The Folk Economics of Housing
238 comments
·August 15, 2025SoftTalker
starkparker
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.
If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.
mediaman
This analogy seems confused.
If someone in Chicago moves to Seattle, then our policy options are (1) no new condo in Seattle or (2) new condo in Seattle.
Under policy 1, the new buyer from Chicago must outbid locals for the fixed housing supply; they will wind up buying older housing stock, which otherwise would have gone to existing local residents. Prices go up.
With policy 2, the new entrant buys the new condo and does not compete for pre-existing housing stock.
In this scenario, whatever house is freed up in Chicago is irrelevant to the housing stock in Seattle. I'm not sure why you included it.
The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
seanmcdirmid
> The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
Are you denying that induced demand is a thing for housing? That everyone who wants to move to Seattle will move there regardless of housing prices, and no one will leave because they get squeezed out of the housing market by new arrivals? Or is there a more nuanced argument that I'm missing?
That new condo allows one more family to live in Seattle regardless, whereas if they were competing with existing stock, some family would probably have to leave. We could play a few rounds of musical chairs to prove that fact.
ASinclair
> If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago
Is the existence of the $700,000 condo the limiting factor for those people moving? If it isn't built would they instead bid up an existing unit in Seattle and put it more out of reach of existing Seattle residents?
null
whall6
There doesn’t need to be a connection between the purchase and sale events. Any marginal unit of inventory added to a market will place downward pressure on the price of that inventory (i.e., make it more affordable). The reverse is true for a marginal bid for inventory.
The effect is so minimal when you zoom into a single sale of one home and purchase of one condo, but in aggregate this causes real noticeable price movement.
jillesvangurp
New construction is kept expensive mostly through complex rules that often exist to protect the interests of those doing the construction work, those owning existing houses and property, etc. It's a form of artificial scarcity. This scarcity is crucial to justifying real estate prices, propping up mortgages and the banks that provide them, etc.
There's no technical reason why building some shelter that keeps the rain out and the heat/cold where it should be is not something that could not be done cheaply at large scale using affordable materials. People have been building shelter for tens of thousands of years and it's easier than ever with modern materials. It's not rocket science to keep people dry and comfortable.
People routinely buy recreational vehicles that, because they have wheels, are not considered houses. So, suddenly there are much less rules and you can just produce those efficiently in factories. Except getting permission to park those and live in them is really hard to come by in many places. It's OK for recreational use. But not for living permanently. Which of course some people do anyway. But it's highly stigmatized.
Recreational vehicles come out of factories. Houses are built artisanally at great cost. The only functional difference that matters is mobility and wheels. Why should people not be able to get a nice second hand RV for a few thousand dollars and park it in a nice spot and live there?
Answer: it would immediately devalue the notion of owning brick and mortar.
supertrope
Part of it is maintaining current real estate valuations, level of density and aesthetics.
Crime and social class segregation is another aspect. Who lives in a neighborhood matters as much as the physical assets. Bans on MDUs (multiple dwelling units), permanently parked RVs, and manufactured homes serve as a barrier to entry. It’s not explicitly stated but the effect is the same as saying “If you can’t afford a $410,000 house we don’t want you as a neighbor.”
nine_k
Doesn't the price of land play a role? If the developer pays $100k for a parcel of land and builds a $500k house on it, they may have their margin on the $400k, but if they build a $250k house, it's only $150k, a more dramatic drop.
The minimum lot size requirements don't help the situation either.
It likely would be more efficient and profitable to build a townhouse, or even a mid-rise, and let more people live on the same parcel of land, but zoning restrictions often prevent that.
ncruces
Not just land, but all the bureaucratic costs, licensing, etc. Developers will always build the most high margin house the market will bear.
It still increases supply, though. And if there's no market for expensive houses, eventually they'll make cheaper houses.
Also, the people on the market who can afford the expensive houses, would still outbid you for a shittier house.
rootusrootus
I would not use RVs as a good benchmark. They are super cheap for a reason. The biggest reason not to live in one full time is that they quickly degrade under that kind of use. They are not built for anything other than occasional use. That is on top of their steep operating expenses, even if you can keep it held together.
A better benchmark would be a manufactured home. Transported on wheels, built in a factory, but intended to be used full time indefinitely.
IIRC, stick-built homes are only like 15% more expensive than the equivalent manufactured home, and you have a lot more flexibility in the design. Probably this is most of why manufactured homes are only popular in particular niches.
stego-tech
> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
As I commented elsewhere, that’s the paper math version that doesn’t resemble reality for those of us living in it. Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.
The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.
colonCapitalDee
In every single reputable empirical study of housing, adding supply really does bring down prices. Your preferred policy solution would decrease housing affordability, hurting the very cause you profess to champion. If this truly is something you feel strongly about, you have a duty to yourself to investigate the evidence, otherwise you are shooting both yourself and your movement in the foot.
jeremyjh
Building a new house and renting the old one absolutely does increase the supply of housing.
uv-depression
GP was incorrect that it doesn't increase supply, but correct on pricing. Besides, if I can't afford $3000/mo rent, it doesn't matter to me how many rental units are available at $4000/mo. With massive pricing collusion having been the standard for the last few years (RealPage) and the demand for housing always being extremely inelastic, the supply/demand curve is extremely complex.
stego-tech
Again, on paper it does.
But paper often neglects reality. A reality where it can be more profitable to simply hold the land rather than lease out the home on it. Where a constructive loss can improve tax savings. Where the intent is to have it vacant for some other perceived use or gain - like a vacation home, AirBnB rental, Pied-a-terre, or just letting the structure languish until it can be condemned and bypass red tape around teardowns/rebuilds.
Current incentives and structures do not mandate that homes are made available when someone buys another domicile. That’s one of the myriad of issues affecting the housing crisis.
bryanlarsen
how does renting out old stock not increase supply? Renting and buying are relatively fungible. People buy fewer houses when renting is cheaper.
WarOnPrivacy
> how does renting out old stock not increase supply?
Raw and overall housing numbers can be misleading by their nature. That is, they can be technically true while being false for many/most people.
Declaration: Housing supply is increased!
Actuality: Increase is only in homes for >$100k income earners.
The declaration is true for >$100k.
It is not true for most <$100k earners.
(of those <$100k earners)
There could be a very slight increase in supply for $80k.
It'll be less, if any, for $60k earners.
There is no increase in supply for <$40k (25% of US households).
Generally, there is no affordable, reasonable housing for typical income earners.
nine_k
Doing similar things in Berlin (regulations instead of building more) put the housing market there to a crazy state. Yes, the rents are mostly affordable, but demand seriously outstrips supply, and it becomes a game of chance, personal connections, waiting for a year or two until a particular unit frees up, etc.
BobaFloutist
>Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing
Ok, but they have finite leverage and financing. The market can easily overwhelm their access to capital, no investor class has anywhere near enough access to capital to fully corner the behemoth that would be a healthy housing market.
TulliusCicero
Also, they can only address the luxury market so much.
If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.
SoftTalker
Yes, but you'll only do this once the luxury market is saturated. As long as you can sell more luxury homes that is what you are going to build.
TulliusCicero
Right, but there's only so many people in that market. The reason it never seems to be saturated is that building more homes in expensive areas is typically very restricted and difficult and time consuming to do, mostly due to local/state regulations.
PaulHoule
My take on it as a small landlord (have two houses on my farm, one has two rental units) is:
I don’t think a lot about the pricing of my rental units and I’m not quick to raise them but when some new development comes into town and puts up billboards with their eye-popping prices and runs ads in the paper and on web sites and on the radio I think “Gee…. I must be leaving money on the table because I could raise my rates 50% and it would still undercut what they’re advertising a lot”
Of course the money they are spending on advertising indicates that their pricing is aspirational and they may very well next year be telling the city that they can’t afford their property taxes because they can’t fill the units and might be telling their lenders the same in a few years.
In Ithaca we got “luxury housing for seniors” that was nuclear reactor late and they can’t fill
https://ithacavoice.org/2025/03/library-place-to-sell-at-a-l...
(Don’t seniors with money go to Florida?)
A few market rate projects had an affordable component which has been part of a surge which has taken a bite out of our homeless colony but it is now like that talking heads song where they’re “burning down the house”
https://ithacavoice.org/2025/08/inside-asteri/
My understanding is many “luxury” developments are shoddily built and not a good place to live
https://www.nytimes.com/2022/04/15/realestate/condo-defects-...
supportengineer
In other words, housing capacity is created and "trickles down" to the bottom.
If there was such as thing as a $250k house within a few hours drive, I would buy all of them and just sit on them, maybe rent them out.
crooked-v
What you're missing here is that housing is only a good investment because it's in such short supply. If plenty of $250K houses were available, they wouldn't be doubling in price every few years, and "sitting on them" and eating the maintenance costs would just lose money compared to other investments.
null
BrenBarn
Maybe, but for people currently living who need housing, all that is academic. It's another case of "the market can remain irrational longer than you can remain solvent".
DevX101
Increasing the supply of the high end market often occurs while simultaneously reducing the supply of the low end market. This happens when landlords renovate their buildings. So it's very possible that adding supply can limit price inflation on the high end, while increasing costs on the low end.
supertrope
Yes that’s gentrification of a neighborhood. Neighborhoods evolve over time. Displacement is bad but measures to fight it can be even worse. If no new construction can be approved over it being a gentrification signal, rents will zoom up even more. In the most competitive metro areas there are no cheap rent areas left within an hour commute.
bondarchuk
I wouldn't count renovation as "adding supply", though.
legitster
One thing few people take into account is that demand housing is much, much more elastic than people realize - per capita people are consuming far more square footage than they used to. Houses that were built to be house multiple generations under one roof now only hold one generation. Usually elderly empty nesters. In our area we also see people buying up lots of older duplexes or triplexes and converting them into single-family homes.
So even areas where population is stable, and housing supply increases, it can result in very few tangible gains at the margin.
starkparker
There was a brief time 15 or so years ago where the $200-500k homes in the six or so blocks I live in were being snapped up by young upper-middle-class families on long 3-4% mortgages.
Those families' kids have now grown up, and the houses have appreciated, sometimes as much as 2-3x, due to a nearby light rail development connecting the neighborhood to the city at large on cheap transit. So those families are cashing out their housing by selling primarily to out-of-market elderly wealthy downsizers, typically from California, Arizona, Nevada, Colorado, and Texas.
The result is a neighborhood of 3- and 4-bedroom homes that once housed families of 4 or more people now mostly inhabitated by 2 or fewer people (many left vacant more than half the year as these wealthy retirees frequently travel). They also refit these former starter or second homes to accommodate these elderly inhabitants' reduced mobility and/or increase the home's luxury.
When these residents die in 10 or so years, even if the market corrects prices downward, these homes will now be even less suitable for anything but wealthy elderly inhabitants. The intelligent thing for the city to do would be to tear them down and replace them with accessible and affordable density; the reality is that the wealthy elderly who haven't died yet will spend the rest of their lives blocking such efforts out of spite.
brandonmenc
> out of spite
Or, they're just protecting their property value and neighborhood composition, like anyone else would do.
barchar
You'd think they would be prime candidates to be LPs for new development
whall6
Curious for a source on the sq footage per capita if you wouldn’t mind sharing. That’s very interesting.
Could that also be explained perhaps by the fact that people are willing to live farther away from cities (where land / homes are cheaper and larger) because they only have to work 3 days a week from the office? Or because commuting is less painful with newer cars?
myhf
Square footage per capita can be misleading because it goes up as an area moves from low density to medium density, but goes down as the same area moves to high density.
legitster
Square footage of land != square footage of real estate. A stack of apartments is high density, but each resident could enjoy more square footage than if they were crammed into a single family home with a ton of roommates.
bluGill
Adam smith observed in his book that as people get more money they typically spend is on nicer housing.
wyre
I dont have sources, but the trend for larger houses was happening much earlier than the WfH trend.
It's a mix of car culture, proprty value being lower farther away from cities so develops can create a high margin on building neighborhoods marketed on big, new houses.
potato3732842
I feel like McMansions peaked in the sub-prime era and that construction since has been smaller and simpler structures.
clausecker
In the US, isn't this partially the cause of zoning laws banning anything that is not single-family homes from being built?
pantalaimon
This is not limited to the US in the slightest
danaris
> per capita people are consuming far more square footage than they used to
^ This...
> demand housing is much, much more elastic than people realize
^ ...does not imply this.
If the only housing that is available is 3000sq.ft. for a family of 3, that family doesn't have the option to split it up and only buy 1500sq.ft. of it. They need to be able to afford the whole thing.
(Also, I question the extent to which this premise is true, at least in cities. Everything else I've been seeing is that people are living in much less space than they used to, due to the rising prices. Taking a studio apartment rather than a 1-bedroom, living with roommates, etc. But even if the premise is true, it doesn't imply your conclusion.)
kube-system
Colloquially you can see this in sentiments such as:
"All these developers are building is just expensive new luxury apartments"
And as the study mentions:
> To the extent that ordinary people form loose mental associations between “housing development” and “housing affordability,” they may well associate more development with higher prices rather than greater affordability. New housing, being new, tends to be more expensive than existing, depreciated housing.
It is just a perception bias thing. You don't really "see" everything around you aging because it happens slowly.
stego-tech
Yup, and the kneejerk response from economists is that the housing cycle suggests that new luxury stock would be inhabited by buyers who own existing stock, and what they sell would be more affordable to those buyers, and what those buyers sell would become more affordable to the next rung down, etc.
Except that’s not the reality. The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter, it’s used as a vehicle of growing capital. When that’s pointed out, suddenly economists blame the very same people who can’t get onto the “property ladder” for failing to “compete in the free market”.
In a vacuum, their original idea makes sense. In reality, it’s heavily exploited for the gains of those already on the ladder at the ongoing expense of those they actively prohibit from joining them. It’s societal exploitation leveraging the singular most basic human need after food and clean water: shelter.
crazygringo
> The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter
This is false.
It is absolutely used as shelter. It's used for renting. Investors don't generate just sit on housing and leave it empty (unless they're remodeling it or something).
Also it's not mostly private equity -- that's a tiny percentage. It's mostly small investors, like a mom and pop who own and rent two other homes to help fund their retirement.
Investors are not taking away living space. And many areas don't have enough rental properties (remember, not everyone wants to own, especially people on a short-term job or relocation), so conversion to rental helps here and brings down rental rates (as happens whenever supply increases).
lokar
But (the sound) financial models that lead PE and others to this investment are built around the assumption that supply will be artificially limited. If you build enough they will see reduced returns and back off.
stego-tech
Except those firms currently have enough money to lobby politicians to oppose any changes that would meaningfully increase supply, and also hold outsized stakes in the companies and suppliers who would build said stock.
It’s a rigged game top to bottom. A free market would’ve fixed this years ago, but this is not a free market anymore. The difference is I advocate control of necessity markets returning to government regulations around availability and affordability, while luxury markets remain relatively untouched.
Housing is a necessity. No market god is going to fix it.
amanaplanacanal
Even if 25% are sucked up by speculators and not rented out, just left empty (which I don't believe), that still gets you 75% as increase to the housing supply.
whall6
Curious for the source on the 25% figure if you wouldn’t mind sharing.
stego-tech
It was a series of studies earlier this year that made media rounds; searching for “Wall street housing 25%” returns a myriad of results from mainstream sources citing a number of different studies and papers:
https://fortune.com/2025/07/08/investors-buying-25-us-homes-...
I’m on mobile and can’t dig into total ownership figures at the moment, but I do know that in the sunbelt states property acquisition by investment firms has been a real issue. Even slumlords are getting bought out at top dollar, and affordable housing is increasingly just a trailer rented on land owned by - you guessed it - PE or REITs at consistently inflating rents.
tempestn
Vacancy taxes seem like a reasonable solution to this problem.
stego-tech
They are one of many pragmatic solutions, though I’d strongly argue cities skip right to forced-divestiture schemes of vacant units for owners and landlords alike. We have a homelessness crisis, and if you own a property that’s vacant nine months out of the year in a major metro then that should be forcibly sold off, incur steep tax penalties, or be rented out at fixed rates and long leases if you want to preserve ownership.
kube-system
Those speculative investments only make sense in a world where it is expected that supply will not keep up with demand.
stego-tech
And when your PE firm owns significant share of homebuilders, owns large tracts of land, and owns politicians, lobbying groups, think tanks, and economists, then you can effectively game the market to maximize your personal returns at the expense of everyone else.
They wouldn’t be buying 1 out of every 4 homes and bankrolling schemes to “unlock homeowner equity” (HEOCs, reverse mortgages, etc) if they thought this would be a resolved issue anytime soon. That’s exactly why government needs to get involved and force divestiture.
AnimalMuppet
If I build 4 houses, and someone speculatively buys 1 house, I've still added 3 to the housing supply.
As a solution to the housing shortage, building new is 25% inefficient? Great, it's 75% efficient. That's not bad for a solution. So let's do it, in volume, and actually make a dent in the problem.
And for the builders, they don't care. A speculator bought that house? It payed me just the same. But even better, the demand is still there, so I should build another one.
stego-tech
Again, ON PAPER your math works because you’ve narrowed down the problem to a conveniently limited set of variables that, in a controlled experiment, would produce ideal outcomes. And just like physicists keep learning time and time again of late, just because the math works on paper doesn’t mean the thing is real.
Yours (and every other detractor trying to eSplain Econ101 and market forces to me) ignores the complex realities of the marketplace. It ignores tax structures that benefit demographic groups over others in homebuying and wealth accumulation, incentives to hoard property for passive income through rent in lieu of releasing the property onto the market for sale, tax savings for owning secondary properties or rolling over capital gains, regulations that make teardowns harder until the structure is condemned and thus constrict supply, of homeowners who will go to extreme lengths to preserve paper valuations instead of building more housing.
Taken as a whole, with all the variables, and it’s readily apparent that it’s not “simply” a supply and demand issue.
energy123
> "All these developers are building is just expensive new luxury apartments"
gorfian_robot
I see those going up all over the US West. I know people who live in a few. Always feels like they live in a mid-range hotel. IDK why anyone would want that.
kube-system
Yeah, the point is that new apartments are ... new apartments. "luxury apartment" is meaningless marketing copy that every developer uses for every apartment building. What is marketed as a "luxury apartment" today will just be a "regular apartment" in 20 years.
majormajor
Nowhere in the US does it at the scale to make a serious long-term dent in prices.
Nobody with enough money and exposure to large amounts of real-estate wants to kill the golden goose. Look at the post-Covid-migration build stories. Rents start to soften and development dramatically slows.
Like Austin - https://austinmonitor.com/stories/2024/08/as-construction-sl...
Or Denver - https://www.denverpost.com/2025/07/24/apartments-housing-rea...
You would need continued serious government investment to make sure focus continues to be on total units and consumer price instead of investor ROI.
Because even adding four fancy town-houses or condos helps if what used to be there was single-family or duplex. But it doesn't help NEARLY as much as adding 100 units by converting an old shopping center or 30-unit apartment. But there are strong incentives against developers doing "too much" of the latter if they know they can make the same ROI by selling fewer, nicer units.
Individual residential property owners take a lot of blame here but they're not even benefiting THAT much - every crazy price increase is putting any upgrade to their own situation further out of reach. And fighting low-density residential NIMBY-ism is a slow process if you still only can buy one lot as a time as it becomes available. So focus on underutilized commercial and industrial near major hubs or transit corridors where most of what you're displacing is ugly parking lots and empty storefronts that contribute to crime as well.
taeric
This seems to be claiming something different, though? You are pointing at that development slows as prices go down. Which seems somewhat expected?
That is, adding supply lowers prices. And lowering price reduces potential profit such that fewer people will build. With fewer people building, prices should go up again.
Stated differently, thin margins reduce the number of people offering products in a market. Ironically, the main way to get more building is with bigger builders in that scenario.
majormajor
Well I'm saying that in practice adding supply hasn't lowered practice it has merely slowed the increase in prices. And that's mathematically essentially the same thing, but it's importantly different in two big ways:
1) If people see their costs going up while they also see new construction, the correlation machine's gonna jump to the wrong conclusions
2) If costs are still going up people are still going to be unhappy and worse off
Supply can increase AND price can still go up, and so for people to be won over and convinced you need to crack the second part, not just the first part. In a libertarian "just reduce regulation" approach that's often pitched, the natural equilibrium will be closer to "supply increase and price go up slowly", and people skeptical of "just reduce regulation" as a solution are more accurate than they're given credit for. Gotta actively intervene to make supply increase enough for any sustained period of time - we only see it in cases of macro shocks. Like the 2008 recession, or the post-Covid-bullwhip.
taeric
Ah, fair. And I see how this goes in with your idea of government spending.
It is frustrating, as that feels like an easy argument to show why a lot of things decreased in price. You had governments spending a ton of money. Or incentivizing the spend. Usually both?
I think my approach there would be to say you can't use profit as incentive to lower housing prices? For the exact cycle we both spoke to.
This is my big "abundance pill" that I've swallowed. It isn't necessarily deregulation you need. But if you want a goal, you have to spend towards it. And "lower prices" is a goal. To get there, governments will have to spend money.
whall6
Is it a crazy mental leap to think that maybe housing was historically mispriced and now we have reached equilibrium?
SilverElfin
Is it that they truly don’t believe it or they don’t want more supply (since that changes their quality of life, neighborhoods, traffic, etc) but still do want lower prices in other ways (like by price caps or other things).
One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want. It removes the competitive piece. In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
keeganjw
This is another huge myth in the US housing market, that big companies own lots of the housing and are jacking the prices up. It's simply not true. Large corporations own a tiny fraction of the market while the vast majority is owned by individuals and small landlords.
ruined
investor market share of homes is down from its peak of 20% a few years ago, but i wouldn’t call it a “tiny fraction”
https://www.redfin.com/news/investor-home-purchases-stabiliz...
pantalaimon
That is not limited to the US, in Berlin there was a popular vote to expropriate housing companies with more than 3000 units.
Yet those large housing companies charge on average between 7-8 €/m² and are nowhere near to holding a majority of the housing share.
SilverElfin
Is it different in different places though? Like some places have more of this ownership problem and so it looks worse locally?
pphysch
There's a lot of synergy and overlap between small landlords, property management companies, rent-fixing companies, and Wall St. It doesn't matter to the renter that their slum is owned by a tiny LLC that is nevertheless part of the broader constellation of anti-social rent-seeking behavior that is bringing down this republic.
TulliusCicero
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
Big corporations don't have unlimited money to do this kind of thing.
And in practice, the expensive areas they do it in, are usually very limited in how much new housing goes up, they're still very much supply constrained markets.
If what you're suggesting was really happening, then what you'd expect to see is an area with a relatively high vacancy rate (due to all the new supply), like 8% or even higher, but stubbornly high prices in spite of that. And I can't think of any examples where that happened. Can you?
ruined
investors actually tend to purchase cheaper homes
https://www.redfin.com/news/investor-home-purchases-stabiliz...
jimbob45
This is the propaganda they were pushing about RealPage too until it turned out that it was happening and the market was being distorted.
At any rate, if a buyer notices it happening in their area, then "it's not happening that much" is not only not going to make them feel better, it's going to also make them feel like you don't want to fix it.
TulliusCicero
Again, do you have examples where a ton of supply was added to a market, the vacancy rate shot up to high levels, but prices remained the same?
I agree that the algorithmic price fixing needs to end, though I think it's mostly gonna be strong in a market where vacancy rates are still low. Harder to maintain the cartel the more options people have.
segphault
>One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses
This just isn't true and isn't supported by the data. https://www.noahpinion.blog/p/corporations-arent-the-reason-...
dragonwriter
> One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want.
No, its not. If only one big company was allowed to do that in each locality, and they had the ability to buy up all the supply no matter how much new housing was built, that would be a reason; absent monopoly power, they don't have free reign to price how they want, and can price higher the less supply there is, even if you assume all of it is owned by similar big firms and used as rentals.
potato3732842
>In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
Because all the same voters (demographically, if not also frequently literally the same individuals) voted for a bunch of red tape that's only passable for the big vertically integrated businesses and even then it's only profitable when they're doing cookie cutter single family on .25ac or 5 over one apartments.
lokar
Yep. You need deep pockets to eat the carrying cost of a property while waiting years to get approvals.
k2enemy
> Is it that they truly don’t believe it or they don’t want more supply
If this comment section is anything to go by, there seem to be plenty of people that firmly believe that increasing housing supply doesn't actually increase housing supply, let alone the bigger leap that increasing housing supply decreases prices.
msgodel
I think what people want is less migration (both domestic and international) but that's not an option. Since it's the primary thing they want they're doing anything they can to get it including essentially destroying their own neighborhoods.
supertrope
They want to keep freedom of movement for themselves and restrict other people. Be careful what you vote for: a border keeping “those people” out sounds good until the day you are denied passage!
lokar
And then they complain (a lot) that their kids have to move away to afford housing.
MBCook
I can sort of understand that.
They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
There are other factors than supply. But most of the new supply is large houses. If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
supertrope
Single family houses are a premium product and continue to move upmarket. Cheap new construction house has become an oxymoron. Residential construction costs were rising at 5.5% per year before Covid (faster than inflation). If it were legal to build more condos, duplexes, townhomes, and apartments there would be less bidding up of SFHs. More people could live closer in meaning less traffic congestion.
mattmaroon
Well, you would have to compare it to an imaginary world in which they didn’t build those homes since 2010. Prices may not have gone down, but in the imaginary world, they might have gone up markedly so it has still reduced housing costs compared to if they did not build that much.
kube-system
> They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
Real or nominal?
> There are other factors than supply.
It is not uncommon for places with a lot of housing development to also be places with rising housing demand because it is a growing area.
> If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
And many of the people buying large new home are moving out of a smaller existing home.
AnimalMuppet
OK, that's an interesting point. There's not "the housing market". There are several markets, with some overlap. The market for starter homes is not filled by building 4+ bedrooms, still less the market for studio apartments.
And my impression is that, when we talk about the housing shortage, we're talking about apartments to starter homes, not about 4+ bedrooms. So what we seem to have is a disconnect between what the market needs and what builders are building.
But maybe that's only "seem". I'd bet that a 4+ bedroom house sits on the market a lot longer than a starter house. Maybe starter houses are being built, but not enough to satisfy the market, and so they're going almost immediately?
MBCook
I’m sure it’s not zero that are being built. But it doesn’t seem like a very high number, at least compared to the number of large homes being built in new subdivisions.
khalic
This is not what the study says, it’s more nuanced. People do not believe that liberalising demand will solve the issue more efficiently than other measures.
mattmaroon
If arguing about this on Facebook has taught me anything, it is that most people definitely do not believe it. They always make the same argument, which is that new housing stock tends to be high priced homes, so if what we need is low price homes why are we building high priced homes? Anybody who understands economics knows why this argument is wrong, but most people don’t.
Nonetheless, I don’t think this has much to do with the public policy as it stands because the people who make the policy do understand this. So while I think the assertion is correct, people do not believe it, I do not think that is a large factor and why the policies restrict housing.
nis0s
One problem that’s unaddressed is that there isn’t a house building, pricing and mortgage model for people making 50K or less.
One piece of data I’ve found is that 65% of Americans are homeowners (meaning American families, not rentals or investments), which is also about the percentage of Americans who make $50K or more per year (~68%).
For people with a middle class networth (not income, I mean networth, which is about ~1M-9M when compared with the top of US society), homeownership currently works as a wealth-building mechanism because of scarcity. There’s also the desire to live close to certain areas, but why not make more neighborhoods or areas worth living in?
Regardless, if the goal is to maintain scarcity for wealth building, then I think the scarcity mechanism will remain intact if homeownership is increased to a high rate while balancing the cost of materials and labor, and building houses specially for certain income levels, as mentioned already in other posts.
But no one seems to be doing materials innovation, or construction innovation. I don’t think 3D printing is there quite yet, and might be more expensive. Where’s the push on automating construction? Why not build with a genetically engineered bamboo that’s cheaper and more sustainable than wood? Seems materials innovation will help with both housing and sustainability goals.
yupitsme123
In the past, people were able to buy a small piece of land and develop it themselves. Literally build the house themselves. Over a long period time if necessary to spread out the cost. They also built 2-4 family homes so they could bring in some rent or house a family member.
None of this is really allowed anymore and it's very hard to find a piece of land to do it with. Enabling this sort of construction and forcing or incentiving small plots of land might open up options for people on the lower end.
9rx
If you could build houses for free then obviously adding supply would eventually reduce the price.
But I have been looking at the cost to build a home, it costs even more to build than to buy a used one. Who, exactly, is going to be able to afford to buy the new houses while selling their current home at a lower price than it would currently fetch?
Maybe if AI replaces all the software developers they can flood the home construction market in their quest to find new work and push the price of labor down, thus reducing the cost to build a house, but otherwise...
TulliusCicero
Presumably it's cheaper to build a home when a developer is building a whole bunch at once in a neighborhood, as opposed to a single person or family ordering something custom built.
potato3732842
Developer is also a professional with experience/refinement so he knows the magic specs to make things, magic things to say in the emails to the bureaucrats, magic words to put on the applications to avoid getting fucked by a bunch of "you need a survey for this" and "you need an engineer for that" and "akshually since you've done this you need a new septic" type landmines that cost $1-20k individually the little guy is gonna run right into.
9rx
Cheaper, sure, but not cheap enough to satisfy anyone who already cannot afford a home. Like cars, the used market is always going to be a reflection of the new market. Used houses are expensive because new ones are even more expensive.
TulliusCicero
I think it probably could be cheap enough. Part of the issue is actually just that new home sizes keep getting bigger. Like yeah, new homes are more expensive now even in relatively cheaper parts of the countries compared to decades ago, but it's also true that the homes are much larger than they used to be.
A lot of the homes from the 50s and 60s that people talk about being very affordable at the time they are made, were very small things by today's standards.
tempestn
The cost of building is one reason why supply is constrained. It doesn't follow from there that increased supply wouldn't reduce prices.
9rx
> It doesn't follow from there that increased supply wouldn't reduce prices.
Increasing the supply of labor, thus reducing the cost to build the home, was spoken to.
The average construction worker makes $30/hr. Get that down to minimum wage and the cost of a house will come down pretty quickly. You still might not be able to afford one on a minimum wage salary, perhaps, but the goal of reducing housing prices is met.
Lord-Jobo
I genuinely want to see a breakdown on what is increasing building costs so much. Houses are not more complicated than they were 15 years ago.
Normally if you make essentially the same product for 15 years, production costs fall.
supertrope
Factories lower unit costs. Construction is not automated. You can’t outsource an electrician or plumber. https://www.costtobuild.net/
9rx
> I genuinely want to see a breakdown on what is increasing building costs so much.
It is just general demand, really. Every step of the way can charge more, as compared to 15 years ago, because people are willing to pay more for their services.
Like the headline suggest, the solution is to increase supply. Except, not of houses, but the inputs that go into houses (materials, labor, etc.). Until supply is met there, the cost to build cannot come down, and until the cost to build can come down used homes cannot come down either. Alternatively, we could stop wanting so many houses, but that is likely less practical.
As mentioned, if you get all the software developers building houses instead the price would drop pretty quickly. But... good luck convincing them to do that. That is what has to be overcome.
foobarian
> As mentioned, if you get all the software developers building houses instead
Back in the day I would often run into people who would mention something like "oh yeah, my Dad built our house." Wonder what happened to that? Thinking on doing this right now in our neighborhood, I can see lasting 5 minutes before busybodies and town inspectors showed up with stop orders
BrenBarn
I think another reason people think this is that people often do not notice there is a problem until rents have risen enough that they're noticeable less affordable. And when that happens, a small reduction due to supply increase is not really enough. It's not enough for rents to "go down", they actually need to become affordable.
In places where a third of renters are spending half their income on rent (as some stats have shown for CA), it is implausible to believe that nibbling around the edges of the problem is going to result in enough of a reduction to make a difference. I haven't seen any estimates of how many market-rate units would need to be built to, say, reduce the number of rent-burdened households to 10% or 5%, but presumably it would need to be in the millions. I haven't seen any studies of supply/price issues that contemplate anything like that scale.
Just as important, such studies generally ignore the issue of inequality. It doesn't really matter what rents are; if there is someone who can afford to own multiple vacation homes that sit empty most of the year, rents should be lower.
null
I think that what contributes to this view is that new construction always seems to be at the high end of the market. This makes sense, it doesn't cost the builder a lot more to build a $500k house than to build a $250k house, and building two $250k houses will take twice the time and close to twice the costs. So builders/developers are going to build what is most profitable, which is the most expensive houses that they think they can sell in the local market.
What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.