[tanbog5]

I'm no economist, but I'm willing to bet in most markets, must of the time, an increase in supply is often followed by a decrease in cost.

Not always of course, and were talking about housing which has a bunch of other factors going on but it's usually helpful.

[snidane]

Housing is a special story. It doesn't behave according to the standard economic theory of equalizing supply and demand like yogurts or bananas.

Housing is strongly inelastic market, meaning you can't increase supply when there is demand easily

The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. On top of that it has entered a bubble territory recently in which people buy, not based on their value judgment of the property, but because they expect to offload it to someone else in the future with a profit.

Housing is not a 'supply and demand market dynamic, but a 'greater fool' market dynamic.

[koolba]

Housing in CA is also unique in that the combination of refinance rates and Prop 13 make selling your home for the same house right next door a losing proposition. Most long term owners are deeply incentivized by CA’s property tax cap to never sell and if anything take an equity loan / rent it out.

I can’t even imagine the total financial devastation if they suddenly ratcheted up the tax rates via reassessment. It’d be a fire sale for all but the top end of the income ladder.

[pcwalton]

> The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price.

This theory fails to explain why housing prices in San Francisco fell during the dotcom bust. https://www.bayareamarketreports.com/trend/3-recessions-2-bu...

[resonantjacket5]

Housing is not actually that special. It is true it doesn't behave according to the econ 101 model that most high schoolers learn in class, but in econ 201+ classes explain it.

The main difference is that land is the limiting factor or more accurately legally buildable land in this case with zoning.

[6gvONxR4sf7o]

The network effects of cities increase with density. The more people move there, the more incentive there is for people to move there. The cost of housing is a function of that marginal person who is on the verge of moving there. If I’m on the edge, then all my friends and all my employers move there, then I have even more reason to move there too. When you move there, I’m willing to pay more to move there too.

In other words demand isn’t constant.

As I understand it, it’s an open question as to whether more housing means lower prices via simple supply and demand, or higher prices via network effects.

[ItsMonkk]

Exactly. Every person living in a city is a positive externality for the businesses. And every business is a positive externality for the residents. It's a network effect. The more people in a city, the better it is. The people who own empty lots contribute nothing, and their empty lot keeps going up in value.

When you incentivize people to say no to housing because the more they say no, the higher the value of the house, they are going to say no. It doesn't matter how much the state demands. You don't want centralized forces creating a mess, you want decentralized forces. We need to stop swimming upstream.

The only way out of this is to tax the land equal to those positive externalities. The only way out is a Land Value Tax. When you under tax the land, the price of the house balloons. Once you have a Land Value Tax in place and increased housing supply means lower taxes, all the NIMBY's will quickly convert to YIMBY's - it will be a breeze to get new housing built.

Fix the incentives. Land Value Tax[0].

[0]: https://astralcodexten.substack.com/p/your-book-review-progr...

[6gvONxR4sf7o]

> the more they say no, the higher the value of the house

Isn’t the argument we’re talking about saying the opposite? The more housing (i.e. the more they say yes), the higher the value of their house?

[ItsMonkk]

Ahh.. I was less precise than I should have been. Words can be tricky - let me be more technical.

There is price and there is value. The more they say yes, the more value you get. The more they say no, the higher the price.

[ItsMonkk]

Oh, realized a better way to explain this.

When you say yes, you grow the pie. When you say no, you get a bigger piece.

[kelnos]

On the flip side, though, we've already seen what limited new housing does: much, much higher prices, and people getting priced out of their homes. More housing might not solve everything, but less housing is what's causing these problems.

People won't stop wanting to move here just because housing growth is slow. While the prices are very high right now, there are still enough people who want to move in who can at least vaguely tolerate those prices. That doesn't mean the system is working, though. That just reminds me of the old stock market adage, "the market can remain irrational longer than you can remain solvent".

[austincheney]

Supply/demand ratios don’t work against fixed assets. You can’t clone or replicate a geographic segment of Earth.

[irishloop]

But you can build higher density housing which increases the overall number of living units in a region, thus increasing the supply.

[zepto]

For a short period of time you can increase the supply, but the demand will keep up with it.

[Kalium]

At the risk of being contentious, it may be worth considering that there is no place on earth where the demand to live there is truly infinite. This suggests that demand can be sated and prices brought down with sufficient supply.

Of course, there is such a thing as induced demand for housing. Studies of it show that it's not so strong as to eliminate the effect of adding supply to a tight market.

With these in mind, why would we not expect demand to eventually fall behind supply as California approaches something resembling a healthy housing market?

[civilized]

I will never understand why so many people are absolutely convinced, on the basis of seemingly no explainable evidence, that basic economics doesn't apply to housing.

[missedthecue]

Because understanding it means their housing price should go down. If they can pretend supply/demand doesn't apply, they can keep advocating NIMBY policies that increase the price of their house year after year.

[Spivak]

I don’t think that people are denying the economics, only that for high-demand housing the game is different.

The price of housing isn’t completely elastic since for a given area it’s a function of the available salaries in the area. You hit a ceiling where above which there are no buyers and below which you get 20 cash offers the day you list.

So oddly the thesis is that housing prices are actually too low and we’re playing by concert ticket rules. Part of this has to do with the availability of mortgages as a function of income. And that there is so much demand for housing at a given price that any increase in supply we could actually realistically build would just get bought up instantly at the current price and we can’t increase the supply enough to actually drive prices down.

[zepto]

Neither will I. The number of people who think you can build an infinite number of homes in a finite space of land, or who are unaware of network effects, is surprising.

[tzs]

It is because basic economics is only a crude approximation for real world economics. That's why Economics departments at universities require you to take a few courses after Ec101 before they will give you a degree in the subject.

[zepto]

> with sufficient supply.

You keep saying this as if supply can be increased arbitrarily. It simply can’t.

You can increase density for short while until you hit limits, but network effects will keep demand increasing as you do.

Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.

[Kalium]

> You keep saying this as if supply can be increased arbitrarily. It simply can’t.

True! You eventually run into physical limits of density and what we are capable of constructing. However, this naively seems likely to be far higher than we have now.

Some back of the envelope math is in order, then. SF has a surface area of about 30,000 acres. Kowloon Walled City, a very dense place that actually existed, had between 33,000 and 50,000 people in 6.5 acres. Extrapolating, that puts SF at a possible maximum population of between 152 and 230 million people. That's using construction technology from the 60s and 70s, so we could perhaps do better today.

With this in mind, it does seem likely that the density of the SF Bay specifically and California in general could be reasonably increased. There's quite a lot of room for opportunity to house people between SF's current population of 875000 and a population several times that of California.

> You can increase density for a while, but network effects will keep demand increasing as you do.

Sure! As I touched on previously, induced demand in housing is a very real effect. You're absolutely right. However "any induced demand effects are overwhelmed by the effect of increased supply". https://appam.confex.com/appam/2018/webprogram/Paper25811.ht...

I believe, and please correct me if I am mistaken, that what is described here as induced demand is what you are referring to as network effects.

> Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.

Expensive places have been made less exorbitantly expensive before. That seems like an excellent reason to suppose that a currently desirable place can be made affordable. I understand that this is a matter of opinion on which reasonable people might differ.

[nobody9999]

>Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.

That's a fair point. But no one (at least not in the comments I've read so far) has discussed the converse: making less desirable places (which are affordable) more desirable.

There are many places which have experienced huge population decreases over the past 50 years or so.

And many of those places are in pretty difficult economic circumstances too.

While many of the most lucrative jobs are in or near urban centers (driving up the price of housing in and around those areas), it's clear that many of those same jobs can be done remotely.

And so what's stopping folks from moving from, say, the New York City area to small towns New York, Pennsylvania or Ohio?

The reasons are several and are self-reinforcing:

1. Large urban areas have lots of economic activity, generally leading to improvements in infrastructure and facilities;

2. Small towns have less economic activity, generally leading to fewer improvements in infrastructure and facilities;

3. Young people flock to densely populated areas because that's where other young people are and where opportunities for economic and career advancement exist.

These (and other) issues lead to the high price of housing in densely populated areas and the slow death of small towns.

So what does this have to do with expensive housing in densely populated areas? A lot.

Improving the infrastructure in small towns (municipal (mult-)gigabit fiber to the premise, fast and reliable rail links to population centers, rezoning to allow more rentals -- both houses and apartments, incentives for small businesses, etc., etc., etc.) could make them much more desirable places to live.

Those, combined with the ability to work remotely, could remedy a significant portion of the housing price issues we face.

If a small town could support remote knowledge workers, other people and businesses would move in to support them.

Over the long term (50+ years), this could significantly redistribute population (and housing) in ways that would be a huge benefit to the economy.

Unfortunately, most people and corporations are only concerned about the next quarter or, at most, the next fiscal year.

There are valid, sustainable ways to deal with these issues, but unless we focus on the medium to long term (10-50 years), it will never happen.

More's the pity.

[gumby]

Cities have ways to increase the amount of living space per m2 of land: build up.

[civilized]

I don't understand what this abstract terminology means. Do you believe it is impossible to build more housing in California? If so, why? If not, what are you talking about?