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The Folk Economics of Housing

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Re: The Folk Economics of Housing

#31

Post by greenie_beans »

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…

so you are suggesting that one house is better than two to alleviate supply? this is exactly why market incentives isn't the cure. we would have more housing if we built more housing. if we built double the housing, then we would be in an even better place.

this logic makes zero sense to me.

Re: The Folk Economics of Housing

#32

Post by starkparker »

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.

I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.

If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.

Re: The Folk Economics of Housing

#33

Post by clausecker »

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…

In the US, isn't this partially the cause of zoning laws banning anything that is not single-family homes from being built?

Re: The Folk Economics of Housing

#34

Post by SoftTalker »

TulliusCicero wrote: post #23
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…

Also, they can only address the luxury market so much. If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.

Yes, but you'll only do this once the luxury market is saturated. As long as you can sell more luxury homes that is what you are going to build.

Re: The Folk Economics of Housing

#35

Post by JohnCClarke »

Thing is: people are correct.

Central London monthly rent for a 3-bed house is around £3500, but a 1-bed flat rents for £2100. So split the house into two flats and the landlord makes more money.

Hence relaxing zoning restrictions will push prices up.

Re: The Folk Economics of Housing

#36

Post by SoftTalker »

greenie_beans wrote: post #31
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…

so you are suggesting that one house is better than two to alleviate supply? this is exactly why market incentives isn't the cure. we would have more housing if we built more housing. if we built double the housing, then we would be in an even better place. this logic makes zero sense to me.

It's better than none, which is what you'll get if you start mandating what developers can build. They'll just go somewhere else where they can make more money.

Re: The Folk Economics of Housing

#37

Post by whall6 »

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?

Re: The Folk Economics of Housing

#38

Post by 9rx »

TulliusCicero wrote: post #29
9rx wrote: 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…

Presumably it's cheaper to build a home when a developer is building a whole bunch at once in a neighborhood, as opposed to a single person or family ordering something custom built.

Cheaper, sure, but not cheap enough to satisfy anyone who already cannot afford a home. Like cars, the used market is always going to be a reflection of the new market. Used houses are expensive because new ones are even more expensive.

Re: The Folk Economics of Housing

#39

Post by morkalork »

entropicdrifter wrote: post #21
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…

This makes sense in a world where the market adjusts rationally and there's an unbroken chain of people from different levels of wealth who can afford to buy houses. Unfortunately in the US right now, that is not reflective of the present scenario due to the immense generational wealth gap and housing bubble.

And in Canada there is a huge amount of backlogged demand. There are areas where rental listings for roommates show two beds to a room and 10 people crammed into a house. Unwinding that is going to take a long time.
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