Homes that are built for renting (mainly apartments and condos, but some houses, too) are built for profit. If you make it less profitable to build, fewer will be built. If fewer homes are built, the problem is compounded, not rectified.
If you want to make housing more affordable, make it as cheap and profitable as possible to build new homes. Get rid of the fees that can push over $100,000 for a single family home in some counties, before the builder even buys a nail or 2x4. In most states you can build a home for less than the price of permission to build a home in some California counties.
Our current environment of low interest rates means that borrowing is cheap - which has pushed up prices, as now people can now afford larger mortgages. This has come at the same time as a withdrawal of mortgage finance from first-time-buyers, so effectively people who have bought before can buy another house, while those who haven't can't get on 'the housing ladder'. This is according to economist Ian Mulheirn, and is very much based on the UK (although similar arguments might apply elsewhere). Supply is part of the problem, but according to him, the smallest part.
https://housingevidence.ac.uk/wp-content/uploads/2019/08/201...
Sure, but they go up by the amount of money you saved on the mortgage, the net price is the same. The amount homebuyers can afford to pay doesn't change with interest rates.
The amount people can afford to pay doesn't change, but the cost of the house does change.
Assume a 30 year mortgage. If the interest rate is 2%, and I spend 1.5k a month on my mortgage, I can afford a mortgage of 406,000 and own the home at the end. However, if interest rates are 10%, even if I'm still earning 1.5k a month, I can only afford a mortgage of 171000 in order to pay it off by the end. You can double check my figures using this calculator - https://www.bankrate.com/uk/mortgages/mortgage-repayment-cal...
Given that deposits are usually at a minimum 10% of the house price, it's very hard for first-time buyers to gather that amount of money - while people who have purchased before can sell their existing home.
The issue the paper describes is that interest rates have gone down, so house prices have gone up, _and at the same time_ it's harder to get your first mortgage (i.e. you need a larger deposit) - which most new buyers cannot afford.
Yes, but in the expensive parts of California the limiting supply factor isn't how much people want to build but how much they are allowed to build because of zoning and other constraints, so there is a fairly large range where reducing the incentive to build will have no effect on actual results.
But, anyway, does this really reduce incentives for new construction? It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction, because it doesn't limit existing rents, and doesn't allow high-end demand to be met by bouncing tenants out of lower-end units and renovating them and raising the prices. So, it reduces the competition new units face from existing ones at the top of the market while leaving the rents that can be charged initially for those new units unrestricted. (And, by limiting the ability to bounce unprofitable tenants in favor of new ones, if it doesn't spur new rental-focussed unit construction and housing demand remains the same it creates a greater incentive to build for sale as owner-occupied housing where, again, prices are unrestricted.)
The real danger isn't lack of incentive to build, it's lack of incentive to maintain existing units instead of milking what remaining profits can be made in the short term, then letting them fail in isolated, judgement proof, limited liability business enterprises by not reinvesting because you can't recover reinvestment with rent increases, while reinvesting the extracted profits elsewhere.
> It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction
Zoning and high fees will still be a problem, new units can be rented/sold at a premium but then we have the issue of it being affordable in rent or credit. My guess is that the new rule protects(temporarily) whoever is already in the game, any new comer will still get screwed.
.. and fewer will be speculated on, driving up the underlying price, which is then translated into rent.
this is my problem with simple smithian models of real estate - they ignore the wider capital market impacts.
not a fan of rent control, but also not a fan of fund fueled real estate bubbles, and both influence the cost of rent.
Also, AFAIK, these two areas (and surroundings) are very, very stressed in terms of traffic, and more housing means more people, and more cars. Can those cities deal with more traffic?
More housing in SF requires design that supports fewer cars. That's not as true in LA, perhaps, but it would still be the best way to do it.
It depends on what outcome you wish to achieve. Single family zoning is backwards policy in urban environments.
https://www.citylab.com/equity/2018/11/single-family-zoning-...
Infrastructure around the builds also matter, which means just building denser isn’t a solution.
Complimentary services like schools, stores, pubs, churches, skate parks, parks etc change the value of a location as well, and change it differently for different demographics.
So making it cheap and profitable only makes it profitable to build - it does not solve the problem of affordable housing.
Arguments like this continue to be made for more and more aspects of our market: pharmaceuticals, heathcare services, elder care services, and now housing. Everywhere you look the markets seem ill equipped to handle the needs of people.
Maybe the problem is markets then? Maybe the problem is expecting our entire society to work based on profit motive? I don't deny it's served us fairly well for awhile, but it seems like we're hitting the wall a lot lately.
In the SF/Bay Area (and possibly CA as a whole) there is more space allocated for businesses than there are for houses. Likewise, zoning is spread out so people have to commute to work. This is why, eg, the greater Los Angeles area has some of the worst traffic in the US, only beaten by Texas and DC.
The history behind these bad regulations comes from racism. In the 50s suburbia was created in such a way to isolate residence selling safety. I don't want to go into the details here, but it's a fascinating piece of US history.
When businesses and commercial are interwoven with residential people stop fighting for the few places close to work, which stops spiking up the price of those areas. Likewise, when the ratio is right there stops being a supply problem, even if it is the same amount of houses. In CA's situation it could mean less business buildings or more urban housing.
