
Under-building of new homes, high construction cost perpetuate housing shortage - prostoalex
https://www.redfin.com/blog/2017/10/heres-the-1-reason-its-so-hard-to-find-an-affordable-home.html
======
chiefalchemist
"We would love to build more affordable starter homes, but when high-end homes
cost the same to build and are far more profitable, we lose the incentive to
build smaller units,” said Isaac Stocks of Azure Northwest Homes, a Seattle-
area home builder.

That sums it up.

Plus, more expensive homes means more property tax revenue, so there's little
incentive for state/local gov to encourage lower end housing.

Finally, it would help to know about financing. How willing are banks to issue
loans at the lower end?

The whole system is "tuned" for larger more expensive houses. It works for
those it works for, and doesn't for those with little to none socio-political
clout.

~~~
theseus7
The first part of the solution is to completely eliminate mortgage subsidies
and mortgage interest deductions. These do not increase the supply of housing,
they only subsidize demand for more expensive houses and increase
indebtedness, and increase the flow of capital into non-productive areas of
the economy such as mortgage lending and mortgage backed assets.

The second part of the solution is to convert all property taxes into Land
Value Taxes, so that idle and vacant land is taxed at exactly the same rate as
land containing well maintained houses. Local governments would no longer get
higher payouts for zoning for high end housing, they would only get higher
payouts if they raised the net desirability of all land within the borders of
their city as a whole.

The land value tax would also free up vacant, idle and underutilized land for
actual use and improvement, by making land unattractive as an asset for
investment or speculation. This would greatly increase the competitiveness of
the housing market, because if it is no longer profitable to hold onto a
vacant building, a parking lot, or a strip mall in a high demand area after
the carrying cost applied by the land value tax, the vacant lot might be split
up and sold to smaller owner-operators, the parking lot might be replaced by
several smaller town houses, and the strip mall might be replaced by a mixed
used development with additional housing units builtin above the shops,
increasing average quantity of housing units per city block or per area unit
measure.

> How willing are banks to issue loans at the lower end?

Focusing on banks and subsidizing loans is what is fueling this problem. The
solution is not to make loans easier to get, it is to drastically lower the
price of land and increase the efficiency at which land is used. When the
price for land is cheaper and closer to a market price rather than a monopoly
price, far fewer people will have to bother with loans or mortgages in the
first place. Lower end housing can be made substantially more affordable even
if all mortgage assistance schemes are eliminated.

~~~
freeloop3
You're putting the poor in an awfully tight position there. Between no tax
deduction for a mortgage and paying the same property tax (what you call land
value tax) for their trailer as the mansion next door, they're kind of getting
screwed.

And what about old people that have owned their own house for decades? If the
local economy goes up, increasing the land value tax, they either leave or go
bankrupt. And the kicker is that their investment into their home is now worth
a lot less.

~~~
adventured
People with trailers are not benefiting from the mortgage interest deduction.

The mortgage interest deduction overwhelmingly benefits households earning
over $100,000 per year. Only one in five tax filers take the mortgage interest
deduction, the extreme majority are in that $100k+ income bracket.

The substantially increased standard deduction is far more important than the
MID for the middle class. Cutting the MID tax break for the top 1/3 of
earners, is what will help pay for raising the standard deduction that is a
huge benefit to the bottom 2/3 of earners.

[https://www.cnbc.com/2017/08/31/that-beloved-mortgage-
deduct...](https://www.cnbc.com/2017/08/31/that-beloved-mortgage-deduction-
skews-to-the-wealthy.html)

"Mortgage Interest Deduction Saves Middle Class Taxpayers All Of $51/Month"

"Most of the MID 2012 tax benefits went to people making six figures or more.
Households earning over $100,000 in 2012 claimed 77.3 percent of the total MID
tax savings, essentially the same as in 2010. And just looking at those making
$200,000 or more, we found the very top earners claimed 34.6 percent of the
total MID benefits and saved $5,021 on average for 2012."

[https://www.forbes.com/sites/realspin/2013/12/18/mortgage-
in...](https://www.forbes.com/sites/realspin/2013/12/18/mortgage-interest-
deduction-saves-middle-class-taxpayers-all-of-51month/)

------
jdavis703
I hear an argument a lot, "housing in the Bay Area is expensive because
because labor cost is so high." According to this report in San Francisco it
costs $269,000 to build a new housing unit. With the median home sale price
over $1,000,000 it seems fair to say that the labor component isn't the
primary driver of the high costs, it's probably related to the inability to
legalize enough housing.

~~~
tehlike
Labor is definitely not the main driver.

Often quoted construction price is about 300$/sqft around where i live. If you
were to build new, you would spend 750k-850k. Now, you cant buy land for less
than 1.8 in mountain view that can hold 2500sqft home. And sale price would be
close to 3m anyways.

~~~
maccard
Maybe one of the issues is the expected sizes of homes in the US - 2500 sq ft
is about 250 sq m - which is pretty darn big. The average home in the uk is
about 85 sq m...

~~~
jdavis703
No, this doesn't have to do with construction costs (which are about linear
with square footage), it's other factors. For example, even if someone wanted
to build a tiny home (i.e. less than 500 square feet), it's illegal in many
places because of minimum square footage requirements. The problem comes from
bad land use planning, not because "dumb" Americans don't understand a larger
house costs more money.

~~~
tehlike
True that. There's the other side of the coin though. South bay (excepting San
Jose) is what you'd call suburbs. People who choose to live low density areas.
Part of it is because of the employers. I, for one, do not like a lot of
people around me, and I grew up in a city of > 15M. I like the low density.

I think it goes both ways. companies in the bay area choose to headquarter in
low density areas (so they can grow).

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taprun
No, the #1 reason it's so hard to find an affordable home is that potential
buyers can get huge loans at very low rates. Since buyers compete with each
other, prices go up.

I guarantee that if interest rates were allowed to creep up, and the
government stopped guaranteeing loans made by the banks, we'd have cheaper
homes almost immediately.

~~~
sytelus
Not really... these days 20% downpayments are the norm. I know several people
holding off purchases because they simply don't have downpayment. Higher home
prices reduces number of potential customers but right now we have so many of
them that reduction doesn't matter and margines are much higher on higher end.

~~~
scarface74
FHA loans are easy to get and the down payment required is 3.5%. Even with
mortgages that don’t qualify for FHA it’s relatively easy to get 5% down
payment loans.

~~~
prostoalex
They generally require PMI, so still an extra payment out of pocket, are
usually hard-capped at 30% of buyer’s current income, and take looong time to
close compared to strong cash offers with conventional loans, so sellers view
them as last-resort. It’s possible, but not very realistic for an FHA
applicant to outbid everyone else on price.

~~~
scarface74
You can get prequalified for an FHA loan just like any other loan. Everyone
doesn't live in SV where houses go so fast you're constantly having to outbid
people.

~~~
prostoalex
taprun's comment was describing a competitive market "potential buyers can get
huge loans at very low rates. Since buyers compete with each other, prices go
up".

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pxeboot
_We would love to build more affordable starter homes, but when high-end homes
cost the same to build and are far more profitable, we lose the incentive to
build smaller units_

This is a major reason why prices are so out of control. Land prices aside,
there is no reason somebody couldn't build a nice ~1000sqf house for under
$100k. But without literally doing the work yourself, these places just don't
get built.

~~~
thriftwy
Can't you contract the building part if you have a suitable piece of land?

~~~
pxeboot
Sure, but that's going to cost a lot more, as it is now a "custom home".
Economies of scale apply strongly to houses.

~~~
Empact
Not necessarily the case - my sister just had a home built on land in Dallas
and the cost was not much more than new home cost ($129/living sq ft), before
that my father built the home we grew up in nearby himself. There's a reason
Dallas, Houston, and Austin are at the top of the new home construction
numbers - low regulatory overhead make every scale of home building
manageable, including self-starting new home construction. Meanwhile the
benchmark for new construction starts in SF is 3-5 _years_ just to navigate
the intial regulatory approval for construction. Try navigating that as an
individual just trying to get a home built for yourself. It's basically
impossible.

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purplezooey
Construction pricing is definitely out of control. Part of the problem is that
the entire industry is funded with low interest purchase and equity loans and
not cash. Another problem seems to be that a lot of construction entities went
offline in during the crisis and never came back. Any construction quote
easily runs into the $100,000s for even a tiny addition to a house. It's way
out of control.

If there would exist a construction company that would have upfront pricing,
not insanely expensive, and can get most jobs done within several weeks, they
would get a huge amount of business. Instead it's always months out, pricing
5x what it should be, and often just impossible to find anybody.

~~~
ikiris
You don't seem to understand what you're talking about. The reason for those
months out is because everyone is overbooked, and the pricing reflects demand
vs supply.

~~~
purplezooey
Exactly. It is a market out of whack.

------
sytelus
This is also because of mass migration to urban centers in recent times. Every
major urban center in US is currently facing massive number of incoming
people. When everybody wants to live in same little place, prices are
obviously going to shoot up. This should also explain why there are no too
many new homes being built - because urban centers have little room to expand.
This is current phenomenon in much of the world. Even if you go to 3rd world
countries and look at prices in core urban centers, you will see exact same
trend as in 1st world countries. This always had been a trend through out
history but in recent times curves have crossed the knee and has taken a
vertical leap.

~~~
wbl
Urban centers can grow vertically. 80% of SF is single story construction.

------
madengr
Here in the Kansas City area, it seems most of the new housing is mixed use;
commercial on the bottom and apartments on top. Not many single family homes.
Maybe it is because millennial not wanting/affording a house, and prefer dense
urban living.

Though that is beginning to change as they have kids, and are now moving to
suburbs. So they now build little cities within the suburbs.

~~~
ashark
In the northland, at least, there are tons of new boring ol’ suburban houses
going up. Construction slowed for a couple years after the crash, but came
back fast and now they’re putting up new houses and plotting new neighborhoods
as fast as they can.

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mooreds
Tldr: new homes cost too much due to labor. And building affordable housing
doesn't make sense when the costs to build a larger, luxury home are not
radically more, but the profits are.

I wish they'd talked about the problem in a more systemic manner.

They didn't address:

* Commuting

* Land prices

* Price to rent ratios

* Density

* Economic opportunity where housing is cheaper

------
EGreg
Funny to read this after all the articles about China's "ghost cities" and the
follies of central planning.

------
bgitarts
Why isn't there a tech company trying to disrupt home construction?

People speak of Uber being worth so much because of the giant market it's
going after and transportation is big being the second largest consumer
expenditure at 17% of wallet share. However housing is first at nearly 30% of
wallet share and the biggest dent you can make in that figure is lowering the
upfront cost which is several years of income for the average buyer.

~~~
Analemma_
Because the cost is labor, materials, land acquisition and permits, none of
which can really be “disrupted”.

~~~
bgitarts
labor has been disrupted through automation. materials can be disrupted
through better manufacturing and or new materials. permits can be disrupted by
removing or streamlining the process through regulatory changes or personal
changes/increases at the Department Of Building(s).

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ilaksh
My belief is that radical changes are needed. Much smaller plots, truly mixed
use areas, for starters. The tiny villages concept I have shown at
[http://tinyvillages.org](http://tinyvillages.org) takes it to an extreme, but
even 2 or 3 uses for the old plot size would make a dramatic difference.

I think that this idea will be better in many cases than building condos
everywhere.

------
crdoconnor
There seems to be a lot of articles posted on HN purporting to explain the
housing crisis from companies that profit from it.

Bearing that in mind, it's not so surprising to see "labor shortages" get the
blame while untaxed land, low interest rates and wealth inequality/property
hoarding go unmentioned.

