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The Folk Economics of Housing

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Re: The Folk Economics of Housing

#41

Post by DevX101 »

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…

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.

Re: The Folk Economics of Housing

#42

Post by TulliusCicero »

jimbob45 wrote: post #27
TulliusCicero wrote: post #15

Earlier quoted context omitted.

> 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. Big corporations don't have unlimited money to do this kind of thing. And in practice, the expensive areas they do it in, are usually very limited in how much new housing goes up, they're still very much supply constrained markets. If what y…

This is the propaganda they were pushing about RealPage too until it turned out that it was happening and the market was being distorted. At any rate, if a buyer notices it happening in their area, then "it's not happening that much" is not only not going to make them feel better, it's going to also make them feel like you don't want to fix it.

Again, do you have examples where a ton of supply was added to a market, the vacancy rate shot up to high levels, but prices remained the same?

I agree that the algorithmic price fixing needs to end, though I think it's mostly gonna be strong in a market where vacancy rates are still low. Harder to maintain the cartel the more options people have.

Re: The Folk Economics of Housing

#43

Post by spy888 »

Developers build new housing when prices go up generally. Therefore when people see new housing they see higher prices in their regional market. So although folks may mix up causality, the observation is quite rationale.

Re: The Folk Economics of Housing

#44

Post by greenie_beans »

SoftTalker wrote: post #36
greenie_beans wrote: post #31

Earlier quoted context omitted.

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.

love this debate! the market built a ton of houses leading up the the GFC until the market decided it was too risky: https://fred.stlouisfed.org/series/HOUST

this was in a similar regulatory environment we face today. so if you take the market logic, then the market caused the problem as much as regulations.

Re: The Folk Economics of Housing

#45

Post by tempestn »

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.

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 the economics make sense, and are predictable, the developers will come.

Re: The Folk Economics of Housing

#46

Post by whall6 »

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…

Curious for the source on the 25% figure if you wouldn’t mind sharing.

Re: The Folk Economics of Housing

#47

Post by kube-system »

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.

> They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.

Real or nominal?

> There are other factors than supply.

It is not uncommon for places with a lot of housing development to also be places with rising housing demand because it is a growing area.

> If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.

And many of the people buying large new home are moving out of a smaller existing home.

Re: The Folk Economics of Housing

#48

Post by lcnPylGDnU4H9OF »

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…

> 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.

Re: The Folk Economics of Housing

#49

Post by stego-tech »

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 are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.

The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.

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