Because a 5 million dollar luxury apartment built for foreign investors and an affordable 2 bed for a nurse arent competing in the same market any more than a bike and a ferrari are.
It wouldnt be such a problem if the free market could create land, could create public transportation to link up housing to cheap land or could be kept from creating "apartment bitcoins" with a 100% land value tax but it refuses to and it wont.
So, while the margins on luxury housing are ~15% and affordable is 4-6% the free market will rationally maximize the utility of property construction firms...
It's the same market, because those investors are already there whether or not new luxury housing is built. The people buying the ultra-high-end stuff will, if it's not available, buy slightly lower high-end stuff, and so on down the chain ad infinitum, resulting in higher prices for those low-end two-bedrooms. Conversely, the very-high-end stuff being built then frees up some fraction of housing capacity all the way down the chain, lowering prices. https://www.nmhc.org/research-insight/research-notes/2024/wh...
> inner city land is scarce
Inner city land here in Portland has plenty of surface parking lots, one- and two-family homes, and old buildings that have gone unused, sometimes for literally years†.
† This part also gets into the bizarre rules around commercial building valuations and mortgages, which can make it a better choice for the building owner (at the expense of the city) to leave a building vacant indefinitely and eat the commercial mortgage payments than to rent it out cheap and have the mortgage provider suddenly call in the entire loan because the building valuation went down.
No, the people who buy the ultra high end stuff will not buy it if it is not a good investment.
Tax them more and they will decide that they dont need a huge and opulent second home in the middle of a city where all the jobs are.
>Inner city land here in Portland has plenty of surface parking lots, one- and two-family homes, and old buildings that have gone unused, sometimes for literally years.
Until we catch up on literally decades of underbuilding housing, real estate in most US cities will be a good investment. The only question is which cities are gooder investments than others and how much money the investor has.
It's not really relevant to bring in radical overhauls to our economic system when people are talking about what politically-possible changes might help improve the housing market.
> So, while the margins on luxury housing are ~15% and affordable is 4-6% the free market will do what it always does...
Volume isn't something that companies tend to ignore.
In any case, there's a chain of purchasing; if people have to move somewhere then they buy whatever is available at the top of their budget. If there's a shortage of housing then they buy whatever was originally the cheaper housing. You can see this in London where in some areas 2-bedroom terraced houses are well over £1 million.
American cities are some of the least dense in the world! You can't make more land, but you can build up. Taxation can even encourage this with land value taxes.
It wouldnt be such a problem if the free market could create land, could create public transportation to link up housing to cheap land or could be kept from creating "apartment bitcoins" with a 100% land value tax but it refuses to and it wont.
So, while the margins on luxury housing are ~15% and affordable is 4-6% the free market will rationally maximize the utility of property construction firms...