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The Folk Economics of Housing

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Re: The Folk Economics of Housing

#111

Post by stego-tech »

lokar wrote: post #93
stego-tech wrote: post #87

Earlier quoted context omitted.

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…

The political system is particularly susceptible to capture and unfair policy when the public is disengaged and poorly informed (as the paper describes). It makes it very easy to business to get their way. The solution is the (hard and slow) work to engage and educate voters.

Yup, but I also take the tact of educating the current winners of the increasing cost of their inevitable loss when the pendulum swings the other way. Pre-pandemic, the “loss” of home valuations might’ve been 10-15% in many areas once supply was increased and made available to homebuyers; post-pandemic, that loss could be as much as 50% depending on where you bought and what the actual local demand is. That results in fiercer resistance against change that would improve the problem even a modest amount, because now they have more to lose.

As I learned watching Union vs Non-Union labor interactions, it’s exponentially cheaper to do the right thing sooner than being forced to do a compromise thing later. The fact the crisis has gotten so bad that there’s campaigns for national rent control schemes and “homeownership as a human right” legislation means they have already lost by not doing the right thing sooner. Once organization happens, you’ve lost the game.

The rest is just time.

Re: The Folk Economics of Housing

#112

Post by lokar »

In the cost to build vs what would be affordable I think people on both sides over generalize.

Liberal land use and other rules would eventually bring down prices to affordable levels for most families. But not all of them. Every country has to have some strategy to provide housing for the bottom of the income range, since they typically won't be able to afford "dignified" housing based purely on the Capex/depreciation/opex value of the housing (they will always be renters).

So you need something like liberal land use to provide for 80%, and then some kind of government intervention for the bottom 20% (numbers will vary based on the location/nation/etc)

Re: The Folk Economics of Housing

#113

Post by seanmcdirmid »

SoftTalker wrote: post #13

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 t…

> 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.

Two things to think about when making this argument:

* Older housing could have been torn down to build new housing. So before, you had a rooming house with 10 or so low cost tenants, and now you have three town homes with three very rich families moving in. Life just became a lot harder for people in the lower end of the market. Gentrification of entire neighborhoods is an extreme example of this: a blighted neighborhood is great for cheap housing options, but then people start coming in and redeveloping it and...it is no longer blighted, the neighborhood is better, and the cheap housing is gone replaced by much more expensive housing.

* Demand is induced by new supply. We accept this as a fact for highway construction, but it is somewhat also true for housing in a hot market where everyone wants to live. So building a bunch of new housing in Seattle could attract new resident, causing the population to grow, rather than adding supply to deal with fixed demand. Yes, adding housing in Buffalo isn't going to run into that, and yes, overall the situation becomes better for the country (or world if you are inducing demand from other countries), but locally you feel like you are going nowhere with the problem. A more extreme example of this is handing out housing to your unhoused population (you'll almost certainly wind up with more unhoused than when you started even though you've given some housing).

Re: The Folk Economics of Housing

#114

Post by legitster »

whall6 wrote: post #37
legitster wrote: post #25

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…

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?

https://css.umich.edu/publications/factsheets/built-environm...

https://newsletter.humanprogress.org/p/housing-abundance-has...

Re: The Folk Economics of Housing

#115

Post by TulliusCicero »

jeremyjh wrote: post #96
TulliusCicero wrote: post #66

Earlier quoted context omitted.

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.

Then it isn’t saturated.

Right. The real problem is regulations that prevent saturation.

Re: The Folk Economics of Housing

#116

Post by lcnPylGDnU4H9OF »

legitster wrote: post #103
lcnPylGDnU4H9OF wrote: post #48

Earlier quoted context omitted.

> people who buy those are leaving their old houses I do not believe this is accurate, at least not in the last ~10 years or so. The houses are purchased by hedge funds and other smaller investors.

> The houses are purchased by hedge funds and other smaller investors. The hedge fund thing is way overblown. Even if they buy up homes in hot markets, their incentive is still going to be to sell them if/when the market cools. Corporations do not enjoy the same tax incentives as homeowners in this country, and the risks/costs to rent out older homes just doesn't pen out for non-local investors. If PE wants to get in…

I believe you are correct on the hedge fund point; I was confusing it with something else that's related but different (I recall investing in a platform that made some of its profit from financing the construction of homes). The effects that I worry about still seem to be actualized by the "smaller investors" I mentioned, such as the head of a household being able to afford to purchase another home as a rental or a replacement as they rent out their old home.

Re: The Folk Economics of Housing

#117

Post by jeremyjh »

stego-tech wrote: post #87
lokar wrote: post #58

Earlier quoted context omitted.

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.

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…

Do you realize your argument boils down to “increasing supply doesn’t reduce housing cost because we don’t increase the supply”?

Re: The Folk Economics of Housing

#118

Post by frabcus »

LargeWu wrote: post #81
dazc wrote: post #55

Earlier quoted context omitted.

I remember when house prices doubled in the space of 3 years and it wasn't a supply shortage that caused this.

Sure, because demand went through the roof. And demand is currently high again. So either we need fewer people, or more dwellings.

Supply of finance is critical factor in this not mentioned enough in this thread.

Re: The Folk Economics of Housing

#119

Post by stego-tech »

AnimalMuppet wrote: post #110
stego-tech wrote: post #26

Earlier quoted context omitted.

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 specu…

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…

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.

Re: The Folk Economics of Housing

#120

Post by AnimalMuppet »

MBCook wrote: post #6

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.

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?

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