[arcticbull]

> How does density actually hurt landowners? If you own a house in a heavily consolidated urban area your property value will hardly have decreased.

Correct because, and I can only speak for America, those big cities stopped building. San Francisco alone is short about a quarter million homes, like 33% of the existing population. There’s a whole Wikipedia article on it. That’s why it’s so unaffordable.

> Also consider that maybe people just don't want to live in a highrise legoland, or think that endless urban consolidation is a good thing for our cities.

This is a pretty funny position to take. Those cities didn’t get to high rises because nobody wanted to live in them. You know those buildings are full … right? If nobody wanted to live there prices would be way lower and they never would have built denser housing.

Tokyo is a great example of a major metro where supply and demand are roughly equal and they haven’t seen houses increase in price since 1990. Their units cost a bit more than cost of construction. This is the power of federalizing zoning rules so city councils can’t get between you and building a house on your property.

[robocat]

> San Francisco alone is short about a quarter million homes

If they added a quarter million homes, do you think they would still be short another quarter million homes?

Not saying densification is bad. But in some cities the density can keep increasing and not have any drop in demand. Apartment prices in dense cities don’t drop?

[arcticbull]

> If they added a quarter million homes, do you think they would still be short another quarter million homes?

Not in this market, haha. The number was based on the quantity of houses added vs the quantity of jobs added in SF and the surrounding area. (From [1]: "For example, from 2012 to 2016, the San Francisco metropolitan area added 373,000 new jobs, but permitted only 58,000 new housing units") But over time? Maybe.

> Apartment prices in dense cities don’t drop?

There are very few cities where supply of housing is allowed to meet demand for housing - but as I mentioned, Japan is a great example. Japan hasn't seen an increase in the cost of housing since edit: [1995, not 1990 as I mistakenly claimed in GP post]. [2] Compare to the US. [3] What happens is that they stop going up in price.

[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage

[2] https://fred.stlouisfed.org/series/JPNCPIHOUAINMEI

[3] https://fred.stlouisfed.org/series/CPIHOSNS

[ericmay]

Yea, also adding more homes or more units will just increase rents and prices anyway, especially with higher interest rates.

At the end of the day a lot of people have this very wrong idea that living in the best weather and in the epicenter of a global city with top-tier jobs, food, etc. will ever be “affordable”. It simply will not be. Ever.

[arcticbull]

Tokyo has all of those things, and yet. Why do you think supply and demand do not exist in the housing market? Why is this the one market on earth where it won't ever work? If you have as many houses as jobs in the nearby area then it will be more affordable. That's just facts.

Further higher interest rates lead to lower house prices, to an extent (but only to the extent supply exceeds demand) because people buy houses based on monthly mortgage affordability.

People have looked into this. Here are the results. [1]

> The resultant high demand for housing, combined with the lack of supply, (caused by severe restrictions on the building of new housing units) caused dramatic increases in rents and extremely high housing prices.

I'm not saying you'll be able to live in SF for the cost of living in a shack in the corn belt, but there's no reason it'll be "unaffordable forever and there's nothing we can do about it" when that historically wasn't the case and there are other global counter-examples. And a ton of research was done on this.

[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage

[ericmay]

> Why do you think supply and demand do not exist in the housing market?

Why would you think that I think this? That's really confusing.

I think the issue you have here is that you are thinking in extremely simplistic terms and not really accounting for real supply and demand in this particular market. Instead of looking to Tokyo (which is a generally bad example because Tokyo and Japan are not great generalized models) you should look to New York City to see what will happen if you continue to build housing in the Bay Area. It won't get cheaper, in fact, the more you build the more expensive it'll get for a few of reasons:

  Interest rates
  Housing standards (environment, earthquakes, etc.)
  Developers do not want to build low-margin housing so they'll only build "luxury" housing with cheap, but perceived higher-end finishes so they can charge more rent per sqft
  Lack of available workers

As developers build additional housing they'll only build for higher rental rates, but because there is a near infinite demand for housing in San Francisco and California as a whole, as additional units come onto the market they'll raise the median rent, but it won't make existing housing cheaper, it'll just be the new floor. If you could build a million units or something in a year, you may be able to reduce prices, but construction doesn't work that quickly. Demand far outstrips supply and will continue to do so.

Tokyo is incomparable for a few reasons, but you can start by examining Japanese birth rates, immigration policy, and California's comparable car-only infrastructure.

Historical examples aren't very useful here because historically there were far fewer people, travel from the highly populated east coast to California was long and arduous and the benefits were "unknown", and people had a lot less money and stronger family ties. Trying to do global comparisons is generally suspect as well. But I guess if you want to see what things would look like, New York City, Hong Kong (pre commie China takeover) and the similar extremely high housing costs and density are appropriate versions of the future of the Bay Area real estate market. With that being said, who knows what will happen with remote work and the like, but probably won't have much in the way of price reductions there anyway over the longer term.

If you want less expensive housing you'll have to live somewhere else. That's just how the world works.

[arcticbull]

I mean here's my responses to each of the four points you raised:

1) Interest rates make existing housing stock less expensive as people are unable to afford a property of the same price based on fixed monthly payments.

2) Housing standards are relatively consistent, and you know Tokyo is on a fault line right?

3) Developers will happily add any kind of unit they think they can sell, just look at what the city of SF is rejecting on a regular basis. But even if you only build luxury housing, that pushes existing wealth out of less fancy units opening them up to lower wealth tiers. New supply is new supply. Period.

4) Lack of available workers factors into cost of construction, but cost of construction is absolutely dwarfed by market prices. If we were close at all to it, we could include (4) but we're just not.

> Tokyo is incomparable for a few reasons, but you can start by examining Japanese birth rates, immigration policy, and California's comparable car-only infrastructure.

This constrains demand, but the point remains that in their market supply and demand meet. Supply and demand can meet by increasing supply or by decreasing demand. Btw, Japan’s immigration policies are actually very lax, but the perception of their culture as unwelcoming to outsiders creates little actual demand. The US immigration policies by contrast are significantly more stringent.

Density and transit are a chicken and egg problem. More density however allows you to invest more in transit.

> If you want less expensive housing you'll have to live somewhere else.

This wasn’t the case historically and there’s no reason to think it can’t be the case in the future except for lack of zoning reform. Anyways if you want to take up the supply/demand thing feel free to take it up with Wikipedia, which cites plenty of sources that provide contrasting examples.

> That's just how the world works.

I disagree, but thanks for your perspective.

I look forward to your treatise on why supply and demand stops working when it’s nice outside ;) Especially since during COVID rents fell massively in SF as supply outstripped demand - even thought the weather remained lovely.

[ericmay]

> Interest rates make existing housing stock less expensive as people are unable to afford a property of the same price based on fixed monthly payments.

You are making overly-simplistic assumptions. Interest rates are one factor that can lead to prices going down to balance monthly payments, but you're forgetting that developers have to borrow money as well to build new housing or new condos or apartment units, renovate existing properties, and other things including running their businesses. This causes their IRR to change, and where a fixed monthly income from a new 35 unit apartment for rent or condo building or housing development makes sense at 0% or 1% rates, it may become unattractive at a higher rate or prices and rents have to increase to account for IRR. Don't make the mistake of assuming that higher interest rates simply lead to cheaper housing across the board. Even so, higher rates don't necessarily mean that housing prices go "back" to some historic price, and even then you have to account for various markets. San Francisco is going to be different than Denver, or Miami, or Topeka.

> Housing standards are relatively consistent,

Housing regulations, build rules and quality, size, etc. all these factors are consistent across the US and Tokyo/Japan? If so, that's news to me. I don't recall Ohio where I live having the same environmental reviews (for example) as California, or the need to build to withstand earthquakes. Or are you saying that Tokyo and San Francisco have the same housing standards?

> Developers will happily add any kind of unit they think they can sell, just look at what the city of SF is rejecting on a regular basis. But even if you only build luxury housing, that pushes existing wealth out of less fancy units opening them up to lower wealth tiers.

While it's true that San Francisco in particular may be rejecting units, you are making a mistake by equating "developers will happily add any kind of unit they think they can sell" with "developers will happily add any kind of new unit they think they can sell at an internal IRR based on interest rates and market conditions".

You are also mistaken because you believe that adding "luxury" housing creates a drop in prices for other housing, that does not necessarily follow when there is pent-up demand at the cheaper price points. What you do is just increase the median rent price, not lower it, in markets like San Francisco or New York or other highly desirable areas.

> New supply is new supply. Period.

Overly-simplistic and you can show that this isn't the case by a simple thought experiment where a developer builds nothing but $50,000/month condos or $5mm homes - supply is added but doesn't alleviate housing shortages.

> Lack of available workers factors into cost of construction, but cost of construction is absolutely dwarfed by market prices. If we were close at all to it, we could include (4) but we're just not.

What do you mean "cost of construction is absolutely dwarfed by market prices"? Are you saying that it's cheaper to build new housing and sell it than it is to sell existing housing?

> This constrains demand, but the point remains that in their market supply and demand meet. Supply and demand can meet by increasing supply or by decreasing demand.

Sure but you are oversimplifying things and you can't generalize Tokyo to the US or San Francisco. Do the same thought experiment with Hong Kong, Singapore, or London.

> Btw, Japan’s immigration policies are actually very lax, but the perception of their culture as unwelcoming to outsiders creates little actual demand. The US immigration policies by contrast are significantly more stringent.

I'm not sure this is true anyway, but it doesn't matter if the effect is the same = fewer immigrants. Difficult to compare Japan versus anywhere really so I'm not sure why you continue to do so.

> Density and transit are a chicken and egg problem. More density however allows you to invest more in transit.

Yes but it is still an existing problem which is why I mentioned it. Hard to build new housing when you have mandatory parking minimums and such (I believe but could be wrong that these were removed in California as a whole last year).

> This wasn’t the case historically and there’s no reason to think it can’t be the case in the future except for lack of zoning reform.

By that rationale land in California should be free/extremely cheap because it used to be in 1880.

> I look forward to your dissertation on why supply and demand stops working when it’s nice outside ;)

So climate isn't a factor in housing prices? Why are you taking such extreme positions? "supply and demand stops working" who said that? Certainly not me.

> Especially since during COVID rents fell massively in SF as supply outstripped demand - even thought the weather remained lovely.

I mentioned COVID already but it also primarily applies to office vacancies. San Francisco in particular is still very expensive to live in even despite COVID for obvious reasons - it took a global pandemic and entire shutdown of the city to get rents to drop. Populations ebb and flow, markets go up, they go down, etc.