
What happens if building more housing doesn’t work? - jsweojtj
https://alexdanco.com/2019/05/22/what-happens-if-building-more-housing-doesnt-work/
======
imtringued
San Francisco has basically dug it's own grave. By refusing to construct
enough housing it has created a massive shortage. Even if it starts
construction today the backlog is high enough that there will "never" be
enough housing. It will take decades to undo the damage. Americans are
migrating away from SF, (international migration still high). People are still
living with their parents or with roommates, so if you build more housing then
people will move out into their own apartments. Useless NIMBY metrics like
average rent don't seem to reflect the increased quality of life of those
people who get to stay in SF. What counts is that the population in SF can
keep growing. Because new construction serves the top end of the market first,
NIMBYs attribute the increase in rent to the new construction as the primary
source of high rent although the increases would happen regardless of new
construction.

The answer doesn't change: if there is not enough build more of it.

~~~
raducu
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?

~~~
AstralStorm
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.

------
Nasrudith
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.

~~~
sandworm101
>> 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.

~~~
outlace
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.

~~~
anigbrowl
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.

~~~
jaredklewis
> 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?

~~~
anigbrowl
Their decision to move here is probably a function of the (perceived)
available housing stock.

~~~
jaredklewis
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.

~~~
marchenko
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.

------
com2kid
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)

~~~
sampo
> 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.

~~~
martinald
This. I really don't understand how so many people don't understand this.

~~~
maxsilver
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).

~~~
chii
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.

~~~
jahewson
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?

~~~
chii
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.

------
andrewstuart
"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.

~~~
cle
> 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.

~~~
creato
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.

~~~
Macross8299
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.

~~~
creato
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, ...?

------
gshdg
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.

~~~
wrs
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.

~~~
sokoloff
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.

~~~
wrs
But they weren't renting…they came from out of town to get to their high-
paying creative job.

~~~
gshdg
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.

------
Gimpei
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.

~~~
lazyjones
> _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.

------
tristanm
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.

~~~
anarazel
> 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?

------
ALittleLight
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...](https://betterdwelling.com/city/toronto/toronto-has-
over-99000-unoccupied-homes-heres-where-they-are-interactive/#_)

------
elchief
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

------
anigbrowl
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.

~~~
anonuser123456
So the city has a rule that's preventing the firm from demoing and rebuilding
and you're mad at the property owner?

~~~
tanzbaer
Some people have a fixed enemy that will always be the bad guy no matter what.

------
smdyc1
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.

------
yonran
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](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...](https://www.amazon.com/Shut-Out-Shortage-Recession-
University/dp/1538122146)), 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.

------
rb808
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.

~~~
greedo
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.

------
burlesona
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.

------
tunesmith
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?

~~~
imtringued
Kick out the tech companies and prevent commercial construction.

------
cletus
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.

~~~
opportune
>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.

~~~
gshdg
A city where no one can rent will die because young people can’t move in.

------
skywhopper
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.

------
xamuel
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?

~~~
twblalock
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.

------
razzimatazz
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.

------
MetalGuru
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?

------
human20190310
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.

------
Simulacra
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.

------
skybrian
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.

------
mymythisisthis
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.

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sdinsn
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.

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andrewstuart
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...](https://www.news.com.au/national/victoria/news/hundreds-of-buildings-
potentially-covered-in-flammable-cladding-that-caused-catastrophic-fire/news-
story/9b55bb837db68e721d9fb888aa07ddf3)

~~~
jseliger
_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.

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drtillberg
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....

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purplezooey
Well, let's try it and find out. What we doing now ain't working.

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idlewords
Let's try it and see.

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anon46121
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.

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seppin
Why don't we try it first?

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Overtonwindow
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

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User23
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.

~~~
erik_seaberg
Don't small towns have plenty of cheap housing already? The shortages are in
commuting distance of strong labor markets.

~~~
User23
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.

