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Solving the housing crisis requires fighting monopolies in construction (2020)

minneapolisfed.org

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Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#41

According to this resource ( https://www.newhomesource.com/learn/stick-built-vs-modular-h... ): - Modular home construction is an $11 billion industry, growing at 8.5% per year - The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. That’s not the problem. Additionally from this source ( https://blog.lotnetwork.com/l…

Lot/construction loans is a highly speculative business, especially as lots of builders are blue-collar guys with minimal assets who can simply close shop in a recession. Building homes is constrained by the wider economy and interest rates, and they take a while to build, so in all of the umpteen million housing crashes we've had previously, a large % of homes built will hit in the market in the middle of a crash.

The history of housing busts dates back hundreds of years and is older than the United States. Banks are not wild to extend lot or construction loans because, until we achieve AI singularity, there's always another bust coming around the corner- and banks know they'll take it on the chin. Especially to the average home builder, who will simply walk away from their loans in a recession, close their company, declare bankruptcy, etc. etc.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#42

Is there even a shred of evidence that the housing crisis is a result of higher construction costs? Or is the Fed trying to draw attention away from the catastrophic impact of its zero interest and other policies on the massive increase in asset prices?

Here's a shred of evidence: Las Vegas is a city mostly surrounded by public lands. New private parcels are no longer made available as lots appropriate for single family homes. They are carved onto neighborhood sized chunks, sold to developers directly, and locked into HOA's for all eternity. Only the big boys that can tackle multi-million dollar bids can enrich themselves by the sale of our public lands.

That…. Has nothing apparently to do with what the message you were replying to was asking?

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#43

Is there even a shred of evidence that the housing crisis is a result of higher construction costs? Or is the Fed trying to draw attention away from the catastrophic impact of its zero interest and other policies on the massive increase in asset prices?

There is an entire paper linked here that's exactly what you ask for in your first question. What about it do you find unconvincing?

I didn't find it convincing.

Elsewhere here I asked why factory-built housing doesn't seem to be popular world-wide, which is what you would expect if it's only US Federal policy which prevents it from being popular in the US.

I'll add that I saw no discussion of how local housing policies were designed to prevent "Large numbers of low-income, city residents [from moving] to these areas", in order to keep property values high. Or the classism that caused people to look down on mobile homes.

The author rhetorically asks "But what stops public transportation from expanding upon the arrival of new residents?", when I've heard so many New Urbanist videos answering that question.

I didn't understand how "a uniform building code across the country would be a great benefit to factory producers" is a meaningful goal, given that the needs for Florida, Arizona, and Alaska are quite different, making me question his understanding.

I read "There is a literature that asks why the poor live in cities." and counter with the observation that the poverty rate is higher in rural areas - https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urb... says "rural poverty rates are higher and more persistent than in urban areas, rural workers are disadvantaged by lower wages and less access to better paying labor markets" - note that housing prices aren't part of it.

And I didn't see mention that "stick housing" has moved towards factory methods. As https://priceonomics.com/in-defense-of-mobile-homes/ points out:

> Windows, doors, and other parts arrive prefabricated, Rybczynski writes, so labor costs have actually halved since 1949. Levitt and Sons spent $4 to $5 per square foot building Levittowners, and, adjusted for inflation, builders today spend the same amount.

> Instead the problem is almost wholly that land is too expensive. Reduce the size of a new, modern house by 50%, Rybczynski notes, and houses in metropolitan areas will still cost over $200,000.

> That’s the secret to the extreme affordability of a mobile home—take land out of the equation.

We aren't really using "traditional methods" - engineered wood is not traditional and is very common. "As of 2005, approximately half of all wood light framed floors were framed using I-joists" says https://en.wikipedia.org/wiki/Engineered_wood#Beams . These were made in a factory, and not "on-site" as the author describes the house-building process.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#44
post #25

Earlier quoted context omitted.

Population is flat over the last two years, while housing units are up and the construction rate is all time high. There is no crisis, just rampant speculation that ate through active inventory. The actual data is very clear on this (FRED), despite the word of mouth "shortage" narrative. Now that the narrative is turning, inventory is skyrocketing as you would expect, and we will be in a glut within 6 months. Look at…

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearly enough housing being built to satisfy demand, and as a result prices are driven extremely high. In other parts of the US, there is much more housing supply and relatively low demand, making housing more affordable. Nationwide stats hide a lot of regional rea…

I think you’re talking past each other a bit.

The demand you’re talking about in the SF Bay Area is not necessarily driven by ‘butts in seats’ (aka actual people needing a roof and willing to pay a concrete price for it), but also by the cheap money narrative the FED has been feeding for a very long time. Which is what they are referring to in their post as having changed.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#45
post #31
post #25

Earlier quoted context omitted.

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearly enough housing being built to satisfy demand, and as a result prices are driven extremely high. In other parts of the US, there is much more housing supply and relatively low demand, making housing more affordable. Nationwide stats hide a lot of regional rea…

I recently joined a real estate group, and the kinds of things I'm seeing there are beyond explanation. People have basically come to understanding that house prices only go up, they use exotic financing and stupid leverage (BRRR method) to keep buying "assets" and jacking up their rental yield which then re-prices the asset so they can take an even bigger loan to buy more "assets". Recently someone in the group aske…

This is the same musical chairs of loans that the short term rental market uses.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#46

Unions. One of the major set backs for building more in Bay Area and San Francisco is not NIMBYism or zoning. It’s because construction unions have a big say with the counties and they have a big voice during elections. Anything that involves mortgages and the govt has to necessarily support unions and work with them. They don’t like modular homes as automation will replace union jobs.

The author doesn't single out unions like you do:

> Many groups were, and still are, opposed to factory production, including building contractors, building craft unions, building code inspectors, architects, materials producers and politicians (who are supported by the traditional industry). While these groups are sometimes at odds with each other, they all join together to fight factory production of homes. They form a mega-monopoly, composed of their individual monopolies.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#47

Earlier quoted context omitted.

I think what is being referred to here in typical mush mouth obtuse language is the "monopolization" that corporations are engaging in buying up massive amounts of real assets with essentially free money the fed it printing at the rate that even the "printing press goes brrrrrr" meme does not do justice. I don't know that people are really aware of the scale of what is going on here. The big finance houses have essen…

The monopolization the paper refers to is how industry and government prevent the adoption of factory methods in construction, increasing construction costs.

Eh, it’s a lot more than that. But the paper is specifically pointing out that cost of land seems to be the driving factor, not cost of construction which is relatively flat.

A cheaper manufactured home would of course be nice if looking at costs, but dropping it on a $1.5m acre lot isn’t going to change the math that much.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#48

Earlier quoted context omitted.

There's not a crisis if you already own your home and are collecting those sweet sweet land rents. And by denying the existence of others' problems, those who own land get to collect ever higher economic rents. But for everybody else, yes there's a huge housing crisis.

I can’t afford a lot of things. I don’t call it a crisis.

If you couldn’t afford a place to live you may feel differently.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#49
post #44
post #25

Earlier quoted context omitted.

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearly enough housing being built to satisfy demand, and as a result prices are driven extremely high. In other parts of the US, there is much more housing supply and relatively low demand, making housing more affordable. Nationwide stats hide a lot of regional rea…

I think you’re talking past each other a bit. The demand you’re talking about in the SF Bay Area is not necessarily driven by ‘butts in seats’ (aka actual people needing a roof and willing to pay a concrete price for it), but also by the cheap money narrative the FED has been feeding for a very long time. Which is what they are referring to in their post as having changed.

I don’t think we are talking past each other. There is absolutely a housing supply crisis in the Bay Area that is not reflected in the national stats.

I’m not sure why so many people believe that housing prices in high-demand markets are dominated by things like interest rates — there is certainly an effect, sure — but by far the predmoinant reason a 2br house on a small lot with a small yard costs $2m+ in Palo Alto is that there are thousands if not tens of thousands of well-off workers for nearby tech companies who would like to live there, there is not enough housing to go around, and $2m is the market clearing price.

The idea that the “demand” is being “driven” by some “cheap money narrative” is missing the forest for the trees. Low interest rates might be why that house is $2m and not $1.8m. But the narrative is definitely not the reason the median home price across the Bay Area is many multiples higher than the national average of $350k.

That’s pure supply and demand.

Re: Solving the housing crisis requires fighting monopolies in construction (2020)

#50
post #31
post #25

Earlier quoted context omitted.

All of this is true, but...housing markets are extremely regional. In the SF Bay Area, for example, despite much more new construction, there is still not nearly enough housing being built to satisfy demand, and as a result prices are driven extremely high. In other parts of the US, there is much more housing supply and relatively low demand, making housing more affordable. Nationwide stats hide a lot of regional rea…

I recently joined a real estate group, and the kinds of things I'm seeing there are beyond explanation. People have basically come to understanding that house prices only go up, they use exotic financing and stupid leverage (BRRR method) to keep buying "assets" and jacking up their rental yield which then re-prices the asset so they can take an even bigger loan to buy more "assets". Recently someone in the group aske…

> Homes should be for people to live in, not to purely speculate and grow their money

Wait, if those speculating investors have “rental yield” then doesn’t that imply people are living in those homes?

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