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The Folk Economics of Housing

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Re: The Folk Economics of Housing

#231

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…

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.”

Re: The Folk Economics of Housing

#232

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…

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".

Re: The Folk Economics of Housing

#233
post #41

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…

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.

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.

Re: The Folk Economics of Housing

#234

Earlier quoted context omitted.

As your sibling comment says, there is only so much market for luxury housing. If the land, permitting, etc. exists to build two houses, then two will get built. And if there's only sufficient demand for one of them to be high-end, then only one will be. (In aggregate on larger scales of course, not literally any given two houses.) It's not necessary to force a given developer to build two houses instead of one; if t…

What’s considered luxury housing vs upper middle class? Like there are plenty of houses marketed as “luxury style” in my area and command $500k-$700k easily but it’s just fancy looking. Not built with any better materials, wood, concrete, drywall or brick that you can get any local Home Depot.

It’s just puffery for new construction. Every single cookie cutter middle class subdivision calls itself an “estate.” “Affordable housing” is a nicer way of saying low income.

Re: The Folk Economics of Housing

#235

Earlier quoted context omitted.

Only because they are scarce enough to be worth doing that. With greater supply, there comes a point where you can make better investments than buying up empty houses. And so they will stop buying them.

I don't see how that really matters. If you keep making homes and investment buyers keep buying them then the price will keep going up and regular folk will still be priced out. If you make so many homes via this strategy that institutional buyers are no longer interested, I think it's because the homes have somehow become genuinely worthless, at least to the investors. I don't see how to do that without legislation…

Scalpers won’t bother scalping an item that’s widely available at MSRP.

Re: The Folk Economics of Housing

#236
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.

Re: The Folk Economics of Housing

#237
post #12

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 com…

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.

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!

Re: The Folk Economics of Housing

#238
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.

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.

Re: The Folk Economics of Housing

#239
post #17

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 h…

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.

Factories lower unit costs. Construction is not automated. You can’t outsource an electrician or plumber. https://www.costtobuild.net/

Re: The Folk Economics of Housing

#240

Earlier quoted context omitted.

"They will just buy them and rent them out" you have described investment. Funding the construction of houses using your capital and then letting them out to people without as much capital is how housing gets created. Just let it work! Let a guy build a house and rent it to someone.

Its also how wealth is transferred up. Because the investor pays gains rates, can do like for like transactions, etc, and effectively grows their wealth faster than the non investor. This means non investors need to continuously compete with investors but where investors are capturing an ever larger share of the wealth. Eventually if supply keeps up that will change, and longer still the wealth may trickle back down.…

Thanks for explaining this better than my rant.
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