The problem is that the private housing production system responds to increased credit availability only at the margins and does not over produce. That’s largely because houses are still hand built and not really substitutable like a vehicle. You don’t generally have a choice of two houses on the same site.
However if you produce houses publicly then you can force private housing to compete outside the margins. At which point you get excess supply, as we see with cars and then house prices start to stabilise and even depreciate. At which point the “investment” hoards would start to liquidate.
We need the housing market to behave like the production car market, not the classic car market.
The fix is public policy producing housing in order to force a situation of excess supply.
You cannot realistically build enough so that the rents decrease.
And when you build you just fuel the vicious cycle of people -> opportunities -> people.
I'm curious what makes you think this.
Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
Or do you think that a sufficient amount of housing wouldn't fit? For reference, the San Francisco metro area has ~7.5M people in an area of ~3500 square miles. With housing at the population density of Manhattan, the number of people who could be housed in that area is approximately 250M people, i.e. three quarters of the entire US population. Obviously you wouldn't do this, but you could, so that can't be the constraint.
> when you build you just fuel the vicious cycle of people -> opportunities -> people
So long as a place is desirable to live, people will keep moving there. Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
The underlying premise being that they're moving to this place from some other place. But that has an obvious solution: Build more housing everywhere. People can't increase the population of everywhere by moving from everywhere to everywhere.
It also implies that building it in one place still helps to reduce the cost somewhere else. If you make San Jose more attractive and people move from San Francisco to San Jose then you're reducing demand in San Francisco and lowering the prices there.
> Obviously there's a logical limit to the argument- things get weird when you build more housing than there are people- but then so too do the logistical issues of sewer, water, electricity, and geology (some locations simply aren't economical to build high rise buildings on).
The constraints at the physical limit are irrelevant because you don't need to get anywhere close to it. The point is that you could if you had to, not that you actually have to.
> I'm curious what makes you think this.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
It seems entirely logical that rents should decrease.
Not the OP but I do always question this, despite sounding logical. Why? Because it has never worked that way in practice. Can you think of a city that built so much housing that rents became cheap (relative to local income)?
It's easy to say "built twice as many housing units as you had residents" and I agree if you could do that overnight, rents would free-fall. But in practice it would take years to build so much housing. Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive. So you end up with a city that is more vibrant, with a lot more people and a lot more jobs and economic activity. All good things, but rents don't go down, given all this success rents go up.
Most cities with a declining population. They built more housing than they needed, then people moved out, so now housing costs there are low.
It's hard to find other examples of places that have built too much housing, because there is no market incentive to do that. In practice the best you can do is prevent there from being too little.
But the areas with less restrictive zoning do have lower housing costs.
Houston metro, not very restrictive zoning:
Per capita income: $68,344
Median home price: $192,500
Per capita income: $50,407
Median home price: $393,000
It isn't the housing that attracts them, it's jobs etc. The housing is then needed to give them somewhere to live, or you get California.
In some ways having more people will create more jobs and attract more people, but the idea that it's not possible to keep up with demand is just defeatism. You can't build a million new units overnight but neither do a million new people move in overnight, and even if they did, you would then be better off to build a million new units over five or ten years than to not do this.
Whereas the argument is simply that building the units should not be prohibited. You obviously don't need a law against it if your actual problem was people not doing it fast enough, right?
However, we don't live in a world of perfectly spherical cows and because we don't live in a world where we can double housing units overnight, realistically the reasons we're in this problem is because we can't build enough housing units. Given than, we're not going to be able to double the number of housing units, so realistically we can't build enough to lower rents.
The reasons we can't build enough housing aren't going away overnight, so even pretending they did, it would still take many months, if not years, before new housing units were being sold. Given the time it would take to double housing supply, the natural increase in demand over time because the population is increasing means it would rise to meet supply to keep rents at the current level. Lets say demand increases by 9% each year and it takes 10 years for double the housing stock to come online. Demand is basically doubled by the end of 10 years if that 9% remains constant.
With those problems not disappearing, new housing units are going to be slow to come online, so realistically, again, realistically, because we're not going to double the housing supply, so the best (and my bias is that of being in the SF Bay Area) we can hope for is for rents to increase at a slower rate. (Aka the derivative of rents goes down.)
I just don't seeing the rents themselves decreasing, relative to inflation of money, as well as inflation of the population.
People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
it just also turns out to be a true one. Getting more people into the bubble etc, or building more hype around the bubble, often only drives the bubble higher even with increased supply. Macro and micro are different things and the forces can work very differently!
now, ponder the way we’ve turned housing into a bitcoin-style money machine full of people who never want the number to go down… yeah there actually is all sorts of counterintuitive and hazardous second-order effects involved in housing, why would you ever think there aren’t?
(The American housing market is basically the exact same kind of “deflationary asset” as bitcoin by design, in fact - if the system is built around the idea the number can never go down (can never be allowed to go down, in fact) that’s what you’ve got, regardless of any actual utility delivered in the process. We have turned housing into bitcoin instead of a place to live and that’s the overarching problem here.)
Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc. Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing, or merely crowd everyone else out without prices actually dropping “on older condos” as everyone blithely handwaves. These effects are observable in real towns - Colorado mountain towns have a massive worker shortage yet no workers able to afford housing, so the area has been wracked with crippling labor shortages for multiple decades now! Markets are weird and inefficient in all kinds of exciting ways!
https://www.rmpbs.org/blogs/news/breckenridge-historic-home-...
https://www.nbcnews.com/news/amp/rcna17970
Basically economics 101 is barely sufficient for economics 101, and frankly every assertion you can pull from such content is somewhat incorrect and massively oversimplified, even one as simple as “prices will decline if production volume increases”. No, not always - and that’s not the only case I can think of where that simple, confident assertion is completely wrong, it’s not true of giffen goods either for example.
But that is what happens. The issue with GPUs is that a) there are only a small number of companies that make them b) fab capacity has to be booked in advance, and c) they know it's a bubble, so they're not going to commit to buying a large amount of future fab capacity when it could pop at any time. So then they don't actually increase supply, and prices don't go down.
> Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc.
Only in the sense that the average cost might increase because the average unit is now larger, not in the sense that the existing smaller units would cost more rather than less. After all, their occupants no longer have to outbid the wealthy individuals who have put their money into the new luxury units instead.
> Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing
The premise here is that if you make an area more attractive then more people may want to live there. But that's fine. Suppose building 10 units increases demand by 5 units. So if you need 10 more units, build 20 more units.
In some kind of hypothetical edge case or rare circumstance, building 10 units might increase demand by 11 units, but that is obviously not sustainable -- if you built 50 million units, there aren't 50 million people in the region to live in the city, so at some point it stops being true, if it even ever was.
> Markets are weird and inefficient in all kinds of exciting ways!
This isn't markets being weird. If prices are high then construction companies want that money, which they get by building new housing. Weirdness only occurs when regulations interfere with their natural market incentive.
That is not the argument. In your example, demand is increasing more than supply, so obviously prices would not fall.
Supply has to increase at a rate greater than demand (including higher property taxes to incentivize sellers to increase supply of properties for sale).
It would seem to me that more supply = more construction + more maintenance + more taxes = more costs. And these costs must go somewhere. Obviously, they would fall under the landlords responsibility, but they probably would try to pass on these costs as much as possible.
Now this is where it gets iffy...
Vacancies don't earn revenue, and so obviously would be costly to landlords. If there is more supply than renters, landlords would be competing with each other for the renters (or risk having vacancy and the costs falling on them), so they would have to compete (such as by lowering rents) in order to attract the renters. Rents therefore decrease.
However...
Let's assume again that there is more supply than renters, but this time there is few landlords (for hyperbole one landlord). Competition for the renters is thus low, (in the case of one landlord - none), and so there is less need to lower rents to attract renters. In fact, in the case of one landlord, he can raise prices despite there being more apartment supply than renters, and have them pay for all the units, including the vacancies. Rents therefore increase, despite there being more supply.
More total costs divided by more total units is just the same cost per unit, if not lower because of economies of scale.
> Rents therefore increase, despite there being more supply.
If there is a monopoly landlord then rents will be at the monopoly rent whether you increase supply or not. Even then increasing supply could lower rents, because the monopoly landlord could capture more rents by charging $9000/month on twice as many units than $10,000/month on half as many units, and can't charge $10,000/month on twice as many units because there aren't enough tenants who can afford that.
Also, the premise here is that you're increasing supply. The monopoly landlord would have to outbid everybody else for the new supply or they'd lose their monopoly, and have to pay the monopoly price or else the new units would be cheaper than their existing ones. But then the construction companies would be receiving the monopoly price and become flush with cash to build even more housing until the monopoly landlord ran out of money.
There is a reason landlords collude through zoning boards: It's otherwise quite easy for someone new to enter the market.
So... we should have paid builders to build more houses during the pandemic?
Hopefully they will be thrown out soon. The really fun note is that these boards are almost entirely made up of architects who are getting the chance to single-handedly destroy a competitor’s work.
One of the ways government can help us by funding counter-cyclical building, keeping the sector afloat and preventing supply crunches when a recession ends.
This is why NY is cheaper than the midwest.
What higher interest rates? We're nowhere near high interest rates.