban Development 2023a). Meanwhile, national median home prices have risen consistently except during recessions (US Census Bureau and US Department of Housing and Urban Development 2023b). It would be no great leap for the layperson to infer that only macroeconomic factors and financial markets, and not local supply-side factors, such as land-use restrictions, determine housing prices.
Part of that perception is in locals' belief that new high-end local housing stock can help affordability _only_ if it frees up affordable units in the local market. If the perception is that new high-end units aren't freeing up lower-end units _in the same market_, then locals are going to complain to electeds and oppose new developments, regardless of whether it's rational to do so.
It's Sisyphean to prove to a local that an outsider buying up an attractive unit priced out of the local's reach is actually a good thing for the local; there's no visible benefit and they receive no tangible relief from it. They couldn't afford a home before the new stock is built, and they can't afford a home after the new stock is fully occupied. Either the benefits are on a long timescale, or there are larger problems than housing stock influencing affordability.
The "people moving in to the new expensive houses are leaving their old houses" argument then becomes a non-starter because of the "rationally ignorant" but anecdotally pervasive argument among locals that these new developments aren't helping them.
- Locals see an influx of people from other cities/states/countries moving into attractive units that were built with prices that locals already can't afford. It doesn't matter whether that influx is 10% of the new stock or 100% of the new stock; these new outsiders stand out in _perception_ regardless of reality.
- Locals likewise don't see a short-term increase in attractive housing stock that they can afford, else they'd have already tried to acquire it.
- Developers point to affordable, vacant housing stock, but when that stock isn't in equally attractive places to live as the unaffordable stock, locals don't consider it to be beneficial to them. The fact that the unattractive place would likely become more attractive over time is a hard sell in places where that pitch has failed to materialize in the recent past due to things unrelated to housing stock (COVID, local recessions, outmigration events).
- Locals seeking affordable housing in attractive areas start advocating for enforced rent modifications or pricing mandates that developers oppose.
- Locals are voters who can influence electeds that control policy, and non-locals who haven't yet moved here aren't, so the battle enters the political sphere with a tilt toward locals. Either the government caters to voters and enacts anti-development policies, causing developers to slow down in or exit the local market, or developers lobby the government, causing voters to rebel against electeds and protest harder against developers.
The cycle grinds local regulation to a standstill. Locals get no net benefit in the local housing market, perpetuating the underlying problems. Everyone's perception of everyone else in the situation degrades further, making further changes harder to enact.
> If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago
Is the existence of the $700,000 condo the limiting factor for those people moving? If it isn't built would they instead bid up an existing unit in Seattle and put it more out of reach of existing Seattle residents?
There doesn’t need to be a connection between the purchase and sale events. Any marginal unit of inventory added to a market will place downward pressure on the price of that inventory (i.e., make it more affordable). The reverse is true for a marginal bid for inventory.
The effect is so minimal when you zoom into a single sale of one home and purchase of one condo, but in aggregate this causes real noticeable price movement.
New construction is kept expensive mostly through complex rules that often exist to protect the interests of those doing the construction work, those owning existing houses and property, etc. It's a form of artificial scarcity. This scarcity is crucial to justifying real estate prices, propping up mortgages and the banks that provide them, etc.
There's no technical reason why building some shelter that keeps the rain out and the heat/cold where it should be is not something that could not be done cheaply at large scale using affordable materials. People have been building shelter for tens of thousands of years and it's easier than ever with modern materials. It's not rocket science to keep people dry and comfortable.
People routinely buy recreational vehicles that, because they have wheels, are not considered houses. So, suddenly there are much less rules and you can just produce those efficiently in factories. Except getting permission to park those and live in them is really hard to come by in many places. It's OK for recreational use. But not for living permanently. Which of course some people do anyway. But it's highly stigmatized.
Recreational vehicles come out of factories. Houses are built artisanally at great cost. The only functional difference that matters is mobility and wheels. Why should people not be able to get a nice second hand RV for a few thousand dollars and park it in a nice spot and live there?
Answer: it would immediately devalue the notion of owning brick and mortar.
Doesn't the price of land play a role? If the developer pays $100k for a parcel of land and builds a $500k house on it, they may have their margin on the $400k, but if they build a $250k house, it's only $150k, a more dramatic drop.
The minimum lot size requirements don't help the situation either.
It likely would be more efficient and profitable to build a townhouse, or even a mid-rise, and let more people live on the same parcel of land, but zoning restrictions often prevent that.
Not just land, but all the bureaucratic costs, licensing, etc. Developers will always build the most high margin house the market will bear.
It still increases supply, though. And if there's no market for expensive houses, eventually they'll make cheaper houses.
Also, the people on the market who can afford the expensive houses, would still outbid you for a shittier house.
I would not use RVs as a good benchmark. They are super cheap for a reason. The biggest reason not to live in one full time is that they quickly degrade under that kind of use. They are not built for anything other than occasional use. That is on top of their steep operating expenses, even if you can keep it held together.
A better benchmark would be a manufactured home. Transported on wheels, built in a factory, but intended to be used full time indefinitely.
IIRC, stick-built homes are only like 15% more expensive than the equivalent manufactured home, and you have a lot more flexibility in the design. Probably this is most of why manufactured homes are only popular in particular niches.
Part of it is maintaining current real estate valuations, level of density and aesthetics.
Crime and social class segregation is another aspect. Who lives in a neighborhood matters as much as the physical assets. Bans on MDUs (multiple dwelling units), permanently parked RVs, and manufactured homes serve as a barrier to entry. It’s not explicitly stated but the effect is the same as saying “If you can’t afford a $410,000 house we don’t want you as a neighbor.”
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
As I commented elsewhere, that’s the paper math version that doesn’t resemble reality for those of us living in it. Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.
The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.
In every single reputable empirical study of housing, adding supply really does bring down prices. Your preferred policy solution would decrease housing affordability, hurting the very cause you profess to champion. If this truly is something you feel strongly about, you have a duty to yourself to investigate the evidence, otherwise you are shooting both yourself and your movement in the foot.
Building a new house and renting the old one absolutely does increase the supply of housing.
GP was incorrect that it doesn't increase supply, but correct on pricing. Besides, if I can't afford $3000/mo rent, it doesn't matter to me how many rental units are available at $4000/mo. With massive pricing collusion having been the standard for the last few years (RealPage) and the demand for housing always being extremely inelastic, the supply/demand curve is extremely complex.
Again, on paper it does.
But paper often neglects reality. A reality where it can be more profitable to simply hold the land rather than lease out the home on it. Where a constructive loss can improve tax savings. Where the intent is to have it vacant for some other perceived use or gain - like a vacation home, AirBnB rental, Pied-a-terre, or just letting the structure languish until it can be condemned and bypass red tape around teardowns/rebuilds.
Current incentives and structures do not mandate that homes are made available when someone buys another domicile. That’s one of the myriad of issues affecting the housing crisis.
All that means is, that building one unit of housing and selling it means that the pool of available housing is increased by less than one unit. It does not mean that the available housing supply did not change, or decreased.
So if building one unit of housing increases the housing supply by 0.7 units on average or whatever, then the same logic applies, just overbuild by 30%.
how does renting out old stock not increase supply? Renting and buying are relatively fungible. People buy fewer houses when renting is cheaper.
> how does renting out old stock not increase supply?
Raw and overall housing numbers can be misleading by their nature. That is, they can be technically true while being false for many/most people.
Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.Generally, there is no affordable, reasonable housing for typical income earners.
It's still an increase. Rich people always have a house. If they can buy a rich person house it means they aren't outbidding normal people for non-luxury housing.
What figure divides luxury and non-luxury housing?
Asking for the 25% of Americans who make <$40k/yr.
> Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.
Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.
> Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.
80k is 3-4 typical wages. That is, the wages of jobs that are most obtainable make 25k-31k.
The folks in those income brackets are 25% of the population (and 35% of minority groups).
Housing stats are commonly presented as if they don't exist. However until few administrations, they had a long history of home ownership.
>Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing
Ok, but they have finite leverage and financing. The market can easily overwhelm their access to capital, no investor class has anywhere near enough access to capital to fully corner the behemoth that would be a healthy housing market.
Doing similar things in Berlin (regulations instead of building more) put the housing market there to a crazy state. Yes, the rents are mostly affordable, but demand seriously outstrips supply, and it becomes a game of chance, personal connections, waiting for a year or two until a particular unit frees up, etc.
Also, they can only address the luxury market so much.
If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.
Yes, but you'll only do this once the luxury market is saturated. As long as you can sell more luxury homes that is what you are going to build.
Right, but there's only so many people in that market. The reason it never seems to be saturated is that building more homes in expensive areas is typically very restricted and difficult and time consuming to do, mostly due to local/state regulations.
Then it isn’t saturated.
Right. The real problem is regulations that prevent saturation.
Housing regulation should be dramatically improved and streamlined, but we also have a deep cultural problem of nimbyism.
Humanity needs to learn how the cooperate much more effectively, or we are going to fuck everything up.
FTFY: /going to/have/
The younger generations living in their parents' houses en masse in their 20s and 30s is a sign of it.
My take on it as a small landlord (have two houses on my farm, one has two rental units) is:
I don’t think a lot about the pricing of my rental units and I’m not quick to raise them but when some new development comes into town and puts up billboards with their eye-popping prices and runs ads in the paper and on web sites and on the radio I think “Gee…. I must be leaving money on the table because I could raise my rates 50% and it would still undercut what they’re advertising a lot”
Of course the money they are spending on advertising indicates that their pricing is aspirational and they may very well next year be telling the city that they can’t afford their property taxes because they can’t fill the units and might be telling their lenders the same in a few years.
In Ithaca we got “luxury housing for seniors” that was nuclear reactor late and they can’t fill
https://ithacavoice.org/2025/03/library-place-to-sell-at-a-l...
(Don’t seniors with money go to Florida?)
A few market rate projects had an affordable component which has been part of a surge which has taken a bite out of our homeless colony but it is now like that talking heads song where they’re “burning down the house”
https://ithacavoice.org/2025/08/inside-asteri/
My understanding is many “luxury” developments are shoddily built and not a good place to live
https://www.nytimes.com/2022/04/15/realestate/condo-defects-...
>and building two $250k houses will take twice the time and close to twice the costs
Building densely is actually more profitable, there’s already incentive to build as densely as possible for developers. Adding an extra story and creating a duplex, triplex, etc doesn’t cost much more and means you can sell multiple more units. Building as tall as possible and getting more units into the same footprint is almost always more profitable than just building one single family house.
The problem is that zoning limits what type of building is allowed to be built on a site. Who controls zoning? Existing homeowners that already live in the area, so of course they are going to make sure that new builds are low-density, as it impacts them less (parking, traffic) and keeps their home values high.
Source: I tried to build dense housing myself and was stymied by zoning.
In other words, housing capacity is created and "trickles down" to the bottom.
If there was such as thing as a $250k house within a few hours drive, I would buy all of them and just sit on them, maybe rent them out.
What you're missing here is that housing is only a good investment because it's in such short supply. If plenty of $250K houses were available, they wouldn't be doubling in price every few years, and "sitting on them" and eating the maintenance costs would just lose money compared to other investments.
Increasing the supply of the high end market often occurs while simultaneously reducing the supply of the low end market. This happens when landlords renovate their buildings. So it's very possible that adding supply can limit price inflation on the high end, while increasing costs on the low end.
I wouldn't count renovation as "adding supply", though.
Yes that’s gentrification of a neighborhood. Neighborhoods evolve over time. Displacement is bad but measures to fight it can be even worse. If no new construction can be approved over it being a gentrification signal, rents will zoom up even more. In the most competitive metro areas there are no cheap rent areas left within an hour commute.
I think we should start using hermit crab analogies. Everyone understands that you need more of the biggest shells to free up shells for the little guys.
There is also the recursive nature of a shortage 1. housing becomes a bit scarce for any reason, even a temporarily transient reason 2. prices go up 3. people point to high prices a reason new housing is bad, enact laws to limit it 4. housing becomes more scarce 5. goto 2
NIMBYs actively target this misconception. "New housing is luxury housing."
> eventually the price drops happen on the older, smaller homes at the bottom end of the market
I'd be interested in how long "eventually" takes for single-family homes. I think for rental units it happens very quickly.
In such market fixation on inefficient single-family homes is very weird. In desirable and growing markets those might not ever go down. Population in such market should just accept more dense configurations.
The land value gives a strong floor. And nearby development increases the land value even if it makes the state of the house itself look worse and worse.
depends, it takes decades and often people remodle their old houst thus bringing up the value.
What if a Chinese real estate investor buys US property just for the sake of it? Just one of many scenarios this doesn't take into account.
Why would he leave it vacant?
Because the value always goes up and managing renters and repairs is a PITA.
> value always goes up
History shows us that there are many bear markets in housing. There's also Detroit.
I sold my previous home in 2000. It recently sold for 4x what I sold it for. A great ROI, eh? If I'd invested in the S&P 500 in 2000, it went up 6.61x. And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.
> And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.
And of course, had you let it sit empty the whole time, you still would have had to pay commissions, taxes, insurance, and maintenance (because an empty home goes bad very quickly).
There are very few scenarios where the appreciation at the end would be big enough to leave you with a profit after all those expenses, especially considering financing and/or opportunity costs.
If you don't include rent, real estate has significantly underperformed equities as an investment:
https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf
> the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
This effect, in this context, is called "filtering."
so you are suggesting that one house is better than two to alleviate supply? this is exactly why market incentives isn't the cure. we would have more housing if we built more housing. if we built double the housing, then we would be in an even better place.
this logic makes zero sense to me.
As your sibling comment says, there is only so much market for luxury housing. If the land, permitting, etc. exists to build two houses, then two will get built. And if there's only sufficient demand for one of them to be high-end, then only one will be. (In aggregate on larger scales of course, not literally any given two houses.) It's not necessary to force a given developer to build two houses instead of one; if the economics make sense, and are predictable, the developers will come.
What’s considered luxury housing vs upper middle class?
Like there are plenty of houses marketed as “luxury style” in my area and command $500k-$700k easily but it’s just fancy looking. Not built with any better materials, wood, concrete, drywall or brick that you can get any local Home Depot.
It’s just puffery for new construction. Every single cookie cutter middle class subdivision calls itself an “estate.” “Affordable housing” is a nicer way of saying low income.
the market logic just proves my point. logging off now bc i'm about to get flamed by YIMBYs and georgists! you can go read my comment history for my argument: https://news.ycombinator.com/item?id=44555384
It's better than none, which is what you'll get if you start mandating what developers can build. They'll just go somewhere else where they can make more money.
love this debate! the market built a ton of houses leading up the the GFC until the market decided it was too risky: https://fred.stlouisfed.org/series/HOUST
this was in a similar regulatory environment we face today. so if you take the market logic, then the market caused the problem as much as regulations.
> so you are suggesting that one house is better than two to alleviate supply?
No, they are saying that building one high-end house still has the slightly unintuitive effect of increasing the supply of low-end homes. They also give their reasons for believing this.
i'm very aware of how filtering works in the housing market. but if your goal is to increase supply, then 2 > 1. therefore, in my opinion, filtering due to market mechanics and developer incentives is not the most optimal or efficient solution.
I'm just saying that OP didn't say that it was the most optimal or efficient solution. They were really only saying that it had the filtering effect. If your point is that we should offer incentives to build two homes and disincentives to build one home then I'm with you; I was just pointing out that you were putting words in their mouth.
Maybe, but for people currently living who need housing, all that is academic. It's another case of "the market can remain irrational longer than you can remain solvent".
I think you might be right, and I think people who buy new care less about price.
Supply and demand requires thinking about equilibria and intersecting curves and is out of the reach of a largely innumerate population. Most Americans don’t even really have a strong grasp on millions versus billions versus trillions.
Americans also think in terms of stories with actors, and supply and demand doesn’t have any obvious actors. “Prices are high because bad people are choosing to keep them high” is an easy narrative for people to understand. There’s an obvious villain, and the success simply requires the hero to defeat the villain. This leads to a funny meme: https://www.reddit.com/r/neoliberal/comments/13l1lmn/present...
People prefer a teleological explanation. It has the allure of a simplistic solution. Having a direct and complete solution out there is emotionally satisfying. Just like how subduing the villain saves the day, why not tax/ban landlords/immigrants/Wall Street/your favorite outgroup here? If there’s no simple solution available that’s not nearly as hopeful of a message. Politicians and marketers peddle simplistic “solutions” to a willing audience.
This makes sense in a world where the market adjusts rationally and there's an unbroken chain of people from different levels of wealth who can afford to buy houses. Unfortunately in the US right now, that is not reflective of the present scenario due to the immense generational wealth gap and housing bubble.
But that's a supply problem. Create the supply, prices will drop and that bubble and generational wealth challenge begins to heal.
And in Canada there is a huge amount of backlogged demand. There are areas where rental listings for roommates show two beds to a room and 10 people crammed into a house. Unwinding that is going to take a long time.
> people who buy those are leaving their old houses
I do not believe this is accurate, at least not in the last ~10 years or so. The houses are purchased by hedge funds and other smaller investors.
> The houses are purchased by hedge funds and other smaller investors.
The hedge fund thing is way overblown. Even if they buy up homes in hot markets, their incentive is still going to be to sell them if/when the market cools. Corporations do not enjoy the same tax incentives as homeowners in this country, and the risks/costs to rent out older homes just doesn't pen out for non-local investors. If PE wants to get into housing, it's such a better deal for them to just build apartments.
Currently less than a percent of homes are owned by private equity. And the majority of those are owned for the purpose of turning around and selling them, like Home Partners.
(Zillow also tried buying up homes for the purpose of arbitrage and it ended up blowing up in their face).
I believe you are correct on the hedge fund point; I was confusing it with something else that's related but different (I recall investing in a platform that made some of its profit from financing the construction of homes). The effects that I worry about still seem to be actualized by the "smaller investors" I mentioned, such as the head of a household being able to afford to purchase another home as a rental or a replacement as they rent out their old home.
I suspect that people conflate "buying a house as an investment" with "investors bought a house", which is leading to the incorrect idea that hedge funds or private equity are somehow cornering the market.
I think the reality is that the main component of investor pressure is from people who hold onto an overly large/well placed home far past the point of utility, because they want to sell as late as possible and maximize their return. Follow that with small-time landlords, and then finally actual explicit investors buying homes as some kind of commodity. A lot of the dysfunction of capitalism (so-called "late stage capitalism") is induced by people trying to outsmart the market, time the market, etc. when they really don't have the knowledge or information to play such games.
They purchase them, and rent them out, and that is still a net increase in housing supply.
If you reach a point where housing supply out paces demand plus the vacancy rate those investors are willing to tolerate, that's when rent prices will finally start to drop as the big landlords need to generate more revenue to keep up the capital and operational expenses. And if rent prices drop far enough then it will no longer be profitable to spend all that capital snapping up starter homes, and eventually may even be placed back on the market.
Only because they are scarce enough to be worth doing that.
With greater supply, there comes a point where you can make better investments than buying up empty houses. And so they will stop buying them.
I don't see how that really matters. If you keep making homes and investment buyers keep buying them then the price will keep going up and regular folk will still be priced out. If you make so many homes via this strategy that institutional buyers are no longer interested, I think it's because the homes have somehow become genuinely worthless, at least to the investors. I don't see how to do that without legislation that makes the investment unattractive (unprofitable) to them. Policies such as rent control, "you can't buy that house because you're not living in it", etc., are the proper solution.
Investors have finite capital, and it's easier to corner a tight, pinched market than a large market with lots of liquidity.
You don't see PE making huge investments in gas stations, because you can always easily just go to another gas station, and there's way too many of them to easily corner the market. We could pretty easily make housing similarly unattractive.
Why would the price keep going up if more and more houses are being added? Prices go up when there is a shortage. Everywhere that has been building adequate housing sees prices falling.
Scalpers won’t bother scalping an item that’s widely available at MSRP.
What data do you have to support that only hedge funds and smaller investors are purchasing new builds?
> What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
Two things to think about when making this argument:
* Older housing could have been torn down to build new housing. So before, you had a rooming house with 10 or so low cost tenants, and now you have three town homes with three very rich families moving in. Life just became a lot harder for people in the lower end of the market. Gentrification of entire neighborhoods is an extreme example of this: a blighted neighborhood is great for cheap housing options, but then people start coming in and redeveloping it and...it is no longer blighted, the neighborhood is better, and the cheap housing is gone replaced by much more expensive housing.
* Demand is induced by new supply. We accept this as a fact for highway construction, but it is somewhat also true for housing in a hot market where everyone wants to live. So building a bunch of new housing in Seattle could attract new resident, causing the population to grow, rather than adding supply to deal with fixed demand. Yes, adding housing in Buffalo isn't going to run into that, and yes, overall the situation becomes better for the country (or world if you are inducing demand from other countries), but locally you feel like you are going nowhere with the problem. A more extreme example of this is handing out housing to your unhoused population (you'll almost certainly wind up with more unhoused than when you started even though you've given some housing).
> Demand is induced by new supply. We accept this as a fact for highway construction.
Induced demand is only a thing with highways because use of the highways is free; there's no counterveiling cost pressure unless and until traffic jams start forming. By definition induced demand doesn't exist where the market can set prices for using newly created resources.
Closer to your point (if we stretch really hard) would be something like lowering crime. If Seattle successfully lowers crime without, say, increasing taxes, then Seattle becomes a nicer place to live, and people can (and will) move there to enjoy lower crime without having to directly incur the cost of lowering that crime. One of the externalities of that "induced demand" would be an increase in housing prices. So obviously Seattleites who oppose residential development should just promote more crime.
The fundamental issue here is that people don't like being subject to market forces and the insecurity that engenders, particularly when it comes to housing and labor. That's understandable. They do like market forces when they get to enjoy lower prices, though. But the feeling of insecurity is particularly acute when it comes to housing and the issue of new development. That's also understandable, notwithstanding that it's simply irrational and empirically disproven that NIMBYism makes for lower prices than the alternative of allowing market development. You get higher prices with NIMBYism than YIMBYism, period; though there's simply no guaranteeing that absolute prices will come down, especially for a city that permits development where others don't. That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
> So obviously Seattleites who oppose residential development should just promote more crime.
I knew the fent addicts on the D line in Ballard were good for something! But seriously, you know, there are two sure fire ways to lower housing prices: make the place a crappier place to live, or just get rid of jobs/economic activity. My dad was in Seattle working for Boeing after Vietnam, and got hit by the "will the last person to leave Seattle turn out the lights" Boeing bust. It is kind of like falling oil prices: you know, drilling more doesn't really affect the price of oil as much as reduced demand due to an economic recession.
> That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
Isn't that the main problem? This is the main problem with progressivism at a local level: even if you are making the world a better place, you could be failing to improve your place (seeing no benefit for your money) or actually making it worse (seeing negative benefit for your money). How many of us are saints who are willing to sacrifice our own lives for the greater good?
One thing few people take into account is that demand housing is much, much more elastic than people realize - per capita people are consuming far more square footage than they used to. Houses that were built to be house multiple generations under one roof now only hold one generation. Usually elderly empty nesters. In our area we also see people buying up lots of older duplexes or triplexes and converting them into single-family homes.
So even areas where population is stable, and housing supply increases, it can result in very few tangible gains at the margin.
There was a brief time 15 or so years ago where the $200-500k homes in the six or so blocks I live in were being snapped up by young upper-middle-class families on long 3-4% mortgages.
Those families' kids have now grown up, and the houses have appreciated, sometimes as much as 2-3x, due to a nearby light rail development connecting the neighborhood to the city at large on cheap transit. So those families are cashing out their housing by selling primarily to out-of-market elderly wealthy downsizers, typically from California, Arizona, Nevada, Colorado, and Texas.
The result is a neighborhood of 3- and 4-bedroom homes that once housed families of 4 or more people now mostly inhabitated by 2 or fewer people (many left vacant more than half the year as these wealthy retirees frequently travel). They also refit these former starter or second homes to accommodate these elderly inhabitants' reduced mobility and/or increase the home's luxury.
When these residents die in 10 or so years, even if the market corrects prices downward, these homes will now be even less suitable for anything but wealthy elderly inhabitants. The intelligent thing for the city to do would be to tear them down and replace them with accessible and affordable density; the reality is that the wealthy elderly who haven't died yet will spend the rest of their lives blocking such efforts out of spite.
> out of spite
Or, they're just protecting their property value and neighborhood composition, like anyone else would do.
> Or, they're just protecting their property value
Nearby property development often increases property values. People are not fighting developers because of money.
You'd think they would be prime candidates to be LPs for new development
> per capita people are consuming far more square footage than they used to
^ This...
> demand housing is much, much more elastic than people realize
^ ...does not imply this.
If the only housing that is available is 3000sq.ft. for a family of 3, that family doesn't have the option to split it up and only buy 1500sq.ft. of it. They need to be able to afford the whole thing.
(Also, I question the extent to which this premise is true, at least in cities. Everything else I've been seeing is that people are living in much less space than they used to, due to the rising prices. Taking a studio apartment rather than a 1-bedroom, living with roommates, etc. But even if the premise is true, it doesn't imply your conclusion.)
Curious for a source on the sq footage per capita if you wouldn’t mind sharing. That’s very interesting.
Could that also be explained perhaps by the fact that people are willing to live farther away from cities (where land / homes are cheaper and larger) because they only have to work 3 days a week from the office? Or because commuting is less painful with newer cars?
Square footage per capita can be misleading because it goes up as an area moves from low density to medium density, but goes down as the same area moves to high density.
Square footage of land != square footage of real estate. A stack of apartments is high density, but each resident could enjoy more square footage than if they were crammed into a single family home with a ton of roommates.
https://css.umich.edu/publications/factsheets/built-environm...
https://newsletter.humanprogress.org/p/housing-abundance-has...
Adam smith observed in his book that as people get more money they typically spend is on nicer housing.
I dont have sources, but the trend for larger houses was happening much earlier than the WfH trend.
It's a mix of car culture, proprty value being lower farther away from cities so develops can create a high margin on building neighborhoods marketed on big, new houses.
I feel like McMansions peaked in the sub-prime era and that construction since has been smaller and simpler structures.
In the US, isn't this partially the cause of zoning laws banning anything that is not single-family homes from being built?
This is not limited to the US in the slightest
Colloquially you can see this in sentiments such as:
"All these developers are building is just expensive new luxury apartments"
And as the study mentions:
> To the extent that ordinary people form loose mental associations between “housing development” and “housing affordability,” they may well associate more development with higher prices rather than greater affordability. New housing, being new, tends to be more expensive than existing, depreciated housing.
It is just a perception bias thing. You don't really "see" everything around you aging because it happens slowly.
Yup, and the kneejerk response from economists is that the housing cycle suggests that new luxury stock would be inhabited by buyers who own existing stock, and what they sell would be more affordable to those buyers, and what those buyers sell would become more affordable to the next rung down, etc.
Except that’s not the reality. The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter, it’s used as a vehicle of growing capital. When that’s pointed out, suddenly economists blame the very same people who can’t get onto the “property ladder” for failing to “compete in the free market”.
In a vacuum, their original idea makes sense. In reality, it’s heavily exploited for the gains of those already on the ladder at the ongoing expense of those they actively prohibit from joining them. It’s societal exploitation leveraging the singular most basic human need after food and clean water: shelter.
> The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter
This is false.
It is absolutely used as shelter. It's used for renting. Investors don't generate just sit on housing and leave it empty (unless they're remodeling it or something).
Also it's not mostly private equity -- that's a tiny percentage. It's mostly small investors, like a mom and pop who own and rent two other homes to help fund their retirement.
Investors are not taking away living space. And many areas don't have enough rental properties (remember, not everyone wants to own, especially people on a short-term job or relocation), so conversion to rental helps here and brings down rental rates (as happens whenever supply increases).
But (the sound) financial models that lead PE and others to this investment are built around the assumption that supply will be artificially limited. If you build enough they will see reduced returns and back off.
Except those firms currently have enough money to lobby politicians to oppose any changes that would meaningfully increase supply, and also hold outsized stakes in the companies and suppliers who would build said stock.
It’s a rigged game top to bottom. A free market would’ve fixed this years ago, but this is not a free market anymore. The difference is I advocate control of necessity markets returning to government regulations around availability and affordability, while luxury markets remain relatively untouched.
Housing is a necessity. No market god is going to fix it.
The political system is particularly susceptible to capture and unfair policy when the public is disengaged and poorly informed (as the paper describes). It makes it very easy to business to get their way.
The solution is the (hard and slow) work to engage and educate voters.
Yup, but I also take the tact of educating the current winners of the increasing cost of their inevitable loss when the pendulum swings the other way. Pre-pandemic, the “loss” of home valuations might’ve been 10-15% in many areas once supply was increased and made available to homebuyers; post-pandemic, that loss could be as much as 50% depending on where you bought and what the actual local demand is. That results in fiercer resistance against change that would improve the problem even a modest amount, because now they have more to lose.
As I learned watching Union vs Non-Union labor interactions, it’s exponentially cheaper to do the right thing sooner than being forced to do a compromise thing later. The fact the crisis has gotten so bad that there’s campaigns for national rent control schemes and “homeownership as a human right” legislation means they have already lost by not doing the right thing sooner. Once organization happens, you’ve lost the game.
The rest is just time.
I agree, any change that causes sharp drops in real (inflation adjusted) prices will be a problem. I think the best we could hope for is a long period of gradual decline (when including inflation, so perhaps a slight increase in nominal prices).
This problem took (in some places) 30+ years to create, it won't be fixed quickly.
> The solution is the (hard and slow) work to engage and educate voters.
It is indeed hard work, especially if you want to influence people who aren't engaged in politics to vote. I find that people who aren't engaged with politics are most receptive to extreme messages that discourage them further. They're all ears if you tell them that the system is rigged and it's impossible for people to defeat the corporations or the elite. It's much harder to convince them that voting matters.
IMO, the best long term strategy is to improve the basic infrastructure of democracy. Non-partisan districting, single election rank choose voting, etc.
>and also hold outsized stakes in the companies and suppliers who would build said stock.
Wouldn't that motivate them to build more?
Do you realize your argument boils down to “increasing supply doesn’t reduce housing cost because we don’t increase the supply”?
Yes, because unlike every single detractor here I’m not distilling a complex argument full of nuance into a “1+1=2” baby-splaining session.
Let me put it into simple numbers the detractors can understand:
I build ten homes in a market that needs a hundred. I price them affordably because I’m not an asshole and understand there’s a crisis.
* Statistically speaking, 25% of those homes will be bought by PE or REITs. I cannot deny them the sale because the law says so. Let’s round that up to three homes out of ten. Those homes may be rented out at market rate rent, which is far higher than the mortgage would have been, which doesn’t reduce pricing or improve supply - rent remains high because these groups have data to keep rent that high, and supply remains constrained because a fourth of my inventory just got sold to profiteers instead of people.
* Of the remaining seven homes, all are likely sold to actual people. Due to bidding wars and my obligations to shareholders however, I have to take the highest bids. Because of anti-discrimination laws, I can’t sell to underserved minority groups because that’s considered discrimination. So a plurality of owners will be higher net worth individuals, many of whom likely already own property.
* Because we’re in a housing crisis and everyone wants money for doing nothing, it’s likely that about half of the new homeowners won’t outright sell their existing home, but instead rent it out at or near market rates set by PE/REITs. They want that cash after all, and know there’s a lack of supply. Because their old homes aren’t being added to the market for sale, this doesn’t apply negative pressure on housing prices since a home for rent is not a home for sale
* So now we have just three homebuyers left who bought their only home, aren’t renting it out, didn’t have prior equity, and almost certainly overpaid for what was on offer. This places them in a precarious environment where a job loss could lead to eviction or having to sell the home - but because they’re in the midst of a crisis, they can likely get a quick cash offer from a PE/REIT without actually putting the home on the market, making their problems disappear and putting them back as renters. Maybe one to two homeowners are affected by this.
So out of ten homes built, only three go to people not already on the property ladder in some form, and of which as many as five are likely to end up in the hands of an investor at some point anyway. Ten homes for a net gain of five purchasable properties is not a meaningful increase because the market, government, and tax incentives value less supply and more demand.
Don't those other five now become more rental stock though? This is still 10 homes that didn't exist before, as 5 owner occupied, and 5 new rental properties.
Sounds like a great outcome! Let's do that some more.
If I build 4 houses, and someone speculatively buys 1 house, I've still added 3 to the housing supply.
As a solution to the housing shortage, building new is 25% inefficient? Great, it's 75% efficient. That's not bad for a solution. So let's do it, in volume, and actually make a dent in the problem.
And for the builders, they don't care. A speculator bought that house? It payed me just the same. But even better, the demand is still there, so I should build another one.
Again, ON PAPER your math works because you’ve narrowed down the problem to a conveniently limited set of variables that, in a controlled experiment, would produce ideal outcomes. And just like physicists keep learning time and time again of late, just because the math works on paper doesn’t mean the thing is real.
Yours (and every other detractor trying to eSplain Econ101 and market forces to me) ignores the complex realities of the marketplace. It ignores tax structures that benefit demographic groups over others in homebuying and wealth accumulation, incentives to hoard property for passive income through rent in lieu of releasing the property onto the market for sale, tax savings for owning secondary properties or rolling over capital gains, regulations that make teardowns harder until the structure is condemned and thus constrict supply, of homeowners who will go to extreme lengths to preserve paper valuations instead of building more housing.
Taken as a whole, with all the variables, and it’s readily apparent that it’s not “simply” a supply and demand issue.
> hoard property for passive income through rent in lieu of releasing the property onto the market for sale
If the properties are being rented, they are providing shelter. They haven't been "removed" from the housing market.
Your point was not immediately clear, so forgive me if I misunderstood.
There's theory and there's data, and both agree that building more housing lowers prices.
Sure, take care of all that other stuff too, but the data does lot match your theory, and it does match what you call "Econ 101." And I would point out that you haven't even attempted to show that these other things come close to cancelling out Econ 101 effects, you merely have hand waving on the theory without any substance.
Even if 25% are sucked up by speculators and not rented out, just left empty (which I don't believe), that still gets you 75% as increase to the housing supply.
Curious for the source on the 25% figure if you wouldn’t mind sharing.
It was a series of studies earlier this year that made media rounds; searching for “Wall street housing 25%” returns a myriad of results from mainstream sources citing a number of different studies and papers:
https://fortune.com/2025/07/08/investors-buying-25-us-homes-...
I’m on mobile and can’t dig into total ownership figures at the moment, but I do know that in the sunbelt states property acquisition by investment firms has been a real issue. Even slumlords are getting bought out at top dollar, and affordable housing is increasingly just a trailer rented on land owned by - you guessed it - PE or REITs at consistently inflating rents.
Is this housing that they are purchasing just being sat on? I would think that these are being purchased to be rented out (thereby still increasing housing supply), not just held. Homes are depreciating assets.
In the sunbelt, they buy it, jack up rents, evict tenants, and basically turbocharge being a slumlord until they find new buyers for more than what they paid. Due to supply constraints, they often succeed in this process (which repeats under new landlords) multiple times before the market becomes too pricey and further increases aren’t tolerated (which is why organization is on the rise - the rent is too damn high for no valid reason). On paper, yes, the homes should devalue, but take a look at places like New England where absolute shitholes can fetch half a million dollars and it becomes clear that property depreciation is happening far slower than pricing inflation.
Sounds like they need more housing stock. At some point, if you keep building, it will no longer be profitable for speculators to do that.
Buildings depreciate, but land does not.
That isn't a study, its just an article in fortune that says
> Nearly 27% of all homes sold in the first three months of the year were bought by investors
That isn't PE firms, it's all investors meaning anyone who isn't planning on living in the home. Most investors are regular people who own 2-3 properties.
Vacancy taxes seem like a reasonable solution to this problem.
They are one of many pragmatic solutions, though I’d strongly argue cities skip right to forced-divestiture schemes of vacant units for owners and landlords alike. We have a homelessness crisis, and if you own a property that’s vacant nine months out of the year in a major metro then that should be forcibly sold off, incur steep tax penalties, or be rented out at fixed rates and long leases if you want to preserve ownership.
There is not some epidemic of vacant rentals driving up prices. Vacancies right now are right around the long-term norm, 7%. Home vacancies are actually near all-time lows: 1%.
** right off. If I’m in a downtown metro near any newer development at night - rentals or owners - they’re largely dark and empty with little to no signs of life.
Your statistics are damned lies to those of us observing lived life in our cities. Nobody is hand-checking every single unit out there for accurate statistics on housing utilization, it’s all self-reporting.
1. your anecdote isn't data
2. usually things are quiet at night because people go home and/or bed
3. the only places i've been to where the nightlife is in a neighborhood called "downtown" are small towns
4. my anecdotal data contradicts yours
People lie about high vacancies in new buildings almost compulsively.
There was a big splash of PR for a report on high vacancies in new LA apartment buildings a few years ago, and it had to be retracted within a week because the methodology was pretty much nonexistent, like counting lights in windows at night and not realizing that people visit friends, go to concerts, go out to eat, stay at their girlfriend's place, or any one of many other things that keeps lights off in occupied apartments.
I see it with every single new multistory building in my small downtown. People complaining about a building being fully empty shortly after it has been built, when in reality it's filling up faster than planned and there are only 20% of the units left.
Yes, there are lies, but in my experience the lies are only for too many vacancies.
That is quite a wild methodology. Just go try to rent an apartment in the off season and you'll see how few vacancies there are.
Those speculative investments only make sense in a world where it is expected that supply will not keep up with demand.
And when your PE firm owns significant share of homebuilders, owns large tracts of land, and owns politicians, lobbying groups, think tanks, and economists, then you can effectively game the market to maximize your personal returns at the expense of everyone else.
They wouldn’t be buying 1 out of every 4 homes and bankrolling schemes to “unlock homeowner equity” (HEOCs, reverse mortgages, etc) if they thought this would be a resolved issue anytime soon. That’s exactly why government needs to get involved and force divestiture.
Fortunately homebuilders include a lot of private companies and so they can't do that.
I see those going up all over the US West. I know people who live in a few. Always feels like they live in a mid-range hotel. IDK why anyone would want that.
Yeah, the point is that new apartments are ... new apartments. "luxury apartment" is meaningless marketing copy that every developer uses for every apartment building. What is marketed as a "luxury apartment" today will just be a "regular apartment" in 20 years.
Nowhere in the US does it at the scale to make a serious long-term dent in prices.
Nobody with enough money and exposure to large amounts of real-estate wants to kill the golden goose. Look at the post-Covid-migration build stories. Rents start to soften and development dramatically slows.
Like Austin - https://austinmonitor.com/stories/2024/08/as-construction-sl...
Or Denver - https://www.denverpost.com/2025/07/24/apartments-housing-rea...
You would need continued serious government investment to make sure focus continues to be on total units and consumer price instead of investor ROI.
Because even adding four fancy town-houses or condos helps if what used to be there was single-family or duplex. But it doesn't help NEARLY as much as adding 100 units by converting an old shopping center or 30-unit apartment. But there are strong incentives against developers doing "too much" of the latter if they know they can make the same ROI by selling fewer, nicer units.
Individual residential property owners take a lot of blame here but they're not even benefiting THAT much - every crazy price increase is putting any upgrade to their own situation further out of reach. And fighting low-density residential NIMBY-ism is a slow process if you still only can buy one lot as a time as it becomes available. So focus on underutilized commercial and industrial near major hubs or transit corridors where most of what you're displacing is ugly parking lots and empty storefronts that contribute to crime as well.
This seems to be claiming something different, though? You are pointing at that development slows as prices go down. Which seems somewhat expected?
That is, adding supply lowers prices. And lowering price reduces potential profit such that fewer people will build. With fewer people building, prices should go up again.
Stated differently, thin margins reduce the number of people offering products in a market. Ironically, the main way to get more building is with bigger builders in that scenario.
Well I'm saying that in practice adding supply hasn't lowered practice it has merely slowed the increase in prices. And that's mathematically essentially the same thing, but it's importantly different in two big ways:
1) If people see their costs going up while they also see new construction, the correlation machine's gonna jump to the wrong conclusions
2) If costs are still going up people are still going to be unhappy and worse off
Supply can increase AND price can still go up, and so for people to be won over and convinced you need to crack the second part, not just the first part. In a libertarian "just reduce regulation" approach that's often pitched, the natural equilibrium will be closer to "supply increase and price go up slowly", and people skeptical of "just reduce regulation" as a solution are more accurate than they're given credit for. Gotta actively intervene to make supply increase enough for any sustained period of time - we only see it in cases of macro shocks. Like the 2008 recession, or the post-Covid-bullwhip.
Ah, fair. And I see how this goes in with your idea of government spending.
It is frustrating, as that feels like an easy argument to show why a lot of things decreased in price. You had governments spending a ton of money. Or incentivizing the spend. Usually both?
I think my approach there would be to say you can't use profit as incentive to lower housing prices? For the exact cycle we both spoke to.
This is my big "abundance pill" that I've swallowed. It isn't necessarily deregulation you need. But if you want a goal, you have to spend towards it. And "lower prices" is a goal. To get there, governments will have to spend money.
Is it a crazy mental leap to think that maybe housing was historically mispriced and now we have reached equilibrium?
Is it that they truly don’t believe it or they don’t want more supply (since that changes their quality of life, neighborhoods, traffic, etc) but still do want lower prices in other ways (like by price caps or other things).
One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want. It removes the competitive piece. In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
This is another huge myth in the US housing market, that big companies own lots of the housing and are jacking the prices up. It's simply not true. Large corporations own a tiny fraction of the market while the vast majority is owned by individuals and small landlords.
There's a lot of synergy and overlap between small landlords, property management companies, rent-fixing companies, and Wall St. It doesn't matter to the renter that their slum is owned by a tiny LLC that is nevertheless part of the broader constellation of anti-social rent-seeking behavior that is bringing down this republic.
investor market share of homes is down from its peak of 20% a few years ago, but i wouldn’t call it a “tiny fraction”
https://www.redfin.com/news/investor-home-purchases-stabiliz...
That is not limited to the US, in Berlin there was a popular vote to expropriate housing companies with more than 3000 units.
Yet those large housing companies charge on average between 7-8 €/m² and are nowhere near to holding a majority of the housing share.
Is it different in different places though? Like some places have more of this ownership problem and so it looks worse locally?
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
Big corporations don't have unlimited money to do this kind of thing.
And in practice, the expensive areas they do it in, are usually very limited in how much new housing goes up, they're still very much supply constrained markets.
If what you're suggesting was really happening, then what you'd expect to see is an area with a relatively high vacancy rate (due to all the new supply), like 8% or even higher, but stubbornly high prices in spite of that. And I can't think of any examples where that happened. Can you?
investors actually tend to purchase cheaper homes
https://www.redfin.com/news/investor-home-purchases-stabiliz...
This is the propaganda they were pushing about RealPage too until it turned out that it was happening and the market was being distorted.
At any rate, if a buyer notices it happening in their area, then "it's not happening that much" is not only not going to make them feel better, it's going to also make them feel like you don't want to fix it.
Again, do you have examples where a ton of supply was added to a market, the vacancy rate shot up to high levels, but prices remained the same?
I agree that the algorithmic price fixing needs to end, though I think it's mostly gonna be strong in a market where vacancy rates are still low. Harder to maintain the cartel the more options people have.
>One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses
This just isn't true and isn't supported by the data. https://www.noahpinion.blog/p/corporations-arent-the-reason-...
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
No, its not. If only one big company was allowed to do that in each locality, and they had the ability to buy up all the supply no matter how much new housing was built, that would be a reason; absent monopoly power, they don't have free reign to price how they want, and can price higher the less supply there is, even if you assume all of it is owned by similar big firms and used as rentals.
>In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
Because all the same voters (demographically, if not also frequently literally the same individuals) voted for a bunch of red tape that's only passable for the big vertically integrated businesses and even then it's only profitable when they're doing cookie cutter single family on .25ac or 5 over one apartments.
Yep. You need deep pockets to eat the carrying cost of a property while waiting years to get approvals.
> Is it that they truly don’t believe it or they don’t want more supply
If this comment section is anything to go by, there seem to be plenty of people that firmly believe that increasing housing supply doesn't actually increase housing supply, let alone the bigger leap that increasing housing supply decreases prices.
I think what people want is less migration (both domestic and international) but that's not an option. Since it's the primary thing they want they're doing anything they can to get it including essentially destroying their own neighborhoods.
They want to keep freedom of movement for themselves and restrict other people. Be careful what you vote for: a border keeping “those people” out sounds good until the day you are denied passage!
I'm already not allowed to just declare myself a Mexican citizen. We alone were unusual in allowing that and it turns out it was a mistake.
And then they complain (a lot) that their kids have to move away to afford housing.
I can sort of understand that.
They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
There are other factors than supply. But most of the new supply is large houses. If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
Well, you would have to compare it to an imaginary world in which they didn’t build those homes since 2010. Prices may not have gone down, but in the imaginary world, they might have gone up markedly so it has still reduced housing costs compared to if they did not build that much.
OK, that's an interesting point. There's not "the housing market". There are several markets, with some overlap. The market for starter homes is not filled by building 4+ bedrooms, still less the market for studio apartments.
And my impression is that, when we talk about the housing shortage, we're talking about apartments to starter homes, not about 4+ bedrooms. So what we seem to have is a disconnect between what the market needs and what builders are building.
But maybe that's only "seem". I'd bet that a 4+ bedroom house sits on the market a lot longer than a starter house. Maybe starter houses are being built, but not enough to satisfy the market, and so they're going almost immediately?
I’m sure it’s not zero that are being built. But it doesn’t seem like a very high number, at least compared to the number of large homes being built in new subdivisions.
> They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
Real or nominal?
> There are other factors than supply.
It is not uncommon for places with a lot of housing development to also be places with rising housing demand because it is a growing area.
> If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
And many of the people buying large new home are moving out of a smaller existing home.
Single family houses are a premium product and continue to move upmarket. Cheap new construction house has become an oxymoron. Residential construction costs were rising at 5.5% per year before Covid (faster than inflation). If it were legal to build more condos, duplexes, townhomes, and apartments there would be less bidding up of SFHs. More people could live closer in meaning less traffic congestion.
This is not what the study says, it’s more nuanced. People do not believe that liberalising demand will solve the issue more efficiently than other measures.
If arguing about this on Facebook has taught me anything, it is that most people definitely do not believe it. They always make the same argument, which is that new housing stock tends to be high priced homes, so if what we need is low price homes why are we building high priced homes? Anybody who understands economics knows why this argument is wrong, but most people don’t.
Nonetheless, I don’t think this has much to do with the public policy as it stands because the people who make the policy do understand this. So while I think the assertion is correct, people do not believe it, I do not think that is a large factor and why the policies restrict housing.
If you could build houses for free then obviously adding supply would eventually reduce the price.
But I have been looking at the cost to build a home, it costs even more to build than to buy a used one. Who, exactly, is going to be able to afford to buy the new houses while selling their current home at a lower price than it would currently fetch?
Maybe if AI replaces all the software developers they can flood the home construction market in their quest to find new work and push the price of labor down, thus reducing the cost to build a house, but otherwise...
Presumably it's cheaper to build a home when a developer is building a whole bunch at once in a neighborhood, as opposed to a single person or family ordering something custom built.
Developer is also a professional with experience/refinement so he knows the magic specs to make things, magic things to say in the emails to the bureaucrats, magic words to put on the applications to avoid getting fucked by a bunch of "you need a survey for this" and "you need an engineer for that" and "akshually since you've done this you need a new septic" type landmines that cost $1-20k individually the little guy is gonna run right into.
Cheaper, sure, but not cheap enough to satisfy anyone who already cannot afford a home. Like cars, the used market is always going to be a reflection of the new market. Used houses are expensive because new ones are even more expensive.
I think it probably could be cheap enough. Part of the issue is actually just that new home sizes keep getting bigger. Like yeah, new homes are more expensive now even in relatively cheaper parts of the countries compared to decades ago, but it's also true that the homes are much larger than they used to be.
A lot of the homes from the 50s and 60s that people talk about being very affordable at the time they are made, were very small things by today's standards.
That is quite true. Early Americans had absolutely no trouble living in their 300 sq. ft. log cabin with eight children under foot. You don't technically need the behemoths we see today (or even what we saw in the 50s, which were still huge by historical standards). But it remains, if it was cheap enough, people would already be doing it. The law sometimes gets in the way, sure, but that's another subject entirely.
The issue is that localities have mostly made adding new homes a big pain in the ass. If the new supply is constrained, obviously you're going to target the higher end of the market with whatever you do end up building.
The pain in the ass has a cost, certainly, but isn't anywhere close to being the large portion of the cost. Even if you eliminated that cost, the houses still wouldn't be affordable to the average Joe.
I think they could be, but a place where demand is high for housing but it's easy to build a lot more housing, that doesn't really seem to exist anymore.
I suppose that goes without saying. If it were cheap and easy to build, there wouldn't be high demand.
Would it really be that cheap, though? Hell, even a single wide trailer built in a factory, which is about as ideal as it gets from a cost perspective, is still a home largely out of reach of the average Joe.
It remains unclear who is going to buy all these new houses unless they are sold at a loss — but who is going to build a home with a plan to sell it at a loss? You?
I'm seeing new single wides for around 40k new? The trailer not the land. Even rounding to an even 100k for a nice unit, delivered/plumbed/etc'd that's what, 500 hundred dollars a month on a 30 year mortgage? That's pretty darn affordable - less than any rent I've ever paid.
> Even rounding to an even 100k for a nice unit, delivered/plumbed/etc'd
Which is about the same as the value of the average used home, less the land. But remember, the average Joe can't afford that. If they could, we wouldn't be here.
The cost of building is one reason why supply is constrained. It doesn't follow from there that increased supply wouldn't reduce prices.
> It doesn't follow from there that increased supply wouldn't reduce prices.
Increasing the supply of labor, thus reducing the cost to build the home, was spoken to.
The average construction worker makes $30/hr. Get that down to minimum wage and the cost of a house will come down pretty quickly. You still might not be able to afford one on a minimum wage salary, perhaps, but the goal of reducing housing prices is met.
I genuinely want to see a breakdown on what is increasing building costs so much. Houses are not more complicated than they were 15 years ago.
Normally if you make essentially the same product for 15 years, production costs fall.
Factories lower unit costs. Construction is not automated. You can’t outsource an electrician or plumber. https://www.costtobuild.net/
> I genuinely want to see a breakdown on what is increasing building costs so much.
It is just general demand, really. Every step of the way can charge more, as compared to 15 years ago, because people are willing to pay more for their services.
Like the headline suggest, the solution is to increase supply. Except, not of houses, but the inputs that go into houses (materials, labor, etc.). Until supply is met there, the cost to build cannot come down, and until the cost to build can come down used homes cannot come down either. Alternatively, we could stop wanting so many houses, but that is likely less practical.
As mentioned, if you get all the software developers building houses instead the price would drop pretty quickly. But... good luck convincing them to do that. That is what has to be overcome.
> As mentioned, if you get all the software developers building houses instead
Back in the day I would often run into people who would mention something like "oh yeah, my Dad built our house." Wonder what happened to that? Thinking on doing this right now in our neighborhood, I can see lasting 5 minutes before busybodies and town inspectors showed up with stop orders
One problem that’s unaddressed is that there isn’t a house building, pricing and mortgage model for people making 50K or less.
One piece of data I’ve found is that 65% of Americans are homeowners (meaning American families, not rentals or investments), which is also about the percentage of Americans who make $50K or more per year (~68%).
For people with a middle class networth (not income, I mean networth, which is about ~1M-9M when compared with the top of US society), homeownership currently works as a wealth-building mechanism because of scarcity. There’s also the desire to live close to certain areas, but why not make more neighborhoods or areas worth living in?
Regardless, if the goal is to maintain scarcity for wealth building, then I think the scarcity mechanism will remain intact if homeownership is increased to a high rate while balancing the cost of materials and labor, and building houses specially for certain income levels, as mentioned already in other posts.
But no one seems to be doing materials innovation, or construction innovation. I don’t think 3D printing is there quite yet, and might be more expensive. Where’s the push on automating construction? Why not build with a genetically engineered bamboo that’s cheaper and more sustainable than wood? Seems materials innovation will help with both housing and sustainability goals.
In the past, people were able to buy a small piece of land and develop it themselves. Literally build the house themselves. Over a long period time if necessary to spread out the cost. They also built 2-4 family homes so they could bring in some rent or house a family member.
None of this is really allowed anymore and it's very hard to find a piece of land to do it with. Enabling this sort of construction and forcing or incentiving small plots of land might open up options for people on the lower end.
The discussion under this article proves the title to be correct. Nice meta.
Housing costs mostly boil down to this stack:
price of land + price of materials + cost of labor + margin + other (marketing, admin, fees, financing, etc.)
When you try to boost the number of homes, you also boost demand for construction labor, materials, and buildable land. Those inputs tend to rise or at least not fall much, so there isn’t a big, easy savings there. That leaves soft "other" costs or developer margin. Other is a relatively small slice, and typical margins aren’t huge push them too low and projects stop penciling, so fewer homes get built.
Even if margins were squeezed, the price drop would usually be too small to bridge the affordability gap for most households.
The bigger issue is that household incomes haven’t kept pace with housing prices over the last few decades.
>Why is housing supply so severely restricted in US cities and suburbs? Urban economists offer two primary hypotheses: homeowner self-interest and political fragmentation. Homeowners, who outnumber and have organizational advantages over renters, are said to lobby against development to protect their property values. The fragmentation hypothesis emphasizes that development's negative externalities are borne locally while most of the benefits accrue regionally or nationally, leading localities to block housing.
These two hypotheses sound like the same thing to me. Homeowners organize to protect themselves from negative externalities that affect their property values (and quality of life).
In the cost to build vs what would be affordable I think people on both sides over generalize.
Liberal land use and other rules would eventually bring down prices to affordable levels for most families. But not all of them. Every country has to have some strategy to provide housing for the bottom of the income range, since they typically won't be able to afford "dignified" housing based purely on the Capex/depreciation/opex value of the housing (they will always be renters).
So you need something like liberal land use to provide for 80%, and then some kind of government intervention for the bottom 20% (numbers will vary based on the location/nation/etc)
No matter, it’s still a demand and supply issue. It just depends on where on the equilibrium point we are. This takes time. And yes, based on pure economics, supply will fill in the most profitable sections first.
People believe what they can see. New development happens in desireable areas and price goes up all around them. Meanwhile (mom and pop) investors buy and own significant chunks of the market. Together they tell a story.
Disincentivize investor ownership, and it will be harder to tell the story of investors buying up all the property, and the rest may fall into place at best, and at worst you get marginally lower prices and less validation of the investor price inflation stories.
Adding supply would only reduce prices if it was added at the average or below.
Even if the number of units increase, the price can actually go up.
The relative market power matters most. A developer with cheap bridge financing and a large portfolio of unsold units has every incentive to hold prices to set expectations, while buyers who are occupiers generally are compelled to buy in a certain time frame and location.
People don't understand economics, generally.
I remember when house prices doubled in the space of 3 years and it wasn't a supply shortage that caused this.
Sure, because demand went through the roof. And demand is currently high again. So either we need fewer people, or more dwellings.
Supply of finance is critical factor in this not mentioned enough in this thread.
It wasn't a surge in demand either..
It was a surge of demand, driven by the availability of cheap money.
Yes but thats misleading because the demand surge was people who want to live in the homes AND investors.
I'm sorta convinced we need to strongly discourage homeownership (of homes you live in) if we want to fix our housing issues. It just seems like once ~50% of the electorate are owner occupiers homes are treated like collectibles instead of normal productive assets.
The housing market is different than most markets in many ways.
- Building cost is often marginal compared to land.
- Land value is highly correlated to economic opportunities around it.
- Economic opportunities are following a power law around economic centers (highly non-linear).
- There is a density ceiling, with some variations depending on cultural traditions but still constrained by transportation technologies and psychological factors.
- The location of economic centers is not randomly distributed but constrained by geography, especially access to water transportation routes.
Financial speculation and building restrictions are second orders effects of the inherent housing scarcity, amplifying it, but not a root cause.
Wow, I'm totally owned. A few weeks ago here I argued that no one blames landlords and developers for this. I was specifically arguing that "the left" doesn't, but I'm actually really surprised to see anyone does.
A huge amount of people on the left blame "greedy developers" for making housing too expensive.
Developers build new housing when prices go up generally. Therefore when people see new housing they see higher prices in their regional market. So although folks may mix up causality, the observation is quite rationale.
Immigration is a similar debate where supply and demand goes out the window for political reasons.
Here in the UK it's really hard to convince people that it's really hard to address our housing shortage through building alone when we bring in about a million people every year. Even a lot of economists seem to think supply/demand doesn't apply when it comes to wages and house prices if you introduce immigration as a variable.
Unless it's undeniable I find people will just believe whatever suites them personally. Which is fair enough. I guess I'm just surprised at how unconscious this bias is for most people. Or at the very least they seem to truly believe that the housing market is an exception to supply/demand dynamics.
The problem is an aging population. If you don't have immigration who is going to support all the retirees?
hmm.
What would happen if real estate investors/developers by law also had to dwell in the most dense type of housing they built?
Hypothesis: Humans by and large are all looking for a bit more breathing room, privacy, and quality of life in their choice of home. (In other words, qualities diametrically opposed to the black hole compression cubicle end game of 'efficient housing for the masses').
interest rates effect housing affordabiltiy more than inflation. This video implies high interest rates might actually help real estate prices
interesting video :
https://www.youtube.com/watch?v=lH8_4AiIxeo
I think another reason people think this is that people often do not notice there is a problem until rents have risen enough that they're noticeable less affordable. And when that happens, a small reduction due to supply increase is not really enough. It's not enough for rents to "go down", they actually need to become affordable.
In places where a third of renters are spending half their income on rent (as some stats have shown for CA), it is implausible to believe that nibbling around the edges of the problem is going to result in enough of a reduction to make a difference. I haven't seen any estimates of how many market-rate units would need to be built to, say, reduce the number of rent-burdened households to 10% or 5%, but presumably it would need to be in the millions. I haven't seen any studies of supply/price issues that contemplate anything like that scale.
Just as important, such studies generally ignore the issue of inequality. It doesn't really matter what rents are; if there is someone who can afford to own multiple vacation homes that sit empty most of the year, rents should be lower.
Private developers aren’t in the business of lowering property prices. And homeowners don’t want that either.
You need to also consider what is being built. NYC has built a lot of ultra-luxury property that really amounts to money laundering and will never increase the supply to ordinary residents.
The private sector will never solve this problem on their own.
It’s not that I don’t believe adding supply will reduce prices, rather that adding supply alone won’t reduce prices. As the paper gets into, it’s a combination of supply, and homeowner entrenchment, and government policies barring construction or teardowns, of zoning restrictions, but also of Private Equity acquisitions of housing stock and builders, of artificially manipulating supply to keep prices high and promote higher returns for builders or sellers at the expense of buyers.
The problem is that demand for housing is relatively fixed, in that every human needs a shelter, and every human wants a home. That doesn’t change outside of population statistics: in a vacuum, all things being equal, every human would buy a home.
The issue is that the supply side is so heavily gamed by existing players that the entire market is deliberately engineered for maximum extraction of wealth from new buyers to prop up valuations of existing owners and builder/landlord margins.
Relatedly, this is why I’ve stopped fighting each niche front individually and instead focused on the “nuclear option” of mandating affordable housing as a human right. That would open the floodgates to lawsuits against communities, states, and companies that hoard existing stock and bar newer, denser construction. It would add a sorely needed lever of pain to deter hostile housing practices, by threatening things like rent/price controls or forced divestitures unless the supply problem was meaningfully addressed post-haste.
You hear this shit all the time from politicians and activists. Somehow high density housing is built for corporate greed and won’t lower prices. It’s self contradictory at it’s base level but is driving the narrative. It’s maddening.
Edit: Here I am getting downvoted by people who don’t have the bravery to confront their own contradictions and realize that their own beliefs are being manipulated to ruin their own lives.
It seems to be driving largely by anti-capitalist sentiment rather than understanding of economic fundamentals.
Anti-capitalist sentiment is a misunderstanding of economic fundamentals.
Thinking a system is bad does not require a misunderstanding of the system.
You're rejecting a much broader claim than I made.
IDK, I think there's clearly arguments to be made against so-called "late stage capitalism", where capital is directed towards efforts that extract value rather than create it, and shareholder theory that prioritizes short term gains and creates externalities at the expense of other stakeholders.
But at the end of the day, everything is subject to market forces and it's folly to deny that.
Thing is: people are correct.
Central London monthly rent for a 3-bed house is around £3500, but a 1-bed flat rents for £2100. So split the house into two flats and the landlord makes more money.
Hence relaxing zoning restrictions will push prices up.
None of these models work at such a small scale. The economics are regional. It’s likely that highly desirable locations like central London and manhattan will always be expensive. That’s fine.
While housing remains a great investment for rich people, I doubt anything else will make any difference.
If you build houses, they’ll just buy them and rent them out for profit.
"They will just buy them and rent them out" you have described investment. Funding the construction of houses using your capital and then letting them out to people without as much capital is how housing gets created. Just let it work! Let a guy build a house and rent it to someone.
Its also how wealth is transferred up. Because the investor pays gains rates, can do like for like transactions, etc, and effectively grows their wealth faster than the non investor. This means non investors need to continuously compete with investors but where investors are capturing an ever larger share of the wealth.
Eventually if supply keeps up that will change, and longer still the wealth may trickle back down. But imho it would be faster to focus on avoiding the concentration in the first place through SFH as investments, via simple tax policy that discourages mom and pop investors from purchasing extra homes.
Thanks for explaining this better than my rant.
You know it is also possible to build houses people buy and then live in, right?
House prices are so high because some people own too many of them. A home shouldn’t be an investment strategy
The consequences of your policy are that people without a million dollars are sleeping in tents.
...How do you figure that?
No one's trying that policy. It's certainly not what's led us to this point. Building is nowhere near fast enough to keep up with demand, especially in the areas with lots of homeless people, and especially in the affordable price ranges.
Seems to me the policy that has the consequences you describe is, in fact, the policy you described in the GP.
Reminds me of all the posts I've seen with photos of things happening in America—a country which is, quite famously, under capitalism—with captions saying "this is what socialism gets you!"
Just think through the consequences of your policy proposal. What you are saying is you will outlaw investment in a second house for rent. The result will be that only the people who can afford to buy a house can live in one. Everyone else, which is half of American households, has to live somewhere else. You haven't specified where that other place is, but I guess it would have to be larger apartment buildings, built and operated by larger organizations (corporations, or at best cooperatives).
I rent my house from the woman who lives next door. I could not afford to buy this house. I have a nice garden and my kids go to great schools. Your policy means that this arrangement is forbidden. My family is not allowed to access this life because I am not rich enough. That is a bad policy.
People don’t believe that snacking after dinner right before bed everyday is bad.