[vkou]

> I wonder who you think would move into that?

Typically, migrant tech workers who came from somewhere else.

In the rest of the world that is not San Francisco, there is, in fact, an unprecedented rate of construction of new properties. Seattle has more active cranes building than anywhere else in North America. The Vancouver skyline changes year-over-year as 30-story condos spring up like mushrooms around SkyTrain stations. Toronto is building and densifying at breakneck speed.

And yet, rent in each of these locations is sky-high, squeezing the lower classes.

Could construction be faster? Sure. Would the problem be worse if there was no construction? Probably. Is construction fixing the issue? Hell, no, it's not. Not even close.

[WalterBright]

All that means is demand is increasing faster than supply.

[TheSpiceIsLife]

That’s a super simplistic perspective.

Property developers are probably going to preferentially build high-margin housing, right?

And they’re going to preferentially build those at a rate that doesn’t meet demand, in order to keep prices high.

So what’s missing?

[WalterBright]

> super simplistic

The law of gravity is super simple, but it produces all kinds of complex results.

Underlying the complex behavior of the real estate market is supply&demand driving it.

[sudosysgen]

The law of gravity is actually not super simple. Relativistic gravity is an incredibly difficult and complex concept to understand, and the Newtonian law of gravity is simply wrong, enough that it has big impacts on the real world.

Whereas the law of supply and demand is not only preceded by a lot of assumptions that never are true in practice, and even with all those assumptions still has serious exceptions that apply to more and more and more goods as you move from theory to practice.

The laws of supply and demand are simply not useful for analyzing this market. Any attempt to use them will have to be accompanied by more classical incentive analysis and experiments that mean that ignoring it will give you better results than relying on it in this situation. Attempting to apply it gives you ridiculous conclusions, like that demand for housing is increasing everywhere in the world at the same time faster than supply, even when in practice supply is often greater than demand, leading to empty buildings, while prices still rise.

[WalterBright]

> Relativistic gravity is an incredibly difficult and complex concept to understand

You're right, but the underlying rules are simple.

> leading to empty buildings, while prices still rise

That's still supply & demand. In this case, it is likely that the demand is rising fast enough that delaying renting the building will result in higher rents in the future for that building.

It's a chaotic system, and I mean that in the mathematical sense, where simple rules lead to complex (and counter-intuitive) behaviors.

[sudosysgen]

No, the rules for Einsteinian gravity are not simple. Absolutely not. The underlying rules are not simple either. Simply calculating the instantaneous change in trajectory of an idealized two body system under Einsteinian gravity is an ordeal, and idealized bodies are a lot less useful under Einsteinian gravity than under Newtonian gravity.

I agree, it is indeed a chaotic system, and is even worse than that because there is no simple rule any agent is following.

If it is the case that not renting a building will result in higher revenue because rents will be higher in the future, then that building will not be rented out and neither will similar buildings, which will continue increasing rent at increasing speeds; and at the end rent will increase towards infinity. The simpler explanation is that no, not renting a unit does not lead to higher revenue, as leases are at most YoY, the YoY increase in rent would have to be over 50% for this to make sense, which isn't the case, and in fact actors in the market simply do not act as one can accept in any way, which is why you can't use supply and demand, or any basic economics for that matter.

For rent, for instance, you could have supply completely equal or even significantly higher than demand, as in there are significantly more buildings than tenants and more empty buildings that tenants looking for landlords, and still see prices increase. Indeed, if the landlords are coordinated or if they know that their tenants will not act rationally in the economic sense, you can simply have a system where all landlords continuously increase rent every year. And there is nothing that any tenant can do, so they have to pay increasing amounts of rent every year. In such a system, because commodities are not perfectly fungible, because actors are very far from fully rational, because knowledge from every actor is imperfect and because there are hidden costs both monetary and non-monetary, you can have a system where supply is higher than demand, and yet prices rise. No matter how you dice it, no matter which definition of supply and demand you use, the laws of supply and demand aren't being followed. Rental markets tend to follow this pattern, in even more complex ways with other effects that lead to supply and demand breaking down even more.

This is why trying to use macro-economic laws such as supply and demand without carefully going through each assumption behind them is a very dangerous mistake.

[TheSpiceIsLife]

You’re disregarding the site guidelines here.

Comments should get more thoughtful and substantive, not less, as a topic gets more divisive. - https://news.ycombinator.com/newsguidelines.html

Are you interested in address the core of my argument, or only those two words in isolation?

[dodobirdlord]

Seems off to call someone’s reply unsubstantial when their very argument is that a simple model is sufficient.

Of course developers are going to build high-margin housing. But why is it high margin? Because there is high demand and low supply. “Luxury” housing is only marginally more expensive to build than “affordable” housing. The expensive parts of development are the land, labor, and construction materials, not the light fixtures, appliances, and flooring. Shouldn’t we be celebrating that developers are building a much better product then they could be if they cut a few corners?

To the second point, developers are not in collusion to keep supply down, and the suggestion is absurd on the face of it. They are developers. They make money by increasing supply. The more they develop, the faster they develop, the more money they make. Developers generally sell properties once they finish them and move on, because they are not in the business of property management. Maybe there’s a non-absurd argument to be made that property management companies are in collusion to keep supply down, but they aren’t. Aside from the fact that it’s illegal, it would be impossible. There are too many of them and the market is too fragmented for a cartel to form, and defecting is too easy.

[WalterBright]

Developers normally borrow money to finance the development. That means they have major incentives to sell as fast as possible. Savvy buyers know this and can work that to get a better price.

[sudosysgen]

Or, just maybe, the situation is a bit more complex than that, and demand as well as supply are stratified as well as other ancillary effects affecting prices beyond that?

Or are we just going to pretend that the world works just like an economics 101 textbook and close our eyes to the real problems instead?