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Austin’s surge of new housing construction drove down rents

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Re: Austin’s surge of new housing construction drove down rents

#671

Post by cucumber3732842 »

tadfisher wrote: post #329
thaumasiotes wrote: post #108

Earlier quoted context omitted.

> They have those AWFUL ticket machines, set too far back (to avoid getting hit) and too high to access from a normal car. Are you sure it's the ticket machines? Around here, the ticket machines have stayed the same, but it's now impossible to use them without stopping the car and getting out, because car manufacturers have decided I need eight inches of empty space between myself and the side of the car.

That eight inches is called "side impact protection" and, while it sucks to not be able to comfortably rest your arm on the window sill, it is pretty important to have in the event of an impact to the side.

Safety people:

Also safety people: "These goddamn consumers have started buying SUVs"

I'm not saying this is you personally but the trend is pretty goddamn clear.

Re: Austin’s surge of new housing construction drove down rents

#672

Post by unethical_ban »

bpt3 wrote: post #665
bo0tzz wrote: post #614

Earlier quoted context omitted.

The Universal Declaration of Human Rights, Article 25.1: > Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

So if I declare a right to immortality, then no one dies? It's almost like those words are the product of useless bureaucrats, rather than an actual right.

That is a disingenuous counterexample.

Re: Austin’s surge of new housing construction drove down rents

#673

Post by estearum »

pclowes wrote: post #315
estearum wrote: post #234

Earlier quoted context omitted.

No, not really. It matters whether the margin is higher than other investment opportunities of similar scale and risk profile. Already, the answer is very often no. In Austin, the answer will increasingly be no. That means people will not finance new construction, so if demand continues to grow it will outstrip supply and prices will go back up until the margin on new construction exceeds that of alternative investme…

I would expect the development of Austin to continue until market equilibrium and then pause. Decreasing margin does not mean equilibrium. Obviously austin is not at equilibrium because we still have price data on developer activity and that would be near zero if developers couldn’t make returns given risk etc. I guess I don’t see where we disagree?

I mean... that is pretty much what we're seeing:

Austin new housing starts (approx per month):

2019: 1416

2020: 1504

2021: 1495

2022: 2083

2023: 1415

2024: 916

2025: 900

2026: 481

The problem here is that the market obviously does not have perfect information, limited mechanisms to coordinate, and significant lead time. It seems pretty much baked in at this point that many of the projects currently underway will complete into a negative market and (assuming Austin remains somewhat desirable) a whole lot of developers will be wiped out. This will stop development until prices rise again, probably back to a level where housing is quite expensive again relative to local wages.

Re: Austin’s surge of new housing construction drove down rents

#674

Post by estearum »

pembrook wrote: post #608
donkeybeer wrote: post #562

Earlier quoted context omitted.

Why shouldn't housing, like any other goods, be as cheap as possible for as high quality as possible?

Because "cheap" government housing has never been "high quality" in the history of the world. Those two properties are antithetical. Humans don't have a ton of preferences for the electricity they consume or the water they drink, just that it exists. It's a commodity, so a good task for government. Housing is not an undifferentiated commodity and is subject to extreme variances in preference. Markets do differentiati…

Pretty sure France and Singapore both have quite successful and high quality public housing projects.

Re: Austin’s surge of new housing construction drove down rents

#675

Post by estearum »

pfdietz wrote: post #346
estearum wrote: post #258

Earlier quoted context omitted.

> it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities Correct, which it basically doesn't in Austin, which is why construction is decelerating. > we can also make it cheaper to build Yep, this is the only structural solution. The "just add supply" runs into the problem of price equilibriums. The reality is the input costs of building ho…

The problem is it can't drive prices below what the free market would dictate? Talk about praising with faint damns.

No, the problem is that the free market in advanced economies appears to dictate a price point for housing that is unattainable for broad swaths of society.

Classic case of Baumol's disease, which is not solved by "well duh we just gotta build more." People will not "just build" enough to solve the problem because they won't "just build" beyond equilibrium (for long).

Re: Austin’s surge of new housing construction drove down rents

#676

Post by estearum »

lmm wrote: post #400
estearum wrote: post #221

Earlier quoted context omitted.

New construction has already decelerated in Austin due to falling prices, which compresses already-near-zero margin on real estate development. So yes, it really is "just build more housing." The problem is: why would you build more housing as prices fall?

> already-near-zero margin on real estate development Why is the margin so low when the prices are so high? Is it because the value of housing is already priced into the value of land? > The problem is: why would you build more housing as prices fall? Why would you want to? When you stop being able to sell more houses, that's the sign that you've built enough.

Yes, the prices of inputs are very high and rising. Mainly land and labor, but materials aren't cheap either. Housing is also one of the few thing we need at massive scale but which has diseconomies of scale. The more you develop an area, the more expensive it gets to develop it further.

Re: Austin’s surge of new housing construction drove down rents

#677

Post by gustavus »

jmyeet wrote: post #401
wcfrobert wrote: post #169

Earlier quoted context omitted.

NIMBYism has never been about preserving neighborhood characteristic, or noise and traffic concerns. Menlo Park is not Big Sur. Sure, some concerns are reasonable and should be investigated, but most of the time they're bureaucratic distractions that's been weaponized by people who want to delay progress and protect their investment. For most Americans, A house is their primary savings account, retirement plan, and p…

Fundamentally as a society we need to stop treating housing as an investment. It is and should be a utility. Suring property prices is a relatively new phenomenon (as in, post-WW2). The true origins of NIMBYism, at least in the US, is (you guessed it) racism. Long before segregation ended, and long after, there was economic segregation . Redlining [1], HOAs [2], the post-WW2 GI Bill [3], where highways were built [4]…

https://slatestarcodex.com/2017/06/21/against-murderism/

Re: Austin’s surge of new housing construction drove down rents

#678

Post by estearum »

SocialGradients wrote: post #369
SocialGradients wrote: post #363

Earlier quoted context omitted.

This is an empirical claim. It looks like new monthly permits are down from ~4k a month in 2021-2022 to ~3k a month. They're still up significantly from before 2020. The building boom has slowed but it's still elevated. Not particularly close to zeroing out. The data is here: https://fred.stlouisfed.org/series/AUST448BPPRIVSA .

Not to mention, Austin could just make it cheaper to build to offset lower sell prices. Gruber et al estimate permits are 50% of an LA home's price. Fix permitting and rent goes down 50% by your assumptions that developers build until margins are 0. Assume austin is only half as bad as LA, a 25% rent decrease would be incredible Gruber's paper: https://evansoltas.com/papers/Permitting_SoltasGruber2026.pd...

> Gruber et al estimate permits are 50% of an LA home's price

That is not what Gruber shows. The 50% figure is that there's a permit adds a 50% premium on the value of raw land. In other words, the permit cost is "only" 33% of the cost of the permitted raw land. That's significant and a big problem, but very very far from "50% of on LA home's price."

But yeah structurally the solution is indeed to reduce the cost of production. Which if your 50% figure was correct, would be huge. But it's not correct.

Re: Austin’s surge of new housing construction drove down rents

#679

Post by estearum »

eru wrote: post #424
estearum wrote: post #221

Earlier quoted context omitted.

New construction has already decelerated in Austin due to falling prices, which compresses already-near-zero margin on real estate development. So yes, it really is "just build more housing." The problem is: why would you build more housing as prices fall?

Huh? In Silicon Valley the objection is usually: even if we build more housing, prices won't fall. So which way is it now?

I don't know what those people say, why are you asking me?

Re: Austin’s surge of new housing construction drove down rents

#680

Post by estearum »

9rx wrote: post #347
estearum wrote: post #245

Earlier quoted context omitted.

> As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build. Not true Real estate development is extremely capital intensive and therefore it's a question of all-in cost of capital compared to other investment opportunities.

The opportunity cost has already factored that in. Unless you think cost calculations are arbitrarily forgetting to include certain costs for no reason?

Well for sure in the actual financial models yes, but it's demonstrably true that most HN commenters here do not know this is how to think about the question of returns.

And FWIW "opportunity cost" doesn't really show up as "a cost" in the traditional sense.

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