Here, in summary, my Twitter thread. https://twitter.com/heyMartinAdams/status/125166810880624230...
1/ Naturally, many entrepreneurs tend to believe that the insufficient supply of housing is either due to lack of willpower, insufficient belief in progress (see article below), high building costs, or due to restrictive zoning regulations.
2/ I hurt a little every time I read an article like that coming from well-meaning and intelligent people since these analyses are based on a core assumption: that if only those aforementioned constraints were removed, the supply of housing would increase in proportion to demand.
3/ This assumption, though, is incorrect, even though it’s wide-spread and relatable, especially with entrepreneurs, who solve problems by building new things! (I love solving problems by building new things too!) However, the housing market works differently.
4/ Notice the open-air parking lots in most urban areas: they’re hardly developed, used only for a few cars — even though (and this is crucial) there is an exceptional demand for housing in those areas.
5/ It’s not that these lots are not zoned for housing, or that it’s too expensive to build any kind of housing on those open-air parking lots. None of these things are true. The reason these parking lots exist is because property ownership incentives are flawed.
6/ A person who owns an open-air parking lot often makes more money over time through property appreciation (even minus property taxes), and is therefore not incentivized to put this property to its optimal use, i.e. to use it to provide more housing.
7/ The core problem is that the land market (and therefore the real estate market) is, in actuality, an entry monopoly; an entry monopoly occurs whenever a market is closed to new participants because supply (i.e. land in prime locations) can’t be increased.
8/ See, the market for automobiles (or software, etc.) is different: if there is a greater demand for cars, more cars can, and will, be created.
9/ New land in good locations, however, cannot be made; so if property developers want to build more housing in a good location, they have to buy land from someone who already owns land in that location (if they choose to sell, that is!).
10/ This artificially increases cost, artificially diminishes supply, and drastically limits the supply of affordable housing across the board. Unlike software, the housing market is not a free market. It is a monopoly. Like the game.
11/ There’s a lot more to this topic, but I’ve done my best to summarize a small part of it here in this thread. As you can tell, it’s a topic of great concern to me (to the extent that I wrote a book on it: http://unitism.com).
12/ I hope that what I was able to share has given you some pause; I feel a bit of a pang every time I read an entrepreneur saying “we can solve the affordable housing crisis by simply building more things with more effort.” This hurts. And it’s also uninformed in my view.