[nickstefan12]

Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people.

In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.

[AnthonyMouse]

But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more...

At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.

[function_seven]

Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent.

This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall.

Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.

[nickstefan12]

Your analogy is logically sound, but it doesnt match what I've seen in reality. I think the extra factor is that rich people seem to attract more rich people. That is the number that I think can't be out built. The rise in prices attracts more of them. Or rather, the fewer poor people around tends to mean rich people find it even more desirable. In practice, no government or real estate boom can out build this network effect of rich people attracting more rich people who eventually decide they like things the way they are. Not just real estate, but everything about the place. And they now own it, so its not that crazy to imagine they get to decide this. Im not morally in support of it, just stating history.

Rich people are especially into "knowing the best", whether its vacations, cars, and yes, places to live. Thats what I meant about them wanting to come buy stuff in your town even if they don't currently live there. And the data kind of shows this. California has an outflow of poor and and inflow of richer.

Basically, desirability is inelastic. California has better weather than a lot of places. The only people who can pay up the vertical inelastic curve are rich people. There are a bunch of them who want to move to your town from elsewhere.

[AnthonyMouse]

> I think the extra factor is that rich people seem to attract more rich people. That is the number that I think can't be out built.

That isn't a real problem though. If people are coming who actually want to live there, let them. There are zero cities in the world that are entirely covered in buildings the height of the Empire State Building. Every time you sell a housing unit for more than it cost to construct, you have that much more money to construct more housing with.

The actual problem is that the existing residents pass zoning regulations preventing high density new construction, because they know it would reduce housing costs, but once they live there their housing costs are fixed and what they're worried about is increasing their property values.

[nickstefan12]

You may argue that the solution either way is to build more, but I think its important to take problems on at their source. The debate about supply and demand just seems to be the wrong level of abstraction when there's a more sociological root cause for pulling up the ladder.

> "Or rather, the fewer poor people around tends to mean rich people find it even more desirable."

If we don't address this, it will be impossible to convince people to build more, no matter how blue in the face people get about supply and demand charts.

[AnthonyMouse]

> "Or rather, the fewer poor people around tends to mean rich people find it even more desirable."

But why is that a problem? It's like complaining about free money appearing out of thin air. If every rich person in the entire world wants to move to your city, that's really good. It would be a wonderful tax base. And there are a countably finite number of rich people, so there comes a point when you have literally every last one of them.

Having to build enough housing for every rich person in the world is ridiculous, but the reason it's ridiculous isn't that you couldn't physically do it (if there are a hundred million rich people, that's only a single digit factor more people than live in Beijing or Shanghai). It's that they would never all move to one place like that -- especially because every other city would be competing to keep them.

And if density is actually such a wealth magnet then every city should do it. Then the outflows and inflows would net balance and there would be no net migration of rich people to any city in particular. If you somehow got more than someplace else, what are you complaining about? Build even more housing to see if you can get some more, then go spend their money on your roads and schools.

[zjaffee]

The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. It's not like other consumer goods where there aren't really many resource constraints.

In turn, something needs to be done to drive down the incentive to speculate on land prices. Such tools can range from rent control which makes landlordism unprofitable to land value and vacancy taxes return lost value from lack of properly developed land back to the public.

Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.

[AnthonyMouse]

> The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market.

But it is on the market. There are no regions where land is unavailable at any price. The price may be high, but if it is, all the more money to be made by subdividing it into twenty times as many housing units that each sell for most of the original price.

> In turn, something needs to be done to drive down the incentive to speculate on land prices.

That thing is to eliminate zoning regulations that prohibit high density construction.

> Such tools can range from rent control which makes landlordism unprofitable

Economists almost universally agree that rent control is a terrible idea.

What you end up with is ten apartment units that could be rebuilt into fifty condos, but the prerequisite to rent control functioning is that you can't kick out the tenants (and they will never want to leave), so that can never happen.

It also makes new construction in general less profitable by removing all the landlords from the purchasing market, and makes all non-rent-controlled apartments scarce and outrageously overpriced.

> land value and vacancy taxes return lost value from lack of properly developed land back to the public.

Vacancy taxes are a spectacular idea in theory. Rich people would probably find various ways to avoid them, but they seem to have almost no downside. Particularly if you have sensible exceptions like for property that was occupied for more than 24 of the last 36 months. I'm not sure why they don't exist in all urban areas.

But that only works on the vacant properties. Doesn't work when you have a bunch of occupied properties and the issue is the incumbents capturing the local government to keep rents high by preventing new construction.

> Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.

This is a benefit. That cost has to be paid by the people owning but not using it, giving them the incentive to put it on the market (at any price they can get) so that someone who can use it will have it.

[closeparen]

There are rich people in most major cities. Why don’t they consume all the housing growth in Chicago or Omaha or Dallas? What’s special about SF?

[kelp]

What if because of the opportunities available, San Francisco creates more rich people. I know many tech workers who start out in small apartments with many roommates and then end up quite wealthy.

[dragonwriter]

One obvious possibility:

There are sufficient rich people outside of SF that want to be in SF to consume any reasonable housing growth.

Many other major cities already have most of the rich people that want to live in them (and some that really would prefer to live elsewhere, like SF.)

[closeparen]

If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. This thread proposes that rich people consume many more homes than they can actually live in. So why don’t they draw some of those homes from other markets?

(I suspect this is because NIMBY policies in the face of population growth make SF housing an especially great investment, and that this advantage would disappear with zoning liberalization. Returns on the level of SF’s real estate market are hard to find in the stock market, for example. Why wouldn’t they speculate on it?)

[dragonwriter]

> If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them.

Globally, certainly; locally in particularly attractive areas? Probably not even if that were the case.

> This thread proposes that rich people consume many more homes than they can actually live in.

Which is obviously true, 2nd through nth homes that are kept idle most of the year, or even for years at a time, are a thing, and a person can't actually live in more than one at a time.

> So why don’t they draw some of those homes from other markets?

They do. But there's enough rich people that want to draw some of their consumption from SF to eat up quite a lot of expansion, until you actually make SF unattractive to rich people.