What happens if building more housing doesn’t work?(alexdanco.com)
alexdanco.com
What happens if building more housing doesn’t work?
https://alexdanco.com/2019/05/22/what-happens-if-building-more-housing-doesnt-work/
175 comments
I think the public discourse does not get the economics behind this topic well.
More housing is very likely to keep rent steady in san francisco. And you can also have increased housing supply, increasing rent prices and decreasing housing quality.
The core issue of Nimby-ism is the tax system. If you make more housing, the rent-value of houses goes down, but the rent-value of land can and will most likely shoot up. Land that can be constructed on increases in value, and if you keep taxes fix, it means more workers and more renters pay more taxes (from their jobs, from their businesses, from their consumpition) that goes into the pockets of landlords in the form of public services.
SF city spends 9 billion dollars a year. Policemen make 400k, firemen make 200k+, Bart employees make 300~400k. And you have landowners that bought property 30 years ago, and make 60~70k a year, pay little to no state and federal taxes, and get all the profit from the insanely inefficient spending.
SF and California is doomed for deeper reasons than Nimbysm: It is mainly saved by migrant labor and good weather, but eventually that will not suffice.
More housing is very likely to keep rent steady in san francisco. And you can also have increased housing supply, increasing rent prices and decreasing housing quality.
The core issue of Nimby-ism is the tax system. If you make more housing, the rent-value of houses goes down, but the rent-value of land can and will most likely shoot up. Land that can be constructed on increases in value, and if you keep taxes fix, it means more workers and more renters pay more taxes (from their jobs, from their businesses, from their consumpition) that goes into the pockets of landlords in the form of public services.
SF city spends 9 billion dollars a year. Policemen make 400k, firemen make 200k+, Bart employees make 300~400k. And you have landowners that bought property 30 years ago, and make 60~70k a year, pay little to no state and federal taxes, and get all the profit from the insanely inefficient spending.
SF and California is doomed for deeper reasons than Nimbysm: It is mainly saved by migrant labor and good weather, but eventually that will not suffice.
Policeman make 400k? Not according to this https://www.sanfranciscopolice.org/your-sfpd/careers/sworn-j...
Total comp can be very very different.
https://transparentcalifornia.com/salaries/search/?q=Police
https://transparentcalifornia.com/salaries/search/?q=Police
Probably, the parent is implying that they make a lot of money in overtime, and/or that the "hidden" pension benefit isn't included with the base pay rate.
The Free State Project seems to have had a very large impact in New Hampshire for the tiny number of declared people who moved to the state under its auspices. Is there any reason another Bay Area (or near) city or local government couldn’t be the YIMBY alternative to SF? YIMBY in SF is probably doomed to fail but a small number of highly committed people might be able to set up a second start up hub relatively nearby. It doesn’t really seem plausible but the FSP looked pretty nuts too.
What's now making the problem even worse is that construction costs are extremely high partially because of housing costs. The construction workers either have to afford a place to live or commute in from the valley. Either way they have to get paid for this. I've heard of people paying north of $70/hr for day labor in the city to dig a ditch with shovels.
Isn't the problem also about the 2D aspect of cities and the fact that certain jobs tend to accumulate in certain spots/centers?
So, no matter what, you get a certain radius around which you can actually live and humanely commute to work.
Basically you cannot actually scale a 2D structure beyond a certain point?
So, no matter what, you get a certain radius around which you can actually live and humanely commute to work.
Basically you cannot actually scale a 2D structure beyond a certain point?
You can scale it a lot, with infrastructure SF lacks like subway lines, public transport and underground parking. These are even trickier to pull off than housing.
You can also just build lots of high rise buildings like in South Korea and Singapore.
You can also just build lots of high rise buildings like in South Korea and Singapore.
I'm not sure why you would act like it is a theoretical problem when lots of other cities have been confronting this for decades.
How would it be possible for building more housing to /not/ work is the real question. The cost per square footage may have constraints with overhead and not operating at a loss but adding more housing should slow the rate of growth at very least.
Even if taken to the illogical extreme of "what if the entire population of earth was concentrated in San Francisco" adding in sufficient infastructure and housing would lower costs compared to not doing so. Even if it is higher than before it became so dense that the Sears Tower is now considered a mid-rise.
There is this disturbing trend of supply and demand denialism for housing which simply cannot end well.
Even if taken to the illogical extreme of "what if the entire population of earth was concentrated in San Francisco" adding in sufficient infastructure and housing would lower costs compared to not doing so. Even if it is higher than before it became so dense that the Sears Tower is now considered a mid-rise.
There is this disturbing trend of supply and demand denialism for housing which simply cannot end well.
>> How would it be possible for building more housing to /not/ work is the real question.
Buildings full of giant luxury condos. That would soften the higher end of the market but not address the real affordability crisis. Similarly, mcmansions have very high maintenance costs. Vast tracks of six-bedroom single-family suburban homes wouldn't work either if the people who need housing cannot afford to maintain them. And at a more basic level, creating new owner-occupied housing opportunities only helps those with the credit+capital to purchase them. What is needed to get rents down is more rental properties on the market.
Vancouver is seeing this. The boom over the last few years has created oversupply at the very high end of the market. Houses over $5million aren't selling like they once did. That doesn't do anything for working people looking to rent apartments.
Buildings full of giant luxury condos. That would soften the higher end of the market but not address the real affordability crisis. Similarly, mcmansions have very high maintenance costs. Vast tracks of six-bedroom single-family suburban homes wouldn't work either if the people who need housing cannot afford to maintain them. And at a more basic level, creating new owner-occupied housing opportunities only helps those with the credit+capital to purchase them. What is needed to get rents down is more rental properties on the market.
Vancouver is seeing this. The boom over the last few years has created oversupply at the very high end of the market. Houses over $5million aren't selling like they once did. That doesn't do anything for working people looking to rent apartments.
Even if all new construction was luxury apartments and condos it would still help. Right now if you make $120,000/yr in SF as an entry level software developer you might pay $2500/mo for an old one bedroom. If new luxury buildings go up, you might be able to upgrade to a nicer one bedroom for $2500 and now the old one bedroom will be available for someone making $90k/yr and so on.
Only if you assume the current population of the city is held steady and you are not beaten out by new arrivals.
Every law of basic economics exists only under very narrow conditions where all but one factor is controlled. Expecting the real world to conform to theoretical models is about as sensible as looking for rocks that happen to be perfect platonic solids. Pointing this out is not a rejection of economics any more than pointing to the variegation of rocks indicates a dislike of geometry.
Every law of basic economics exists only under very narrow conditions where all but one factor is controlled. Expecting the real world to conform to theoretical models is about as sensible as looking for rocks that happen to be perfect platonic solids. Pointing this out is not a rejection of economics any more than pointing to the variegation of rocks indicates a dislike of geometry.
> Only if you assume the current population of the city is held steady and you are not beaten out by new arrivals.
The population does not have to be held steady for the new high-end housing to lower prices for mid and low-end housing.
The only assumption the parent makes is that the aggregate desire of people not currently living in SF to move to SF is not affected by the increase in supply. This is an assumption, but I don't think an outlandish one.
Yes, of course some of the newly opened mid-level apartments (when their previous inhabitant moves to a high-end apartment) will be filled by new comers. But aren't those new comers going to compete for the existing space whether or not a more high-end space gets built?
The population does not have to be held steady for the new high-end housing to lower prices for mid and low-end housing.
The only assumption the parent makes is that the aggregate desire of people not currently living in SF to move to SF is not affected by the increase in supply. This is an assumption, but I don't think an outlandish one.
Yes, of course some of the newly opened mid-level apartments (when their previous inhabitant moves to a high-end apartment) will be filled by new comers. But aren't those new comers going to compete for the existing space whether or not a more high-end space gets built?
Their decision to move here is probably a function of the (perceived) available housing stock.
How does that make sense? What about all of the people that have moved to SF in the last few years? Did they come because hey thought there was availability?
If availability was a major factor in where people wanted to live, Detroit wouldn’t be half empty.
Now if the increase in high end housing makes housing across the board cheaper, then yes, it makes a lot of sense that more people would want to come. Because the plan worked and housing got cheaper.
If availability was a major factor in where people wanted to live, Detroit wouldn’t be half empty.
Now if the increase in high end housing makes housing across the board cheaper, then yes, it makes a lot of sense that more people would want to come. Because the plan worked and housing got cheaper.
Perhaps housing availability is sufficient but not necessary in drawing people to a desirable region, in a manner akin to the idea of induced demand in traffic engineering.
It would help relative to doing nothing in that case though, right?
I'm honestly not sure. I can't think of arguments both ways but not an easy way to model it.
You can model it effectively by taking dollar values out of the equation and assuming a rank ordering of people who want to live in an area by the amount they are willing & able to spend on housing. If an area has say 1M housing units but 3M people want to live there, only the top 1/3 of people who want to live there will be able to. The market-clearing housing price (or rent) will be whatever that 67th-percentile hopeful has available to spend on housing.
Building more housing means you go further down the list of incomes. Fixing income inequality reduces the gap between what the person who gets the house pays and what the person who doesn't get the house would need to pay, which makes things seem more achievable (and increases disposable income for people who get the house), but doesn't change who gets the houses. Rent control replaces the price-ordering by time-and-luck-ordering for a subset of the population: some people enter a secondary housing market where they get the house by virtue of being lucky at the time it went on the market. Prop 13 preferences older homeowners over new immigrants (or young people) by effectively surcharging new purchasers. The only two policies that solve the displacement problem are building more housing and making the city less desirable to residents, but other policies can change who gets displaced.
San Francisco is an interesting case because tech tends to have so much higher salaries than other industries. As long as there are enough tech workers to fill up all vacancies in a given housing market, the market-clearing price will rise to a tech-worker's salary, and everyone in other industries will be forced out. How many people can San Francisco tech companies hire? I dunno, but I'd bet it's a lot more than the number of housing units currently being built in SF, which means that some people are gonna get kicked out on the street. The single-family home market in the Bay Area is probably already shot - given the number of units on the market, dual-tech-earner families could easily fill them. But the condo and rental market might be able to be saved; enough building could probably create enough housing there to absorb the tech industry, which would leave units that rent at the price an ordinary worker could afford.
Building more housing means you go further down the list of incomes. Fixing income inequality reduces the gap between what the person who gets the house pays and what the person who doesn't get the house would need to pay, which makes things seem more achievable (and increases disposable income for people who get the house), but doesn't change who gets the houses. Rent control replaces the price-ordering by time-and-luck-ordering for a subset of the population: some people enter a secondary housing market where they get the house by virtue of being lucky at the time it went on the market. Prop 13 preferences older homeowners over new immigrants (or young people) by effectively surcharging new purchasers. The only two policies that solve the displacement problem are building more housing and making the city less desirable to residents, but other policies can change who gets displaced.
San Francisco is an interesting case because tech tends to have so much higher salaries than other industries. As long as there are enough tech workers to fill up all vacancies in a given housing market, the market-clearing price will rise to a tech-worker's salary, and everyone in other industries will be forced out. How many people can San Francisco tech companies hire? I dunno, but I'd bet it's a lot more than the number of housing units currently being built in SF, which means that some people are gonna get kicked out on the street. The single-family home market in the Bay Area is probably already shot - given the number of units on the market, dual-tech-earner families could easily fill them. But the condo and rental market might be able to be saved; enough building could probably create enough housing there to absorb the tech industry, which would leave units that rent at the price an ordinary worker could afford.
That was great, thanks for the detailed response!
I think it might be interesting also to talk about the quality of housing. You touch on a related topic "making the city less desirable to residents", but I think it's worth adding something to that.
If you segment the housing by housing deemed good enough by people with high incomes, and housing of a quality which they won't live in, you can achieve the goal of allowing in lower income people without satisfying the demand for all of the higher income people (either high income people won't work and live in the city, or they'll commute from somewhere with housing they want).
Additionally, you can lower the threshold for people living in the city to live outside the city by making commutes easier.
This could also be used to demonstrate how replacing old and lower quality housing with luxury housing could negatively impact people with lower incomes, even if you're building more luxury units than there were previously low quality units, since in this thought experiment the market for luxury units doesn't affect that for low quality units (this refutes a commonly posed argument that it's good to build luxury housing as long as it's lots of units).
I can't say for certain that they market actually segments like this, but it's not too hard to convince yourself that it does.
I think it might be interesting also to talk about the quality of housing. You touch on a related topic "making the city less desirable to residents", but I think it's worth adding something to that.
If you segment the housing by housing deemed good enough by people with high incomes, and housing of a quality which they won't live in, you can achieve the goal of allowing in lower income people without satisfying the demand for all of the higher income people (either high income people won't work and live in the city, or they'll commute from somewhere with housing they want).
Additionally, you can lower the threshold for people living in the city to live outside the city by making commutes easier.
This could also be used to demonstrate how replacing old and lower quality housing with luxury housing could negatively impact people with lower incomes, even if you're building more luxury units than there were previously low quality units, since in this thought experiment the market for luxury units doesn't affect that for low quality units (this refutes a commonly posed argument that it's good to build luxury housing as long as it's lots of units).
I can't say for certain that they market actually segments like this, but it's not too hard to convince yourself that it does.
beaten out by new arrivals
It has to be made clear: one thing is to worry about price, another one to worry about affordability.
If you create more housing, and price stays the same because demand went up, its become more affordable as it is literally allowing more people to live in SF.
If you create more housing, and price stays the same because demand went up, its become more affordable as it is literally allowing more people to live in SF.
It would help somewhat but if a city is deciding how to zone a plot of land to best address the housing problem, smaller/cheaper units would be the more efficient route.
>> Right now if you make $120,000/yr in SF as an entry level software developer
SF's government doesn't care much about those making 100+/year. They are looking at a sea of homeless people. They need/want to address the lower end of the market, apartments for waiters and bus drivers.
>> Right now if you make $120,000/yr in SF as an entry level software developer
SF's government doesn't care much about those making 100+/year. They are looking at a sea of homeless people. They need/want to address the lower end of the market, apartments for waiters and bus drivers.
That's nice but the upmarket shortage is adding to the downmarket (substitute good) shortage. If a techie and a waiter each need an apartment, but the city doesn't permit two apartments to be built, they shouldn't be surprised what happens.
People are moving to San Francisco to take high-paying jobs and there is not enough luxury housing to accommodate them, so they are out-competing poorer people for whatever housing they can get. If more luxury housing was built, those people would take it and leave the rest of the housing for other people.
If the rich people are already willing to live in smaller apartments, let them. I say the city should concentrate on housing the poor and homeless. Let the rich take care of themselves. They generally do.
and the point is they'll take care of themselves by renting the cheap housing if that's all thats available.
even if the rental cost is fixed, they'll outbid by being better tenants, or hiring agencies to get their name in first on waiting lists, or just bribing the low-level decision makers.
build more housing.
even if the rental cost is fixed, they'll outbid by being better tenants, or hiring agencies to get their name in first on waiting lists, or just bribing the low-level decision makers.
build more housing.
The simplest answer possible: the higher end of the market, in a market based housing system, will always live where it wants to live, because it can bid up rental prices higher than the rest of the market when there is housing scarcity.
Right now in the bay area, there are many wealthy people (including many people on this website) that are living in non-luxury condos that would live in luxury condos were they more reasonably priced (which building more would do). Those wealthy people would move out of middle class housing and then people with lower incomes would be able to afford the middle class housing. If you build enough luxury housing, the greatest beneficiaries will be people with lower incomes
Right now in the bay area, there are many wealthy people (including many people on this website) that are living in non-luxury condos that would live in luxury condos were they more reasonably priced (which building more would do). Those wealthy people would move out of middle class housing and then people with lower incomes would be able to afford the middle class housing. If you build enough luxury housing, the greatest beneficiaries will be people with lower incomes
How do you tell a luxury condo from any other kind of condo?
- By price? Then all housing in a hot market is luxury, even what everyone would agree is a dump. Wanting to stop development because the market is hot is exactly backwards.
- By price relative to the market? New construction is usually more desirable than old construction, today's cheap housing was luxurious when new, and we'd better make more so that there will be cheap housing still standing in 50 years.
- By marketing language? Then developers can appease community concerns by changing their brochures a little.
- By square feet? That'd be one truly enormous condo to have a square footage that's offensive when compared to a typical house, although I guess it could be what's happening. If the units turn out to be too big for the market, can't they be subdivided later?
- By amenities? I can speak from experience that media rooms, demo kitchens, event spaces, etc. are not that exciting and certainly not worth even a few hundred extra per month. Most people would rather go to a real gym.
- By interior finishings? Isn't this, like, a few tens of thousands of dollars per unit at the high end? Compared to an overall unit price of $500k+ this doesn't seem like a huge deal.
I've always been confused about what this category means and why it's a useful separator of acceptable vs. bad development.
>Houses over $5million aren't selling like they once did. That doesn't do anything for working people looking to rent apartments.
Do you think we're going to meet demand at $200k without also meeting demand at $4m?
- By price? Then all housing in a hot market is luxury, even what everyone would agree is a dump. Wanting to stop development because the market is hot is exactly backwards.
- By price relative to the market? New construction is usually more desirable than old construction, today's cheap housing was luxurious when new, and we'd better make more so that there will be cheap housing still standing in 50 years.
- By marketing language? Then developers can appease community concerns by changing their brochures a little.
- By square feet? That'd be one truly enormous condo to have a square footage that's offensive when compared to a typical house, although I guess it could be what's happening. If the units turn out to be too big for the market, can't they be subdivided later?
- By amenities? I can speak from experience that media rooms, demo kitchens, event spaces, etc. are not that exciting and certainly not worth even a few hundred extra per month. Most people would rather go to a real gym.
- By interior finishings? Isn't this, like, a few tens of thousands of dollars per unit at the high end? Compared to an overall unit price of $500k+ this doesn't seem like a huge deal.
I've always been confused about what this category means and why it's a useful separator of acceptable vs. bad development.
>Houses over $5million aren't selling like they once did. That doesn't do anything for working people looking to rent apartments.
Do you think we're going to meet demand at $200k without also meeting demand at $4m?
Rather easily.
Your arguments are all about having a fuzzy boundary if you introduce a sharp cut-off. Granted, but irrelevant to the topic and divorced from reality in that there is decidedly not a continuum, which is the whole point of offense.
Your arguments are all about having a fuzzy boundary if you introduce a sharp cut-off. Granted, but irrelevant to the topic and divorced from reality in that there is decidedly not a continuum, which is the whole point of offense.
Could you provide some examples of condos of similar age and location that are clearly so luxurious they shouldn’t exist vs. those that are okay?
Isn't there a point after market saturation where a large enough glut of luxury condos just causes their rent to be pushed down into the realm of affordability? (Not a Silicon Valley person, or aspirant).
Housing isn't a perfect theoretical commodity like gold or stocks. Every unit has an occupation cost (heat/utilities, commuting costs and such). Every new building must pay for its construction costs, which is tied heavily to interest rates. So there are limits as to how cheap any housing unit can become before it ends up sitting vacant, waiting for the market to catch up with it.
Bankruptcy. If the market-clearing rent for an area drops below what the developer needs to pay the interest on the construction costs, it doesn't just sit idle (if it does, the developer just goes bankrupt faster). Rather, the developer goes bankrupt, he and the bank both take a haircut, and the property gets sold to a new owner at whatever price the new market-clearing rent can support. The new owner then makes a profit renting at reduced market rates.
This happens periodically in the Bay Area - it happened on a large scale in both 2001 and 2009. It's the best time both to make a real estate investment (folks who bought housing in 2010 are sitting pretty now; I'm kicking myself for not) and to be a renter (I rented a lovely apartment for $1400/month for 3 years in 09-11 that had gone for > $2000 in 2007, and is at about $2800 now).
This happens periodically in the Bay Area - it happened on a large scale in both 2001 and 2009. It's the best time both to make a real estate investment (folks who bought housing in 2010 are sitting pretty now; I'm kicking myself for not) and to be a renter (I rented a lovely apartment for $1400/month for 3 years in 09-11 that had gone for > $2000 in 2007, and is at about $2800 now).
It's not necessary to pay for construction costs. That's what bankruptcy is for. Of course developers and banks avoid that as best as possible, but there is nothing stopping price from dropping below the cost of construction. It has happened countless times before and it will happen again.
Factories want to get paid for producing product, mines digging gold or ore out of the ground want to get paid as well. But, similar to excesses in housing in distressed areas, circa 2008 (maybe Las Vegas?), someone, somewhere lost money,
because price is not dependant on the cost of producing the thing. 'Cost plus' pricing strategy is one of many; cost is not the only driver, regardless of the good.
>Vast tracks of six-bedroom single-family suburban homes
Tracts
I hate to be "that guy" but tracks/tracts really bothers me, second only to turrent/turret.
Tracts
I hate to be "that guy" but tracks/tracts really bothers me, second only to turrent/turret.
What is a turrent? Tourette?
A common mispronunciation or 'eggcorn' of the word turret.
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> Condos are getting built in huge numbers; they all get bought immediately, and for the most part, they’re all lived in.
The article made it sound like Toronto doesn't have an oversupply, at best they may have reduced latent demand.
The article made it sound like Toronto doesn't have an oversupply, at best they may have reduced latent demand.
The article author argues that more housing = more people = more powerful network = increased value of housing = increased willingness to pay = increased prices; and I think the author is concerned that the increased prices from network growth outpace, or at least keep pace, with decreased cost from increased stock. I don't think this is fundamentally at odds with supply and demand - one force is shifting the whole curve, while the other is moving the city along the curve.
> more housing = more people
It's not always right. If we build more housing in Siberia we won't have more people there. A lot of people just hate LA or NY or SF with some reason.
It's not always right. If we build more housing in Siberia we won't have more people there. A lot of people just hate LA or NY or SF with some reason.
I think the article is pretty explicitly talking about existing cities. Not Siberia.
The author seems to be arguing that each additional unit of new housing draws in an additional laborer. The professional worker brings personal equity to the city as an investment into the housing market. Their presence improves the local professional market and increases demand for housing. This attracts another worker. The demand for the housing increases while unsatiated by the original increase in supply.
It's a situation where the means of dealing with supply will lead to an increase in demand.
Although, based on this, I think low income housing would have a more positive impact than going nuts with high end developments.
It's a situation where the means of dealing with supply will lead to an increase in demand.
Although, based on this, I think low income housing would have a more positive impact than going nuts with high end developments.
The problem is that you can't actually build low income housing in a tight market. All housing is desirable when there's a severe shortage like we're seeing in Toronto and other cities where new construction is being limited.
So the cities usually respond to this by trying to apply criteria to who's allowed to use the new housing. It's inevitably managed in a crooked fashion.
So the children and mistresses of city councilors get cheap housing and the working middle class get screwed.
So the cities usually respond to this by trying to apply criteria to who's allowed to use the new housing. It's inevitably managed in a crooked fashion.
So the children and mistresses of city councilors get cheap housing and the working middle class get screwed.
Citation? Otherwise this seems like a straw person. Even if a few people get cheap housing there's still lots more.
In the Seattle-area there was recently a story about some people doing exactly that with an affordable condo program: https://www.king5.com/article/news/more-owners-of-affordable...
And anecdotally I had to listen to a guy brag about qualifying for an income-reduced rental for a Seattle apartment complex by not reporting his tips at his waiting job.
So it definitely does happen, especially in tight markets where having a cheap place can bring big AirBnN money. But there are many people, especially the elderly and those with disabilities who benefit greatly from these same places available, so while I'm angered about those who abuse the system and don't think we can ignore those issues, I don't think income restricted housing should be abandoned wholesale. The penalties for abusing it should be extremely high though.
And anecdotally I had to listen to a guy brag about qualifying for an income-reduced rental for a Seattle apartment complex by not reporting his tips at his waiting job.
So it definitely does happen, especially in tight markets where having a cheap place can bring big AirBnN money. But there are many people, especially the elderly and those with disabilities who benefit greatly from these same places available, so while I'm angered about those who abuse the system and don't think we can ignore those issues, I don't think income restricted housing should be abandoned wholesale. The penalties for abusing it should be extremely high though.
If you keep building more and more housing you'll end up with a mega city like NYC, Tokyo, Paris, Cairo, Munbai etc etc. Those places are still expensive, just bigger. SF could easily go that route.
The people who live and own there dont want to do that because it'll ruin their quality of life and they'll be just big city dwellers in a polluted over-crowded environment.
The people who live and own there dont want to do that because it'll ruin their quality of life and they'll be just big city dwellers in a polluted over-crowded environment.
You'll also end up with more jobs, food options, culture, better public transit, etc. More options all around.
There are a ton of options in the US for places to live with low density.
Businesses (restaurants, retail) in SF can't find workers because of the cost of living. None of the cities you named have that issue in the way that SF does.
It's not about houses, it's about location: people pay for the right to live in a good location. If you want to lower prices, you need to increase to ability for people to life in certain locations: close to work, public amenities, close to outdoors, and sports facilities.
Based on who you ask, Seattle is adding between 18,000 to 30,000 new people a year.
If somehow 100k new houses appeared on the market, prices would plummet. Sure the dropping prices would cause more people to move here, but not 70k more.
And even if 70k more did move here, add another 100k houses and at that point prices will go down.
Right now Seattle adds less housing per year than the # of people who move here. Of course housing prices are shooting up.
In regards to only high end housing being built, this is due to three factors:
1. The price of land, speculation has made land incredibly valuable, partially because
2. The only market being served is the high end, until that market has been saturated with housing, housing developers will continue to target it. 100k new high end housing units and that market will have been rung dry and land prices will start to come down.
3. Building regulations encourage high end housing to be built. This is starting to change, but low price housing isn't really buildable now days, though I imagine if #2 is solved, builders will start lobbying and this will get fixed. (If that is the route that is taken, society may not enjoy the long term repercussions but that isn't new! Best to have the building codes amended now in a reasonable forward thinking way)
If somehow 100k new houses appeared on the market, prices would plummet. Sure the dropping prices would cause more people to move here, but not 70k more.
And even if 70k more did move here, add another 100k houses and at that point prices will go down.
Right now Seattle adds less housing per year than the # of people who move here. Of course housing prices are shooting up.
In regards to only high end housing being built, this is due to three factors:
1. The price of land, speculation has made land incredibly valuable, partially because
2. The only market being served is the high end, until that market has been saturated with housing, housing developers will continue to target it. 100k new high end housing units and that market will have been rung dry and land prices will start to come down.
3. Building regulations encourage high end housing to be built. This is starting to change, but low price housing isn't really buildable now days, though I imagine if #2 is solved, builders will start lobbying and this will get fixed. (If that is the route that is taken, society may not enjoy the long term repercussions but that isn't new! Best to have the building codes amended now in a reasonable forward thinking way)
> In regards to only high end housing being built
In any case, someone moving into a high-end home means they left some other less high-end home available for someone else.
In any case, someone moving into a high-end home means they left some other less high-end home available for someone else.
This. I really don't understand how so many people don't understand this.
Because there's no such thing as a "less-high-end" home.
Person A leaves the housing unit they bought for $100k (back when housing had sane prices), to move into a $800k condo. Person B is trying to buy housing in a $200k neighborhood, where everything is currently priced at $600k. Person A's housing unit they just "left", gets listed for sale at $650k.
By your perspective, you perceive this as a "less-high-end" home just opened up. But for 95% of everyone in the country, this is perceived as yet-another $50k jump in the market price.
There is no such thing as "less-high-end" homes anymore. There is no such thing as trickle-down housing. Property values rise too fast (even in areas where construction outpaces population growth).
Person A leaves the housing unit they bought for $100k (back when housing had sane prices), to move into a $800k condo. Person B is trying to buy housing in a $200k neighborhood, where everything is currently priced at $600k. Person A's housing unit they just "left", gets listed for sale at $650k.
By your perspective, you perceive this as a "less-high-end" home just opened up. But for 95% of everyone in the country, this is perceived as yet-another $50k jump in the market price.
There is no such thing as "less-high-end" homes anymore. There is no such thing as trickle-down housing. Property values rise too fast (even in areas where construction outpaces population growth).
The condo is worth however much people will pay for.
Presumably when person A's old condo is up for sale at 650k there's a buyer.
Person A moved to condo B for 800k, and freed up condo A worth 650k, and there fore someone else with 650k can move in (which in turn frees up their old place).
I dunno what's trickle down if this ain't it.
Presumably when person A's old condo is up for sale at 650k there's a buyer.
Person A moved to condo B for 800k, and freed up condo A worth 650k, and there fore someone else with 650k can move in (which in turn frees up their old place).
I dunno what's trickle down if this ain't it.
What if “someone else” doesn’t own “an old place” in the same housing market? Like say, all the new people moving to an area?
If the area is attracting immigrants from other counties/states, then it means demand is increased. It doesn't change the fact that building an expensive condo will only decrease demand (even if it's the high-end demand).
Unless the thesis is that high end condos themselves attract immigrants. I don't believe that to be the case.
Unless the thesis is that high end condos themselves attract immigrants. I don't believe that to be the case.
Ok. So you're agreeing that:
Person A sells home for $650k into a 'luxury home' for $800k.
Therefore a 650k home is available. Person B then sells a house for $400k to move into the $650k home.
Person C then sells a $200k home to move into a $400k home.
Therefore the $800k luxury home has created a new $200k home.
Person A sells home for $650k into a 'luxury home' for $800k.
Therefore a 650k home is available. Person B then sells a house for $400k to move into the $650k home.
Person C then sells a $200k home to move into a $400k home.
Therefore the $800k luxury home has created a new $200k home.
I would question whether person C exists.
This steady movement does not work if there is a discontinuity in the housing prices.
For example say you have 1000 houses in the $200k to $250k range and 1000 houses in the $650k to $800k range. Now person A moves from a $650k house to an $800k house.
That is irrelevant to person C in a $250k house, because while moving into a house that costs 10% more is realistic, moving into a house that costs more than twice as much is very much not.
This discontinuity is what the debate is about and what "so many people" understand differently.
This steady movement does not work if there is a discontinuity in the housing prices.
For example say you have 1000 houses in the $200k to $250k range and 1000 houses in the $650k to $800k range. Now person A moves from a $650k house to an $800k house.
That is irrelevant to person C in a $250k house, because while moving into a house that costs 10% more is realistic, moving into a house that costs more than twice as much is very much not.
This discontinuity is what the debate is about and what "so many people" understand differently.
I just moved, and am now paying 70% more rent than I was previously. And my previous rent wasn't something ridiculously cheap.
I don't know how common this is, but it can't be that rare.
I don't have any comment yet on the actual debate. It seems a bit complicated... Although, I am cautiously sympathetic to the idea that more housing should hopefully bring down prices.
I don't know how common this is, but it can't be that rare.
I don't have any comment yet on the actual debate. It seems a bit complicated... Although, I am cautiously sympathetic to the idea that more housing should hopefully bring down prices.
I was using an example. In reality there will be some people that go from a $200k to $400k house (eg: getting married and having dual income to leverage for the mortgage). There will also be people going from $200 to $250. Or someone that goes from owning a $500k home to renting a $1000/month apartment off someone that bought it for $250k.
Regardless, adding more inventory at the top definitely does help.
Regardless, adding more inventory at the top definitely does help.
The disagreement is not whether it helps at all but how small the extent is. That is why I phrased this in terms of 1000 houses, but I should have expanded on this more.
Say 200 people in the expensive houses move to even more expensive houses. Now only 50 families/couples are in the the life circumstances (marriage, promotion, inheritance...) to move form $250k at $650k+.
How does this effect people in the $200k houses? On average for each new expensive house 0.25 affordable houses opened up. Furthermore, since the expensive houses are about three times more expensive, per million invested we only got 0.25/3=0.08 of the value of investing into cheap houses.
So, it does help*0.08, which in discussion gets rounded down to "does not help at all". Admittedly, the discussion suffers due to this. So my criticism would perhaps be more accurately stated as that your last sentence should be
Therefore the $800k luxury home has created a quarter of a new $200k home, which is a bad deal.
In short: Unless you have a housing supply that matches the demand and assume additional constraints on the demand curve you lose quite a bit due mismatch/discontinuity/ lack of liquidity. For that reason adding expensive housing is a very ineffective option to help the masses of people looking for affordable housing.
Say 200 people in the expensive houses move to even more expensive houses. Now only 50 families/couples are in the the life circumstances (marriage, promotion, inheritance...) to move form $250k at $650k+.
How does this effect people in the $200k houses? On average for each new expensive house 0.25 affordable houses opened up. Furthermore, since the expensive houses are about three times more expensive, per million invested we only got 0.25/3=0.08 of the value of investing into cheap houses.
So, it does help*0.08, which in discussion gets rounded down to "does not help at all". Admittedly, the discussion suffers due to this. So my criticism would perhaps be more accurately stated as that your last sentence should be
Therefore the $800k luxury home has created a quarter of a new $200k home, which is a bad deal.
In short: Unless you have a housing supply that matches the demand and assume additional constraints on the demand curve you lose quite a bit due mismatch/discontinuity/ lack of liquidity. For that reason adding expensive housing is a very ineffective option to help the masses of people looking for affordable housing.
> Right now Seattle adds less housing per year than the # of people who move here. Of course housing prices are shooting up.
Surely the average number of people per household is greater than unity. Wouldn't the comparison of new housing units to new households be the right figures to compare?
Surely the average number of people per household is greater than unity. Wouldn't the comparison of new housing units to new households be the right figures to compare?
In 2017 Seattle added ~8700 new houses.
Average household size in Seattle in 2 people. Figure it is probably under 2 on average for people moving to the city.
So Seattle is under-building 2k-4k houses (conservatively! 10k worst case) per year, and has been for quite some time now.
Of course prices are going up and people are being priced out.
Average household size in Seattle in 2 people. Figure it is probably under 2 on average for people moving to the city.
So Seattle is under-building 2k-4k houses (conservatively! 10k worst case) per year, and has been for quite some time now.
Of course prices are going up and people are being priced out.
"The problem is not this or that or some other thing!! The problem is there is not enough housing!"
This is what people/companies say who are deeply invested in making scads of money from sky high housing prices.
It's a ruse, a distraction, a canned answer designed to ensure the finger is not put on the real problem.
The real problem is that housing cannot be both affordable and a financial instrument.
This is what people/companies say who are deeply invested in making scads of money from sky high housing prices.
It's a ruse, a distraction, a canned answer designed to ensure the finger is not put on the real problem.
The real problem is that housing cannot be both affordable and a financial instrument.
I am with you. Housing must be forcefully de-commodified and it must no longer be considered an investment.
I am currently trying to buy my first house and every single place I look at has "Ideal for a first time buyer or as an investment opportunity" in the description so I am in direct competition with these parasites. Frustrating to say the least.
I am currently trying to buy my first house and every single place I look at has "Ideal for a first time buyer or as an investment opportunity" in the description so I am in direct competition with these parasites. Frustrating to say the least.
The buying experience sucks so I feel for you, but there are lots of cheap houses in less desirable areas - flyover states, I think I heard something about Detroit or chicago? Consider living in a less desireable or popular location that doesn't command such a premium. Remote work can make it possible to live in a town without your industry being present there.
I appreciate you are trying to provide a helpful suggestion buy this is not a solution.
1) I live in the UK. I'm sure Chicago is lovely though!
2) Housing price rises effect entire areas and transport networks, so anything in reasonable commute range (especially if you rely on public transport) also has prices inflated and driven out of reach.
What exactly are you proposing to "forcefully de-commodify" housing for it to be "no longer considered an investment"?
I can think of the following options:
1. Prohibit sale of real estate -Obviously if you prohibit it forever, anyone who buys it will be stuck with it forever. Nobody wants to be stuck with a piece of property forever. So I'm assuming the next best thing would be to prohibit sale within an arbitrary time period (1 year? 5 years? 10 years?). Whatever that period is, if it's meant to have any effect, it will be long enough to disincentivize people from buying property who do not intend to own it for shorter periods of time. - That means no more fixer-uppers: People won't buy shitty places to make them nice and resell at profit. That will leave us with more shitty places. That will leave us with less non-shitty places on the market, thus driving up prices even more in that area. Seems like the opposite of what people generally want. - It will probably make certain areas of the city way more attractive than they already are. If you're going to be locked in somewhere, it better be good. So rich people have an incentive to spend more money than they usually would. Also, less than rich people will have the same incentive. Some people will make riskier decisions on how much money they should spend on housing and may very well bankrupt themselves in the process. It's difficult to predict what kinds of problems this could create, but it will create problems.
This approach seems to me to just magnify the problems we already have.
2. Tax profits from sale of real estate close to 100%. This will introduce the same issues above with fixer-uppers. The incentive to make unlivable places livable will be gone. Houses that are ruined and that the owners can't afford to fix will not be taken care of, thus reducing the already limited supply. Additionally, anyone buying a house and living in it for an extended period of time will lose his equity to inflation. It becomes an automatic liability to buy a house. People who rent out houses do so, because the renters pay their mortgage while the house appreciates in value. If the appreciation component goes away, less people will be incentivized to buy to rent. Thus, lower income people will have less options to live. Again, lower-income people take the hit in this scenario.
3. Go full-commie.
- Make all real-estate public property, managed by the city. - The city can either do that by just taking property away or if there's any semblance of the rule of law left, they will have to pay the current owners. - This will be a gigantic expense, increasing the tax burden on everyone in the future. - Next, the city will decide who gets what house at what price. There will be waiting lists, income disclosures to decide on who will get what place to live in. Now you'll have bureaucrats processing living arrangements, so everything will take longer. - Waiting lists for some areas will naturally be much longer than for others. - New housing will only be built by an already bankrupt city, which means it will likely not be built at all. - The destruction of the market, the confiscation of property, the waiting lists, processing times and rising taxes will scare away the people that this city has been attracting for so long. - There will be an exodus of tech into more market-oriented areas and San Francisco loses its appeal. - This will lead to shorter waiting lists and more people finding affordable housing, but it will also reduce the tax-base of the city. - So then the city needs to erect a wall around itself to make sure that nobody can leave and stays inside to be skinned to pay for escalating expenses. If people try to escape, there need to be heavy punishments to make sure they really don't leave....Hm...sounds vaguely familiar...
I don't see how this fixes anything. Would you care to elaborate how you would make this work?
I can think of the following options:
1. Prohibit sale of real estate -Obviously if you prohibit it forever, anyone who buys it will be stuck with it forever. Nobody wants to be stuck with a piece of property forever. So I'm assuming the next best thing would be to prohibit sale within an arbitrary time period (1 year? 5 years? 10 years?). Whatever that period is, if it's meant to have any effect, it will be long enough to disincentivize people from buying property who do not intend to own it for shorter periods of time. - That means no more fixer-uppers: People won't buy shitty places to make them nice and resell at profit. That will leave us with more shitty places. That will leave us with less non-shitty places on the market, thus driving up prices even more in that area. Seems like the opposite of what people generally want. - It will probably make certain areas of the city way more attractive than they already are. If you're going to be locked in somewhere, it better be good. So rich people have an incentive to spend more money than they usually would. Also, less than rich people will have the same incentive. Some people will make riskier decisions on how much money they should spend on housing and may very well bankrupt themselves in the process. It's difficult to predict what kinds of problems this could create, but it will create problems.
This approach seems to me to just magnify the problems we already have.
2. Tax profits from sale of real estate close to 100%. This will introduce the same issues above with fixer-uppers. The incentive to make unlivable places livable will be gone. Houses that are ruined and that the owners can't afford to fix will not be taken care of, thus reducing the already limited supply. Additionally, anyone buying a house and living in it for an extended period of time will lose his equity to inflation. It becomes an automatic liability to buy a house. People who rent out houses do so, because the renters pay their mortgage while the house appreciates in value. If the appreciation component goes away, less people will be incentivized to buy to rent. Thus, lower income people will have less options to live. Again, lower-income people take the hit in this scenario.
3. Go full-commie.
- Make all real-estate public property, managed by the city. - The city can either do that by just taking property away or if there's any semblance of the rule of law left, they will have to pay the current owners. - This will be a gigantic expense, increasing the tax burden on everyone in the future. - Next, the city will decide who gets what house at what price. There will be waiting lists, income disclosures to decide on who will get what place to live in. Now you'll have bureaucrats processing living arrangements, so everything will take longer. - Waiting lists for some areas will naturally be much longer than for others. - New housing will only be built by an already bankrupt city, which means it will likely not be built at all. - The destruction of the market, the confiscation of property, the waiting lists, processing times and rising taxes will scare away the people that this city has been attracting for so long. - There will be an exodus of tech into more market-oriented areas and San Francisco loses its appeal. - This will lead to shorter waiting lists and more people finding affordable housing, but it will also reduce the tax-base of the city. - So then the city needs to erect a wall around itself to make sure that nobody can leave and stays inside to be skinned to pay for escalating expenses. If people try to escape, there need to be heavy punishments to make sure they really don't leave....Hm...sounds vaguely familiar...
I don't see how this fixes anything. Would you care to elaborate how you would make this work?
Your options are rather extreme and unsuitable, by your own admission.
The most direct solution is to prohibit landlordism and private renting. This prevents housing from being treated as an investment and keeps it within the housing pool.
The most direct solution is to prohibit landlordism and private renting. This prevents housing from being treated as an investment and keeps it within the housing pool.
That sounds pretty close to the third option except you want to limit expropriation to renting. How's that going to work? You think all the landlords will sell to the city? For how much? Can people buy houses from the city to live in them? Where does additional housing come from considering that it's currently not enough? How does the city determine prices and how does it prioritize who gets which place?
Stocks, bonds, commodities, and other income generating assets are financial instruments.
The price of stocks, bonds, commodities and other income generating assets can fluctuate for many reasons, one of which is an increase in supply.
Housing is a financial instrument. And like any financial instrument, there is a risk of over supply. If the risk goes up, the new price would reflect the risk.
When legislation tries to fix pricing, black markets pop up.
No legislation that does not increase supply will reduce the cost of housing in real terms.
The price of stocks, bonds, commodities and other income generating assets can fluctuate for many reasons, one of which is an increase in supply.
Housing is a financial instrument. And like any financial instrument, there is a risk of over supply. If the risk goes up, the new price would reflect the risk.
When legislation tries to fix pricing, black markets pop up.
No legislation that does not increase supply will reduce the cost of housing in real terms.
andrewstuart(4)
I couldn't agree more. In Berlin, where I live, there are re-occurring public protests around this very topic.
In order to curb housing as an investment in Berlin, there is a two-tier tax system for money gained from selling an apartment for example.
- The profits from the sale of apartment that you've lived in less than 2(?) years will be taxed at 50%
- The profits from the sale of apartment that you've owned for less than 10 years (but haven't lived in) will be taxed at 50%.
That being said, housing is still a problem, especially since it is relatively cheap in comparison to other EU capitals. Which means lots of people move here, and sometimes displace locals.
In order to curb housing as an investment in Berlin, there is a two-tier tax system for money gained from selling an apartment for example.
- The profits from the sale of apartment that you've lived in less than 2(?) years will be taxed at 50%
- The profits from the sale of apartment that you've owned for less than 10 years (but haven't lived in) will be taxed at 50%.
That being said, housing is still a problem, especially since it is relatively cheap in comparison to other EU capitals. Which means lots of people move here, and sometimes displace locals.
> The real problem is that housing cannot be both affordable and a financial instrument.
Can you elaborate on this? I don't know much about financial instruments and would like to know why these two are mutually exclusive.
Can you elaborate on this? I don't know much about financial instruments and would like to know why these two are mutually exclusive.
I'm no economist but it seems blindingly obvious. To be an interesting financial investment, a house must appreciate faster than other means of savings. If that happens, houses will inevitably be unaffordable, because they rise in value faster than people can save to buy them.
That assumes an "interesting" financial investment has to appreciate faster than all other investments that exist and that nobody would ever trade returns for less risk.
People buy bonds, so I don't think that maximizing ROI is always necessarily the criteria for a desirable investment.
People buy bonds, so I don't think that maximizing ROI is always necessarily the criteria for a desirable investment.
So you think people that want to buy a house just need to take on more riskier investments before buying a house? Get lucky, buy a house, get unlucky, ...?
Thanks!
Meta-observation: to me, nothing in economics or finance is "blindingly obvious". Many economic phenomena seem obvious but in reality are way more complex than could be represented by any model that I could understand. Your explanation makes sense at some level, but I don't have much confidence in it, because all I can do is wonder what other mechanisms interact with the mechanism you've described, and what the net impact is.
Meta-observation: to me, nothing in economics or finance is "blindingly obvious". Many economic phenomena seem obvious but in reality are way more complex than could be represented by any model that I could understand. Your explanation makes sense at some level, but I don't have much confidence in it, because all I can do is wonder what other mechanisms interact with the mechanism you've described, and what the net impact is.
I'm not sure why you're looking only at the house price change. To be a good investment, the (price change + rent - mortgage repayment - maintenance) value has to be higher than other means of saving. Thus may be true even if the house itself losses some value.
You have your causality hopelessly backwards. Housing did not become a interesting investment because people chose to invest in it. People chose to invest in it because it was an interesting investment.
and yet, reasonable people who know what they're doing buy bonds with negative interest rates.
the financial world is more complicated than you realize.
the financial world is more complicated than you realize.
A stronger case would be "it must be more profitable than the alternatives with the same risk" but you skipped a step and went right to "appreciate faster" which is not the only way it could be profitable. In fact "flipping houses" to make a living at this scale is an artifact of your current time and place which is the US in a massive inflationary bubble [1]
We libertarians have been beating the inflation drum for decades now and been largely ignored and / or laughed at. Maybe it's time to revisit how adding trillions and trillions to the economy every year could maybe possibly lead to higher prices in "inflation hedge" type goods.[2]
[1] https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs...
[2] https://mises.org/library/housing-too-good-be-true
We libertarians have been beating the inflation drum for decades now and been largely ignored and / or laughed at. Maybe it's time to revisit how adding trillions and trillions to the economy every year could maybe possibly lead to higher prices in "inflation hedge" type goods.[2]
[1] https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs...
[2] https://mises.org/library/housing-too-good-be-true
I think parent is referring (with accidental substitution) to the widely cited "Housing Can’t Be Both Affordable and a Good Investment":
https://news.ycombinator.com/item?id=19802482
Taken literally, there's no contradiction between housing being affordable and being a financial instrument.
But I think s/he meant the theme of that article, that housing can't be both a reliable investment we think of it as, and affordable. If you make it reliably affordable, like food, then you can still invest in its related instruments, but it's not a good idea, since e.g. corn futures are not expected to reliably appreciate in value.
https://news.ycombinator.com/item?id=19802482
Taken literally, there's no contradiction between housing being affordable and being a financial instrument.
But I think s/he meant the theme of that article, that housing can't be both a reliable investment we think of it as, and affordable. If you make it reliably affordable, like food, then you can still invest in its related instruments, but it's not a good idea, since e.g. corn futures are not expected to reliably appreciate in value.
A good financial instrument is a good investment, and likely to have the price rise faster than inflation with time.
Affordable housing would be likely to have the price rise no faster than inflation, or it will eventually be out of the price range of people whose incomes are only rising with inflation.
Affordable housing would be likely to have the price rise no faster than inflation, or it will eventually be out of the price range of people whose incomes are only rising with inflation.
In Houston, the property tax rate is 3%, and inflation is roughly 2%,so for property to be a net gain, it has to increase in value at over 5%, which is faster than the overall economy, and hence gets less affordable over time
You would be paying (indirectly) the property tax even to live in a rental, so I don't think that you should count that as a home ownership cost (any more than you'd count cable, gas, or electric bills as ownership costs) if you are going to live in the property.
Another solution to that equation is that houses increase in value at 2% a year (keep pace with inflation), and yield 3+x % in rent per year, where x is enough to cover administration and provide a modest return.
I'd say housing can't be both affordable and a good investment. By that, I mean that good investments (by definition) go up in value by more (often a multiple of) than inflation. If houses start out affordable and consistently outpace inflation, they will eventually, often quite quickly, cease to be affordable.
I assume the premise is that if we approach a home as something that has an investment value than it means we have an economy of people rent seeking and speculatively buying and investing in property to make money. I guess the alternative would be to make it illegal to own housing you don't live in, which would definitely drive down prices but also possibly have other unforseen effects. In a world full of homelessness and ridiculous housing prices, I consider it worth exploring.
> the alternative would be to make it illegal to own housing you don't live in
In such a world, how would anyone find a rental to live in? There are benefits to being able to rent in many different life situations.
In such a world, how would anyone find a rental to live in? There are benefits to being able to rent in many different life situations.
> possibly have other unforseen effects
possibly? besides, as the sibling comment notes, making it impossible for anyone to rent?
a few more seconds of thought notes that it would also cause troubles for anyone inheriting a home. want to keep grandma's house until you can retire and move into it? nope, can only own one house, got to sell it off.
want to move from one city to another, but you're having troubles selling your current house? nope, just got to auction it off and take whatever you get before you're allowed to leave.
possibly? besides, as the sibling comment notes, making it impossible for anyone to rent?
a few more seconds of thought notes that it would also cause troubles for anyone inheriting a home. want to keep grandma's house until you can retire and move into it? nope, can only own one house, got to sell it off.
want to move from one city to another, but you're having troubles selling your current house? nope, just got to auction it off and take whatever you get before you're allowed to leave.
Want to borrow money for a mortgage? Banks aren't allowed to foreclose anymore, so mortgage lending is now unsecured, meaning higher down payments and interest rates...
I believe the argument is supply and demand. Housing as an investment works if demand out paces supply or supply lowers. If you don't have some reasonable assurance of housing prices increasing over time then why buy?
I bought so I could be certain I could live in this pile of sticks until I die with no landlord to deal with.
> The real problem is that housing cannot be both affordable and a financial instrument.
Could you expand on this?
Could you expand on this?
tents are housing.
Yes, that's a problem with capitalism. What is your proposed solution, and how is it faster/easier than construction, and how many people will it get off the street?
Is it that building housing doesn’t work? Or is it that building housing doesn’t work unless you build enough of it quickly enough?
Doing better than SF at building housing is a pretty low bar. I see no evidence that the high-demand cities that are building more housing are building it at a rate that keeps up with demand. As it is, what housing they are building is probably helping keep rent prices rising gradually instead of spiraling out of control as they are in SF.
Doing better than SF at building housing is a pretty low bar. I see no evidence that the high-demand cities that are building more housing are building it at a rate that keeps up with demand. As it is, what housing they are building is probably helping keep rent prices rising gradually instead of spiraling out of control as they are in SF.
Note his hypothesis that condos are the core of the problem -- they aren't rented, they're purchased with credit by young professionals who "spend the creditworthiness" they gained by moving to a creative-class city, and live in them until they sell them to other incoming young professionals. There could be plenty of rental demand that isn't affected by building lots of dense primary-residence condos that just attract more of the same. He does wonder at the end what would happen if you built so much housing that you broke that cycle, but that would be hard.
Basically he's saying there are two tiers of housing consumers, and building dense condos does nothing at all for the lower tier who can never bridge the creditworthiness gap to get into them.
Basically he's saying there are two tiers of housing consumers, and building dense condos does nothing at all for the lower tier who can never bridge the creditworthiness gap to get into them.
For everyone who was renting and decides to buy a dense condo surely opens up a rental unit for someone who can't afford or chooses not to buy.
Unless they are coming from out of the area.
But they weren't renting…they came from out of town to get to their high-paying creative job.
But they’re going to be doing that (coming from out of town to take a high paying job) anyway. Without condos being built they’ll just be putting that pressure on the rental market.
Also, a lot of the condos being built - at least here in NY - are rental units.
Also, a lot of the condos being built - at least here in NY - are rental units.
Most new housing I see around me (Seattle Area) is apartments for rent. Various legal reasons in WA state for it, but I'm of the opinion that having everyone rent is worse long term for society than having people become part of the local community.
Of course time will tell.
Of course time will tell.
On the other hand if everyone is bound to a mortgage then they are handcuffed to an area.
This is only a problem in a few cities. The median house price in Cleveland, OH, is $53,000.
High-demand cities building more have a positive problem, but it's a real problem despite the sign.
The cities now housing more people now also support more economic activity, jobs, and development which makes the job markets even better, brings in more interesting opportunities and thus even higher demand. It becomes a more attractive place despite the housing shortage, and thus the demand grows even higher despite the supply growing as well.
The cities now housing more people now also support more economic activity, jobs, and development which makes the job markets even better, brings in more interesting opportunities and thus even higher demand. It becomes a more attractive place despite the housing shortage, and thus the demand grows even higher despite the supply growing as well.
If the wrong people (investors rather than residents) are buying the houses then building more may only stoke a bubble.
The demand for housing covers both people who need a place to live and the countless other reasons people buy houses (an apartments/condos etc). They are a place to invest or park money. So when a bringing more supply online you have to be careful that it targets the correct demand.
The demand for housing covers both people who need a place to live and the countless other reasons people buy houses (an apartments/condos etc). They are a place to invest or park money. So when a bringing more supply online you have to be careful that it targets the correct demand.
Per the article, only a vanishingly small fraction of these are remaining unoccupied. Even if they’re not being inhabited by the purchaser they’re being inhabited, and thus absorbing some of the local demand for housing.
I would require more information as to the definition of "occupied". I used to live in Vancouver, a city struggling with that definition. Unless you are willing to send unannounced inspectors it is very difficult to determine whether the owner is actually living in an apartment. In most cities "occupied" simply means owned by an individual. Whether that person actually resides in the unit is another matter.
Take a look at this pic to see vancouver's problem: https://images.app.goo.gl/uGmMJcwyNvXQUWdQ6
What do you think the real occupancy rate is of those buildings? 60? 70% at best? (They are all residential except for the few commercial ones, those with entire floors lit.)
Take a look at this pic to see vancouver's problem: https://images.app.goo.gl/uGmMJcwyNvXQUWdQ6
What do you think the real occupancy rate is of those buildings? 60? 70% at best? (They are all residential except for the few commercial ones, those with entire floors lit.)
Or if that’s 4:30pm in December it could easily be that everyone’s still at work even though it’s dark out. That might not be the case here, but maybe worth considering.
How does building more of it ever make it more attractive as an investment?
Or, as is the case in New York, building only luxury housing targeted at attracting wealthy out-of-towners (either people moving in from the suburbs or people moving from far away for tech jobs), which does little to alleviate the problems in other socieconomic strata.
Not so convinced by this. The "evidence" he links to is an opinion piece, not an empirical paper. The anecdotal evidence of prices going up in Toronto despite supply increases is equally unconvincing. For all we know prices would have gone up much more without supply increases. And at the end of the piece he even admits that prices would go down if supply increases were truly large... Well then do it. Build a huge amount. In the case of SF, level SOMA and put up 20 story apartment blocks. What do we have to lose? It's not like SOMA is picturesque.
> What do we have to lose? It's not like SOMA is picturesque.
Well, some people in SF will lose some additional profits if zoning laws are changed, so there is political pressure both ways.
Well, some people in SF will lose some additional profits if zoning laws are changed, so there is political pressure both ways.
There is one way that it would not solve the problem to build more housing. That way would be that most renters and homebuyers are basically irrational, or systematically overvaluing the location of their residence when better options exist. I would argue that this is actually the case in the SF Bay Area.
For example, I live in Pittsburg, almost at the very end of the yellow line (it recently got extended to Antioch). I work in SF making a decent salary. My commute is pretty long, nearly an hour one way, sometimes longer. My rent? Well, for a two bedroom, two and a half bath condo with a garage, porch, and backyard, it costs me roughly $2100/month, and we don't have rent control here. My rent has been raised only twice in the 3 years I've lived here, and only by about $50 each time. The same amount of space in San Francisco, by my best estimate, would cost somewhere between $4k and $5k a month. Also, that space would probably be in a much much older building, in a denser and more dangerous place than my town.
So, one could immediately ask, if I'm able to work in SF with an SF-commensurate salary, and pay this low in rent, why is no one else doing this? As far as I can tell, people even living in SF are very lucky to have less than a 30min commute one way. So I tack on an extra hour per day of commute, or, lets say, roughly 20-25hrs per month.
People do vary in their subjective valuation of a long commute. I probably do consider it to be less of a problem than most people. But do people really consider it to be worth nearly $2k-$3k a month? For someone making near what I am that would be more than my average hourly salary for time spent on the train. Again, people do vary in their respective valuations of time spent doing something other than optimally, but I would be surprised if it was worth that much.
Also consider that housing is continuing to be built on the other side of the mountains in the east bay, and that in Pittsburg and especially in Antioch it is possible to get a lot of space for very cheap, still. Its not unreasonable to expect transportation to get better over time, either.
For example, I live in Pittsburg, almost at the very end of the yellow line (it recently got extended to Antioch). I work in SF making a decent salary. My commute is pretty long, nearly an hour one way, sometimes longer. My rent? Well, for a two bedroom, two and a half bath condo with a garage, porch, and backyard, it costs me roughly $2100/month, and we don't have rent control here. My rent has been raised only twice in the 3 years I've lived here, and only by about $50 each time. The same amount of space in San Francisco, by my best estimate, would cost somewhere between $4k and $5k a month. Also, that space would probably be in a much much older building, in a denser and more dangerous place than my town.
So, one could immediately ask, if I'm able to work in SF with an SF-commensurate salary, and pay this low in rent, why is no one else doing this? As far as I can tell, people even living in SF are very lucky to have less than a 30min commute one way. So I tack on an extra hour per day of commute, or, lets say, roughly 20-25hrs per month.
People do vary in their subjective valuation of a long commute. I probably do consider it to be less of a problem than most people. But do people really consider it to be worth nearly $2k-$3k a month? For someone making near what I am that would be more than my average hourly salary for time spent on the train. Again, people do vary in their respective valuations of time spent doing something other than optimally, but I would be surprised if it was worth that much.
Also consider that housing is continuing to be built on the other side of the mountains in the east bay, and that in Pittsburg and especially in Antioch it is possible to get a lot of space for very cheap, still. Its not unreasonable to expect transportation to get better over time, either.
> People do vary in their subjective valuation of a long commute. I probably do consider it to be less of a problem than most people. But do people really consider it to be worth nearly $2k-$3k a month?
Yes. Two hours of commute every day make me extremely impatient and unhappy. And grump with coworkers and just generally fellow humans. Even 30min one-way, especially on BART, would make me unhappy. 30min on a bike is OK though.
If it were on a nice train, with seating and desks (to work on a laptop), it'd be a bit different. But BART definitely isn't that.
Before I started to mostly WFH, I had a ~7 min bike ride to work, that was fairly nice.
> Its not unreasonable to expect transportation to get better over time, either.
Do you see any realistic signs that BART into the city will become meaningfully faster or more pleasant in the next ~10 years?
Yes. Two hours of commute every day make me extremely impatient and unhappy. And grump with coworkers and just generally fellow humans. Even 30min one-way, especially on BART, would make me unhappy. 30min on a bike is OK though.
If it were on a nice train, with seating and desks (to work on a laptop), it'd be a bit different. But BART definitely isn't that.
Before I started to mostly WFH, I had a ~7 min bike ride to work, that was fairly nice.
> Its not unreasonable to expect transportation to get better over time, either.
Do you see any realistic signs that BART into the city will become meaningfully faster or more pleasant in the next ~10 years?
Just FWIW I have a very similar living space in the city (admittedly older) for $3500. Personally I would consider the $1400/mo worth it to have my 20-30 minute commute over an hour commute, because to me the extra ~60 minutes a day at home is worth a lot.
I don’t think it’s morally better or anything like that, just worth it to me.
My assumption based on market rents is that there are enough people who feel it’s “worth it” for them to drive up the rent, otherwise you are right that more people would be moving out to the edges.
I don’t think it’s morally better or anything like that, just worth it to me.
My assumption based on market rents is that there are enough people who feel it’s “worth it” for them to drive up the rent, otherwise you are right that more people would be moving out to the edges.
It really depends on a number of factors.
An hour including a short country walk either side, via a big comfy train with air conditioning, leg room, quiet passengers etc can be manageable. Nice, even. Time to read a book, sit with a laptop, look out of the window, unwind after a day's work, etc.
An hour via a cramped, warm, standing-room-only tube train, with multiple changes, and walking along busy roads on either side - hellish.
The latter, for me, would be a temporary measure for any amount of money. I wouldn't consider that place a home. It's a pit stop - I'd consider myself on secondment, basically, you're saving to go and live somewhere that isn't a bolthole.
An hour including a short country walk either side, via a big comfy train with air conditioning, leg room, quiet passengers etc can be manageable. Nice, even. Time to read a book, sit with a laptop, look out of the window, unwind after a day's work, etc.
An hour via a cramped, warm, standing-room-only tube train, with multiple changes, and walking along busy roads on either side - hellish.
The latter, for me, would be a temporary measure for any amount of money. I wouldn't consider that place a home. It's a pit stop - I'd consider myself on secondment, basically, you're saving to go and live somewhere that isn't a bolthole.
"So, one could immediately ask, if I'm able to work in SF with an SF-commensurate salary, and pay this low in rent, why is no one else doing this? As far as I can tell, people even living in SF are very lucky to have less than a 30min commute one way. So I tack on an extra hour per day of commute, or, lets say, roughly 20-25hrs per month.
"
To me this increase in commute time means going from having time for extracurricular activities during the week to losing the whole work week.
To me this increase in commute time means going from having time for extracurricular activities during the week to losing the whole work week.
Two points I forgot to add:
One, there seem to be a lot of people who commute via car / bart / caltrain from places in the south peninsula, san jose, or south-east bay (fremont area roughly). In these places, rent is lower than SF but not notably lower, especially in the peninsula. And traffic / commute times are notoriously horrible coming from there.
Two, if people are rational about real estate values, it suggests that people truly don't expect any expansion at all to happen in the greater bay area. Not only that, but they don't expect work-from-home or telecommute to become more commonplace. Either of those things would substantially lower the cost of distant living, either by increasing the (future) value of potential real estate investments made now, or by reducing the current cost via reducing lost hours. I can think of arguments why we should expect more WFH, and to a lesser degree more expansion, but that is a whole other debate.
One, there seem to be a lot of people who commute via car / bart / caltrain from places in the south peninsula, san jose, or south-east bay (fremont area roughly). In these places, rent is lower than SF but not notably lower, especially in the peninsula. And traffic / commute times are notoriously horrible coming from there.
Two, if people are rational about real estate values, it suggests that people truly don't expect any expansion at all to happen in the greater bay area. Not only that, but they don't expect work-from-home or telecommute to become more commonplace. Either of those things would substantially lower the cost of distant living, either by increasing the (future) value of potential real estate investments made now, or by reducing the current cost via reducing lost hours. I can think of arguments why we should expect more WFH, and to a lesser degree more expansion, but that is a whole other debate.
The article argues that more housing would increase the value of the housing already there and thus the prices would not decrease.
First, it's odd that the people who would ostensibly benefit, the NIMBY crowd, typically oppose new housing. Second, if this analysis were accurate, building more housing still seems like a good idea. It won't lower the cost of housing but would increase the value and let more people get housing.
Finally, the author also mentions that most new homes are put to their intended purpose - housing local residents. Perhaps that's true of "most" homes, but I've seen statistics that a hundred thousand Toronto homes are unoccupied [1]. Toronto homes are typically bought by Air BnB types and speculators, foreign and domestic.
In my view building houses is a good answer. Building new houses should be accompanied with taxes on unoccupied homes. If the cost doesn't go down but the value goes up, as the author suggests, that will be unintended but not bad.
1 - https://betterdwelling.com/city/toronto/toronto-has-over-990...
First, it's odd that the people who would ostensibly benefit, the NIMBY crowd, typically oppose new housing. Second, if this analysis were accurate, building more housing still seems like a good idea. It won't lower the cost of housing but would increase the value and let more people get housing.
Finally, the author also mentions that most new homes are put to their intended purpose - housing local residents. Perhaps that's true of "most" homes, but I've seen statistics that a hundred thousand Toronto homes are unoccupied [1]. Toronto homes are typically bought by Air BnB types and speculators, foreign and domestic.
In my view building houses is a good answer. Building new houses should be accompanied with taxes on unoccupied homes. If the cost doesn't go down but the value goes up, as the author suggests, that will be unintended but not bad.
1 - https://betterdwelling.com/city/toronto/toronto-has-over-990...
Building more supply may not work when you're dealing with hundreds of billions of dollars of money laundering from China
In BC, we have at least $5B of money laundering in real estate per year, and an absurd number of empty apartments / houses. They will pay obscene amounts to park their money here
We added a vacancy tax and foreign buyer tax to combat this, which has helped to an extent
In BC, we have at least $5B of money laundering in real estate per year, and an absurd number of empty apartments / houses. They will pay obscene amounts to park their money here
We added a vacancy tax and foreign buyer tax to combat this, which has helped to an extent
After jacking up the rent at every opportunity and ejecting one after another of my neighbors over the last ~decade, the landlord of the buildings next door (12 or 15 apartments altogether) sold the properties to an investment firm that boarded them all up and has been keeping them empty for about a year and allowing trash and demolition rubble to pile up. As the price continues to rise they are running out the clock to get permission to restructure the properties as condos and sell at a hefty profit.
Meanwhile the buildings lie empty while poor people live in tents in the park across the street. They do a much better job of keeping the little park clean than the property-rights-fetishizing assholes that are holding perfectly good housing off the market and trashing most of my block.
Meanwhile the buildings lie empty while poor people live in tents in the park across the street. They do a much better job of keeping the little park clean than the property-rights-fetishizing assholes that are holding perfectly good housing off the market and trashing most of my block.
So the city has a rule that's preventing the firm from demoing and rebuilding and you're mad at the property owner?
Some people have a fixed enemy that will always be the bad guy no matter what.
The argument makes sense to me. This is a problem in Australia that is exacerbated by the tax write-offs investors get in the form of what they call Negative Gearing. My possibly flawed laymen's understanding of it is that for each property owned in addition to your primary home, any losses incurred through the ownership of these additional investment properties can be claimed as a tax write-offs. Couple this with short term interest free loans and a continual rise in prices (a trend that may be disappearing, at least temporarily) and the ability to leverage the home you already have, then you encourage speculative investment. Buy now and sell higher in a few years.
It's much harder for first home buyer's to break into the property market by the very fact they don't own property to leverage in the first place. And this isn't necessarily something only particularly wealthy people do. It's become ingrained in Australian society to treat housing as a financial asset and use it to generate wealth. The problem is if you don't already have one, or substantial means to acquire one, you are at a much greater disadvantage.
I only have my own perspective to rely upon after trying and failing to buy a home a few years ago.
It's much harder for first home buyer's to break into the property market by the very fact they don't own property to leverage in the first place. And this isn't necessarily something only particularly wealthy people do. It's become ingrained in Australian society to treat housing as a financial asset and use it to generate wealth. The problem is if you don't already have one, or substantial means to acquire one, you are at a much greater disadvantage.
I only have my own perspective to rely upon after trying and failing to buy a home a few years ago.
The author Alex Danco’s link that supposedly proves that building housing doesn’t improve affordability is a poor review article by Michael Storper and Andres Rodríguez-Pose that is rather thoroughly debunked by their own colleagues Michael Manville, Michael Lens, and Paavo Monkkonen here: https://twitter.com/mc_lens/status/1129502980498022401 In summary, Storper badly misrepresents or misunderstands the economic literature, and attacks strawman arguments, to try to avoid admitting that supply improves affordability.
The author also says, “The third factor that somehow gets left out of a lot of armchair debates about housing and yet is an essential (possibly THE essential) element in all of this is credit.” As Kevin Erdmann explains in Shut Out (https://www.amazon.com/Shut-Out-Shortage-Recession-Universit...), the opposite is true. Credit is the factor that people jump to to the exclusion of rent (and expected rent given the low rate of homebuilding), which is directly related to supply constraints. Housing prices are high in the Bay Area because rents are high; low interest rates did not detach prices from rents.
Yes, there are a lot of factors in the housing market if you want to get deep in the weeds. But in my opinion, attempts to elevate second and third order factors to avoid dealing with the first-order factors of supply and demand are sophomoric.
The author also says, “The third factor that somehow gets left out of a lot of armchair debates about housing and yet is an essential (possibly THE essential) element in all of this is credit.” As Kevin Erdmann explains in Shut Out (https://www.amazon.com/Shut-Out-Shortage-Recession-Universit...), the opposite is true. Credit is the factor that people jump to to the exclusion of rent (and expected rent given the low rate of homebuilding), which is directly related to supply constraints. Housing prices are high in the Bay Area because rents are high; low interest rates did not detach prices from rents.
Yes, there are a lot of factors in the housing market if you want to get deep in the weeds. But in my opinion, attempts to elevate second and third order factors to avoid dealing with the first-order factors of supply and demand are sophomoric.
I'm starting to believe that a fixing inequality will help the most. A $20 minimum wage and 70% tax rates on those earning more than $50k will end a lot problems. A job in SF, NYC will not look so great. People will move back to the mid-West because it'll make financial sense. Fewer immigrants would move to these high priced cities, the demand bubble would pop, and entrepreneurs will start companies all over the world instead of the Bay Area.
70% tax rates on $50K? Total non-starter, even in CA. No chance of the Federal tax rate hitting that high, so CA State tax would have to jump up to 45%? Good luck getting that passed in the Legislature.
Thinking that inequality can be solved by taxing the rich ignores history, as well as the relationship between correlation and causation. Just because tax rates in the past were higher doesn't mean they were the cause of the lower inequality rates.
Oh, and it already makes financial sense to live in the Midwest. The problem is that many don't make the majority of decisions with their wallets.
Thinking that inequality can be solved by taxing the rich ignores history, as well as the relationship between correlation and causation. Just because tax rates in the past were higher doesn't mean they were the cause of the lower inequality rates.
Oh, and it already makes financial sense to live in the Midwest. The problem is that many don't make the majority of decisions with their wallets.
Actually this is an interesting solution. Half the problem is that the low paid workers basically have no bargaining power. In Switzerland the salaries of low skilled workers tend to grow in lockstep with the salaries of the high skilled workers. If the minimum wage was increased to the point that even low paid workers could afford to rent in SF then it will succeed or those jobs will be lost and SF collapses because all the cashiers, waiters, janitors and teachers have left the city.
This is a very thoughtful and well-reasoned piece, with the money line right at the end:
> My worry, and I hope I’m wrong here, is that on average, adding more housing units just makes this cycle spin faster. (Unless you could add SO MANY housing units that you could actually break through the wedge, that is. But that seems to me like it’d be hard to do! That would also be quite unpopular locally, as it would undermine an awful lot of locally built up wealth, and any move to do that is usually unviable politically.)
I’m strongly in the pro-building camp, but I agree that it won’t be enough unless you could build enough housing to break through the pent-up demand, and doing so would be challenging in the superstar cities.
Living in San Francisco, I suspect that if you could magically add a million new housing units this year, they’d sell. (I do think that would be enough to make a dent in prices, but with the entire state of California so deficient in housing I don’t know how big the dent would be.)
The more important point that he makes is about the self-reinforcing positive feedback loop that drives homes as a financialized investment vehicle.
There’s an easy, but politically unviable, fix for this, in the form of high taxes. The taxes strictly reduce the rate of return on your house, while conveniently paying for public services, and building in a self-interested reason to oppose ever-increasing home prices.
It’s no surprise that the housing crisis is less acute in Texas where the property tax is high, and most acute in CA where the rate is very low AND assessment are effectively static.
I think that serious discussions of how we address the housing crisis must include not only increasing supply but also breaking the positive feedback loop on housing as a high-return investment in the hot economic centers.
> My worry, and I hope I’m wrong here, is that on average, adding more housing units just makes this cycle spin faster. (Unless you could add SO MANY housing units that you could actually break through the wedge, that is. But that seems to me like it’d be hard to do! That would also be quite unpopular locally, as it would undermine an awful lot of locally built up wealth, and any move to do that is usually unviable politically.)
I’m strongly in the pro-building camp, but I agree that it won’t be enough unless you could build enough housing to break through the pent-up demand, and doing so would be challenging in the superstar cities.
Living in San Francisco, I suspect that if you could magically add a million new housing units this year, they’d sell. (I do think that would be enough to make a dent in prices, but with the entire state of California so deficient in housing I don’t know how big the dent would be.)
The more important point that he makes is about the self-reinforcing positive feedback loop that drives homes as a financialized investment vehicle.
There’s an easy, but politically unviable, fix for this, in the form of high taxes. The taxes strictly reduce the rate of return on your house, while conveniently paying for public services, and building in a self-interested reason to oppose ever-increasing home prices.
It’s no surprise that the housing crisis is less acute in Texas where the property tax is high, and most acute in CA where the rate is very low AND assessment are effectively static.
I think that serious discussions of how we address the housing crisis must include not only increasing supply but also breaking the positive feedback loop on housing as a high-return investment in the hot economic centers.
Every time this comes up I just can't escape the notion that it's really just because SF, geographically and culturally, has more desirable traits than other places. Temperate climate year round, travel hub, diverse thought, tech opportunity, walkable. What else has this? More people want to live there than it can handle. Build more housing, perhaps the price drops for the people who are there, but then that price will mean more people will want to move there. Wouldn't it be better to have another high quality population mecca nearby?
It's the same with homeless policy - if you make it attractive enough, you attract more homeless, unless surrounding areas have also implemented similar homeless policies.
Building more housing is a supply-side argument - what are some positive ways to reduce demand to move to SF?
It's the same with homeless policy - if you make it attractive enough, you attract more homeless, unless surrounding areas have also implemented similar homeless policies.
Building more housing is a supply-side argument - what are some positive ways to reduce demand to move to SF?
Kick out the tech companies and prevent commercial construction.
Higher prices are will cause reduced demand.
I have come to expect bad articles about housing but I have to say this one was fairly on point and succinct.
The trend towards urbanization is obviously a factor so it's not just a question of building houses, it's a matter of building up enough to soak up demand and then some.
I see three big problems:
1. Many cities incentivize building the wrong kind of housing. Look at Manhattan where most new housing below 125th street is not the least bit affordable, some exceeding $5000/sq ft.
2. Capital is essentially global. Real estate in urban centers has become the de facto way to park money. This is a problem.
3. Tax structures encourage this. I like the Swiss system that punitively taxes short term capital gains and property (and makes owning property in Switzerland reasonably restrictive). You need people to own housing units they don't live in. Who do you think you're renting that apartment from? But residential real estate has moved away from being an income-generating asset to being a speculative asset. Low capital gains tax rates encourage this. Also, for some reason, real estate assets tend to be exempt from AML type reporting like FATCA, FBAR, etc. No idea why. But this needs to end.
I think you could go a long way to fixing this by saying that if you own property in a given city you are a resident of that city, state and country and your worldwide income is taxable. This needs to be coupled with stopping the hiding of ownership through corporate shells.
The trend towards urbanization is obviously a factor so it's not just a question of building houses, it's a matter of building up enough to soak up demand and then some.
I see three big problems:
1. Many cities incentivize building the wrong kind of housing. Look at Manhattan where most new housing below 125th street is not the least bit affordable, some exceeding $5000/sq ft.
2. Capital is essentially global. Real estate in urban centers has become the de facto way to park money. This is a problem.
3. Tax structures encourage this. I like the Swiss system that punitively taxes short term capital gains and property (and makes owning property in Switzerland reasonably restrictive). You need people to own housing units they don't live in. Who do you think you're renting that apartment from? But residential real estate has moved away from being an income-generating asset to being a speculative asset. Low capital gains tax rates encourage this. Also, for some reason, real estate assets tend to be exempt from AML type reporting like FATCA, FBAR, etc. No idea why. But this needs to end.
I think you could go a long way to fixing this by saying that if you own property in a given city you are a resident of that city, state and country and your worldwide income is taxable. This needs to be coupled with stopping the hiding of ownership through corporate shells.
>Who do you think you're renting that apartment from?
If enough of the housing market were publicly owned (see Vienna) or decommodified (meaning, it is illegal to own more than one housing unit/to rent property out. If you own a residential property you must live in it) the laws of supply and demand dictate that the price of the property would be lowered until the point that the people who would like to rent there, in aggregate, would be able to afford to purchase instead.
Of course this will probably never happen because too many people would have the rug swept out from under them in terms of net worth, but it is possible.
If enough of the housing market were publicly owned (see Vienna) or decommodified (meaning, it is illegal to own more than one housing unit/to rent property out. If you own a residential property you must live in it) the laws of supply and demand dictate that the price of the property would be lowered until the point that the people who would like to rent there, in aggregate, would be able to afford to purchase instead.
Of course this will probably never happen because too many people would have the rug swept out from under them in terms of net worth, but it is possible.
A city where no one can rent will die because young people can’t move in.
While the article is correct that the machinery behind turning housing into an investment does warp the market, that’s not the whole story. Something that’s often weirdly missed in these discussions is the change in housing availability versus the change in population. SF and the Bay Area are not building enough new housing to match the population growth. I suspect the same is true of Toronto and other hot spots of unaffordability.
For all the people talking about how of course we should increase population density: what should someone like me do? I'm neurologically over-sensitive to certain noises like subwoofers or dogs barking. So what should I do when all the housing is bulldozed and replaced by high-density apartments? Be forced to go move into the woods? And then who will provide food for my young children?
Newer apartments are pretty well insulated against noise. In fact some of the newer apartments in San Francisco are quieter than houses because the houses were never that great to begin with. And for what it's worth, growing up in a house in suburbia I heard dogs barking on a regular basis.
You're not alone. I would love to live in an apartment if I could block out all noise from neighbors.
I feel like a crux of the author's argument (and not deeply discussed), is the process where increasing population and density leads to higher wages for the highly educated.
We could imagine new companies moving to the area, with their complete team in tow. This creates a new opportunity for me to jump ship in return for a raise. My employer then has some incentive to 'steal' someone from elsewhere and may offer higher wages. The net result being little change, but higher wages for us both.
Is that enough to feed into the loop that keeps housing costs high?
Maybe the key step is the arrival of new employers, which bring the credit and wealth that soaks up the space created by any new housing. Some employers, and those employees not paid enough to keep up will choose to exit. But those spaces will be filled by the highly-motivated quickly. Meanwhile the relatively poor will continually suffer, there is nothing created that satisfies them.
So, dear leaders, build new housing but restrict employers, to make the bell curve that matches the people you want to populate your city.
We could imagine new companies moving to the area, with their complete team in tow. This creates a new opportunity for me to jump ship in return for a raise. My employer then has some incentive to 'steal' someone from elsewhere and may offer higher wages. The net result being little change, but higher wages for us both.
Is that enough to feed into the loop that keeps housing costs high?
Maybe the key step is the arrival of new employers, which bring the credit and wealth that soaks up the space created by any new housing. Some employers, and those employees not paid enough to keep up will choose to exit. But those spaces will be filled by the highly-motivated quickly. Meanwhile the relatively poor will continually suffer, there is nothing created that satisfies them.
So, dear leaders, build new housing but restrict employers, to make the bell curve that matches the people you want to populate your city.
The author’s argument is that creating more supply will further increase housing prices because more educated professionals will move into the city. I see two issues with this argument. One, I don’t think it’s the limit of affordable housing that’s preventing educated professionals from moving here. They’re already coming here in droves, which is the initial cause of this problem (according to the author). Who says adding more housing will further increase the influx of these people? Two, suppose the above hypothesis is correct, then wouldn’t their salaries go down? This is the entire basis of the author’s argument as to why housing prices keep climbing; because by moving to the city, these professionals are immediately increasing future earning, which they borrow against from their well-to-do families. So doesn’t increasing the flow counteract the forces driving prices up by decreasing these future earning?
Just keep building housing until people don't want it anymore. The affordability will arrive when people who don't want to live next to a high-rise decide to move out.
This author doesn't give enough deference to the market. Building more housing will not work, not if the current economic incentives exist. I would love to build housing in compact cities; I could make a fortune. It will take significantly more housing before the market will start to feel the impact, and will be forced to reduce prices due to too much supply. More housing, more affordable housing, more taxes, all of it will still be at the whim of the market.
Counterintuitive as it may seem, basically you want to prevent job growth, because that's where housing demand comes from. Instead of competing with other places to get more good-paying jobs, play to lose. Encourage companies to move away. Cooperate with the many smaller cities that could really use more jobs.
It's load-balancing, basically.
It's load-balancing, basically.
Demographically, we are almost out of the bubble. Currently the children of the Boomers have been buying houses, hence the serge in price. But most have now settled in, the market is starting to slow in most 'hot' cities, across N.American and Europe.
It's not just housing that's the issue, it's zoning. Flexible zoning laws will reduce living costs,not just by reducing house prices, but by reducing transportation costs.
Here in Melbourne vast numbers of skyscraper apartment towers have been built by greedy, short term developers aimed at making a quick buck.
Now we have apartment towers every full of too-tiny-to-be liveable apartments built to shoddy standards - many of them constructed using fire risk cladding which has made them effectively worthless.
That's what a house price boom buys you.
https://www.news.com.au/national/victoria/news/hundreds-of-b...
Now we have apartment towers every full of too-tiny-to-be liveable apartments built to shoddy standards - many of them constructed using fire risk cladding which has made them effectively worthless.
That's what a house price boom buys you.
https://www.news.com.au/national/victoria/news/hundreds-of-b...
Here in Melbourne vast numbers of skyscraper apartment towers have been built by greedy, short term developers aimed at making a quick buck.
Right, and back in the day housing was built by non-greedy, long-term developers aimed at making a long buck.
Something must have happened to housing developers to turn them from being very kind to very rapacious.
Yeah, that must be it.
Right, and back in the day housing was built by non-greedy, long-term developers aimed at making a long buck.
Something must have happened to housing developers to turn them from being very kind to very rapacious.
Yeah, that must be it.
No, that's what an incompetent and/or corrupt inspection regime buys you. Either the building complies with fire codes or it does not.
>too-tiny-to-be liveable
As long as it meets fire code and has enough space for a kitchen + bed, what is wrong with that? Is someone forcing you to live there?
As long as it meets fire code and has enough space for a kitchen + bed, what is wrong with that? Is someone forcing you to live there?
Condos are miniature money machines in a low-interest-rate environment. There always will be a high demand for money machines.
When/if we cross over to a secular bear market for credit in which interest rates broadly increase reliably for a number of years, the problems with affordability largly will subside. Until then....
When/if we cross over to a secular bear market for credit in which interest rates broadly increase reliably for a number of years, the problems with affordability largly will subside. Until then....
Well, let's try it and find out. What we doing now ain't working.
Let's try it and see.
As an analyst who works a lot with housing data. The dynamic in Melbourne is very similar to what is seen here in Toronto.
I particularly agree with the comments regarding the economic leverage and wealth effect built into home ownership. It has been the classic way of building wealth in Australia for all income groups. And it is indeed powerful. The effect for home asset class is particularly high to by the Basil II (and probably Basil I) banking regulations which allow banks to lend out much higher ratio of loans to capital where the security is housing. I believe this is the primary reason why home loans charge a lower interest rate than say a loan to buy stocks or a business loan. It is indeed a powerful 'gift' to be lent money at a subsidized rate. And this has been given to all home buyers.
I also feel that eventually this positive feedback loop will stop or go into reverse. My guess is a new equilibrium point of housing value will occur at about the point where the long term interest rate + turnover costs = rental yield + long term rent inflation. At that point borrowing money to invest in housing should not in the long run make or lose you any money.
Unlike housing prices, rents are tied to what people can afford. Over the past 10 years in Victoria rents in metro Melbourne have increased by 3.3% p.a. This is actually lower than regional Victoria (3.6%). This is higher than inflation but quite close to income growth. Note: Metro Melbourne makes up 80% of the states 6.4 million population and the higher rates in country areas probably represents bleed over from the Melbourne into satellite commuter towns.
Gross rental yield (rent/property value) is 2.5% for houses, 3.5% for flats/apartments (probably what you call condos). But this is probably on the high side. Maintenance costs are probably at least 1% for houses, and probably higher for flats due to their higher depreciation and construction costs. Call it 1.5% for houses and 2% for flats. Houses have a premium due to their ability to be developed more easily into higher density housing.
Cost for selling a house is about 8-10% of value. If you sold every 20 years that would be 0.4-0.5% p.a. Current interest rates in Australia for a home loan is about 4%. So the current equation for flats would look something like 4% + 0.5% < 2%+3.3%. The right side is higher than the left, so flats might be below the long term equilibrium price, but not by much and if you need to put a 20% deposit down, then the opportunity cost of not having that 20% invested in, say, shares might mean that it is already at equilibrium price. Interest rates could drop, but currently in Australia, the banks have shown little inclination to drop their rates even if the central bank has.
Back to the original post. I don't count housing affordability as property prices. I would count it in rental prices. And for this I do think that building new homes does effect housing affordability for renters. From the data I have tight supply or surging incomes = increase in rental prices. While loose supply or low income growth = stagnant rents.
Why don't we try it first?
Building more housing will not work. Unless you force builders and owners do you sell less than what the market is willing to pay, building more will only lead to more expensive housing. At some point there will be saturation, and the market will have to start reducing its prices, but that is a very far off Hope
Building more housing in existing urban areas as a practical matter just means increasing the real wealth and income of the landlord class. If we _really_ wanted to solve the housing crisis, it would be through a homesteading program where new cities were created in empty land and people were encouraged to move there by being offered a plot of land for a filing fee and the promise to actually live there.
Don't small towns have plenty of cheap housing already? The shortages are in commuting distance of strong labor markets.
It's all about creating an economy of scale. Nobody wants to be the first one to spend $100k+ to live in a meth addled opium pit with no future. On the other hand, if you offer thousands of people a fresh start it could work. Imagine for example if Amazon built a warehouse, err I mean "fulfillment center" in the middle of nowhere on federal land with highway access and at a reasonable distance from existing markets and offered their standard wage, and then in addition there were a homestead opportunity. No, think bigger and don't just limit it to Amazon or any other single company. There really is room for a public/private partnership here to grow the middle class and free workers from having all their marginal wage increases (and then some) go to rent increases.
If there are existing small towns where the local landowners would be willing to participate in a homestead program then sure that would be great.
If there are existing small towns where the local landowners would be willing to participate in a homestead program then sure that would be great.
The answer doesn't change: if there is not enough build more of it.