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The Folk Economics of Housing

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Re: The Folk Economics of Housing

#211

Post by nine_k »

jillesvangurp wrote: post #207
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…

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…

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.

Re: The Folk Economics of Housing

#212

Post by ncruces »

nine_k wrote: post #211
jillesvangurp wrote: post #207

Earlier quoted context omitted.

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…

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 t…

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.

Re: The Folk Economics of Housing

#213

Post by nine_k »

dwaltrip wrote: post #177
TulliusCicero wrote: post #115

Earlier quoted context omitted.

Right. The real problem is regulations that prevent saturation.

Housing regulation should be dramatically improved and streamlined, but we also have a deep cultural problem of nimbyism. Humanity needs to learn how the cooperate much more effectively, or we are going to fuck everything up.

FTFY: /going to/have/

The younger generations living in their parents' houses en masse in their 20s and 30s is a sign of it.

Re: The Folk Economics of Housing

#214

Post by lif »

hmm.

What would happen if real estate investors/developers by law also had to dwell in the most dense type of housing they built?

Hypothesis: Humans by and large are all looking for a bit more breathing room, privacy, and quality of life in their choice of home. (In other words, qualities diametrically opposed to the black hole compression cubicle end game of 'efficient housing for the masses').

Re: The Folk Economics of Housing

#215

Post by nine_k »

stego-tech wrote: post #49
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…

> 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 ar…

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.

Re: The Folk Economics of Housing

#216

Post by gottorf »

WalterBright wrote: post #208
glial wrote: post #200

Earlier quoted context omitted.

Because the value always goes up and managing renters and repairs is a PITA.

> value always goes up History shows us that there are many bear markets in housing. There's also Detroit. I sold my previous home in 2000. It recently sold for 4x what I sold it for. A great ROI, eh? If I'd invested in the S&P 500 in 2000, it went up 6.61x. And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters,…

> And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.

And of course, had you let it sit empty the whole time, you still would have had to pay commissions, taxes, insurance, and maintenance (because an empty home goes bad very quickly).

There are very few scenarios where the appreciation at the end would be big enough to leave you with a profit after all those expenses, especially considering financing and/or opportunity costs.

Re: The Folk Economics of Housing

#217

Post by seanmcdirmid »

mediaman wrote: post #210
seanmcdirmid wrote: post #203

Earlier quoted context omitted.

I never argued that new supply is bad. My only observation is that new supply does not always lead to price decreases since demand isn't fixed (e.g. Seattle isn't a closed system). I think another comment that mentioned equilibrium is probably a better way of putting it. It can take a lot of supply before the price point changes as new supply is added because a lot of people are waiting on the sideline to pay X that…

New supply obviously increases demand because shifting the supply curve to the right (more quantity) reduces the clearing price, which increases demand. That's econ 101. In this classic case, increasing supply both decreases price and increases demand. But what you're arguing is different: that increasing supply has no effect at all on the clearing price. That would require an unusual demand "curve" that is perfectly…

> that increasing supply has no effect at all on the clearing price.

I never argued that it has no effect, only. that it could have no effect. Obviously if you can build enough supply and get way ahead of demand, you will see prices fall. But that just isn't done in practice, so most of the time new supply is brought online, housing prices do not decrease. Well, that's just builders trying not to kill themselves in a market economy, so that shouldn't be surprising.

Re: The Folk Economics of Housing

#218

Post by crazygringo »

stego-tech wrote: post #26
kube-system wrote: post #3

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 e…

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…

> 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).

Re: The Folk Economics of Housing

#219

Post by barchar »

brandonmenc wrote: post #193
starkparker wrote: post #85

Earlier quoted context omitted.

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 of spite Or, they're just protecting their property value and neighborhood composition, like anyone else would do.

You'd think they would be prime candidates to be LPs for new development

Re: The Folk Economics of Housing

#220

Post by seanmcdirmid »

roenxi wrote: post #209
seanmcdirmid wrote: post #203

Earlier quoted context omitted.

I never argued that new supply is bad. My only observation is that new supply does not always lead to price decreases since demand isn't fixed (e.g. Seattle isn't a closed system). I think another comment that mentioned equilibrium is probably a better way of putting it. It can take a lot of supply before the price point changes as new supply is added because a lot of people are waiting on the sideline to pay X that…

The argument is clear, but where you are coming from or going to with this isn't. You're describing a situation where Seattle desperately needs large amount of construction of new housing. If we're hypothesising this mob of people who will move to Seattle as soon as they see a house for $700,000, house prices in Seattle are going to have a floor of around $700,000. Someone is going to need to build houses for those p…

Builders aren't making much money due to material and labor costs in addition to land costs. It is probably impossible do a non-ADU project for just $700k, so dumping money into the problem isn't going to help make things cheaper. This is before we get to regulation and zoning, which are not even close to being the bottlenecks right now. I wonder if we could invest more in making building cheaper (via prefab?), and then more building would happen and prices would actually fall.

We (Seattle) are also completely built, new projects must overwrite existing housing stock and additional capacity only comes from increased density.

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