Worth noting for folks who think that supply is the only problem. Similarly in my home of Vancouver the construction of towers has been constant for decades and prices have only skyrocketed in response.
Certainly if you stopped building completely you'd eventually have a real problem, but the evidence is clear to me that you'll never reach the incredible supply levels that would cause prices to drop (why would builders do this anyway?).
There is also what Ebenezer Howard, the inventor of garden cities, called the “unearned increment”, which is the uplift in value when land becomes available for housing. It was the basis on which postwar new towns were built. Currently it is being squandered – when the government, for example, relaxes planning constraints on certain properties, or makes it easier to convert offices or shops into homes they drench the lucky owners of such places in cash, without asking for much in return.
Vancouver captures this. It goes toward community centres, the arts and increasingly housing. http://vancouver.ca/news-calendar/community-benefits-from-de...
Orangecat's comment is appropriate: https://news.ycombinator.com/item?id=9207631 but I'll note too that Vancouver, like other cities, is probably substantially still underbuilding the market—which high prices reflect. Houston, on the other hand, is not doing that: http://marginalrevolution.com/marginalrevolution/2015/03/hou... :
Unlike most other big cities in America, Houston has no zoning code, so it is quick to respond to demand for housing and office space. Last year authorities in the Houston metropolitan area, with a population of 6.2m, issued permits to build 64,000 homes. The entire state of California, with a population of 39m, issued just 83,000.
Which is why so many people are moving to Texas. http://www.bizjournals.com/austin/news/2014/12/23/big-tex-in... is one link.
Houston's endless sprawl is not technically emulatable for many cities and the design of the city is undesirable to many. I'm not sure it's an example that people would choose to follow.
It's the same as in any other market, people will carry on doing things while there is significant profit it in. A builder can only stop another builder by forming a cartel.
Also, bear in mind that just because house prices have gone up as decent numbers of buildings have been put in place, it doesn't mean they wouldn't have gone up more if supply had been even more constrained.
There probably is some self perpetuating element to house building - if prices are cheaper than they would otherwise be, more people would move to a city, so that means there is an effwct of supply creating more demand. But I think that occurs at the edges. Most people don't move city or in particular country for the house prices.
The cause and effect probably goes the other way.
why would builders do this anyway?
Why do gas stations lower prices when oil falls? If they don't, their competitors will.
Certainly prices would be higher if the buildings hadn't been built, but one wonders just how many buildings does one have to build to get prices to drop? Possibly it's an unrealistically high number.
My friends in Vancouver have told me that many of the modern buildings only have something like a 35% year-round occupancy rate, and that they're largely owned by foreigners as summer homes.
It's really not that hard: remove height limits and parking minimums, per Yglesias in The Rent Is Too Damn High: http://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B0.... Glaeser's The Triumph of the City is also good on this subject and discusses the UK more: http://www.amazon.com/Triumph-City-Greatest-Invention-Health.... This is a simple issue of supply and demand: rising demand in the face of limited supply means higher prices. Want lower prices? You need more housing or fewer people who want it. The former is easy to accomplish with century-old technologies, like steel and elevators.
FWIW, the London Plan currently contains restrictions on the maximum amount of parking provided:
table A4.2 Maximum Residential Car Parking Standards
Predominant housing type 4+ bed units 3 bed units 1–2 bed units
Car parking provision 2–1.5 spaces 1.5 – 1 space 1 to less than 1
per unit per unit space per unit*
* All developments in areas of good public transport accessibility and/or
town centres should aim for less than 1 space per unit.
Brazil has problems too - http://cities-today.com/2014/07/finished-brazils-largest-cit...
A law that limits the rent increase to inflation + x.
Notes: Circumvention by "also buy this used kitchen for a ridiculous amount" would be illegal as well. Sucks for anyone trying to move into the city but doesn't force everyone who lives in the city to move out.
(Obviously sucks for anyone who's invested in real estate but we don't care for these folks, do we?.. Well, it sucks for everyone else as well.)
Regarding the investors, I am not sure how a reasonable rent increase along the inflation rate would suck; the fundamental building, maintenance and operating costs should also move with inflation. I have a little real estate myself and when I bought, my financial plan did not rely on a crazy rent spike 10 years down the road.
The current low interest rates push so much investment into real estate, while space for construction is limited in many places. How would you fix this situation?
I think that today's restrictions on building in many places are absolutely draconian, to the point of a chronic shortfall in the number of apartments built not just in city centers but in entire cities. I think that to some extent this is explained by a collusion of builders, property owners and bribed government officials (so corruption), and to some extent it's explained by the government liking to restrict building to preserve open space or what-not and not liking to do the work needed to plan and execute urban expansion at a decent rate (so laziness).
The jobs must go where these people live currently. Inconvenient for companies who like their offices in central (and expensive) locations, but doable.
It's interesting to compare this to other cities: a cursory glance at LA craigslist shows some apartments in nice areas that would easily cost twice as much in SF/Manhattan. Same with Chicago.
Is it really just population density? A cursory google search says that SF's population density is about 17,000 people per sq. mi, which is about the same as West Hollywood. Yet looking at apartments in West Hollywood, I see apartments much nicer than I would in SF for the price. Maybe I'm grossly oversimplifying though.
But then is the answer really just 'sprawl'? Are Chicago and LA only 'reasonably priced' because they're so expansive? Is that how our cities have to move lest they suffer some sort of housing implosion?
As it is, I don't understand how anyone earning minimum wage lives in SF/Manhattan - or why they'd even want to commute in to Manhattan to work for Chipotle if they don't.
Unfortunately, San Francisco proper is very very hostile to real estate development for a variety of reasons and is trapped in a steadily worsening local maximum. A large part of that is policies like rent control, which bestows a sort of quasi-ownership of an apartment that may be even more effective than real ownership at spreading around the benefits of what the article calls a "tax by the haves on the have-nots, and by the old on the young."
Building out the suburbs could also be an answer if you could trust the region's government agencies to provide decent transit options, whether public transit or highways. You can't. At least if you're commuting to work in Manhattan you have a cheap $2.50 subway ride into town from many places that are much further away than you do in San Francisco.
Right. Rising house prices are just runaway inflation. If inflation indexes include housing (which, in the US, they did until the 1980s) inflation is much higher.
For most purposes, the UK now uses a measure (CPI) which excludes housing costs. However, RPI is still used when calculating changes to the state pension.
Terraced houses? In a place with high housing demand? Really?
You don't need to go to NYC heights, just look at what France and Germany do
They seem to hang on their historic buildings, with cramped accommodations that cost an arm an a leg to follow current regulations.
It's similar in Ireland, really.
What's wrong with terraced housing? It is more suitable for high-density developments than detached or semi-detached housing. A mixed development of houses and flats brings in a variety of different households and people. This makes a place much more attractive to live in than a place with only one type of dwelling. Well-planned terraced housing doesn't have to lead to sprawl.
In the UK, families with growing children have an aversion to flat living. It may be irrational, but this attitude hasn't changed in decades and is unlikely to change in the future.
It's less dense than apartments.
> In the UK, families with growing children have an aversion to flat living.
Maybe because of the abysmal quality and ridiculous size of most accommodations.
Brought to you by people that think carpet in a bathroom is acceptable.
Here in California showers and much other plumbing are required to have backflow valves so that hot and cold don't cross contaminate.
"Most bathroom sinks in Britain still have separate hot and cold taps today, 60 years after Mr. Churchill’s conversion and decades after nearly all dual taps were scrapped in the U.S. and most vanished from continental Europe. For reasons of thrift, regulations and a stubborn attachment to tradition, the British have resisted the tide of plumbing history. Even when they renovate old homes, many choose two-tap systems, and builders often install them in new, low-end housing. Separate taps account for an estimated 40% of all bathroom-faucet sales in the U.K."
Of course, if you're not rich and trying to get on the housing ladder now, things are pretty difficult.
If so, it doesn't look like UK is able to extract much for its own citizens from said world domination.
The working class certainly have it much worse, though.
Meanwhile from 1990 onwards we're seeing an average of less than 200,000  - In the last few years the rates are the lowest for the time period on the graph (back to the 1970s).
In most US cities (except SF, LA, NYC) the ratio of average house price to median income is very reasonable (about 2.6). One main reason is the high property taxes which average about 1.5 to 2% of the house value. The tax also increase substantially for second homes. This discourages using a second house as investment/store of value.