I’m sad to say that you are the one who does not understand urban development. There’s actually quite a lot of research on induced demand (which is the name for what you’re talking about) and there isn’t any evidence of it in the housing market. Rather, new construction lowers rents across the board. Which makes sense. If a bunch of new people want to live in a place and no new housing is made for them, what else can happen but a rise in prices?
Here’s just a taste. Do please read and if you have a problem with the identification strategies, I would love to hear it.
Seriously, all of the cities are massively overbuilt. More so the smaller ones, but even Shanghai, Beijing, Shenzhen, Chongqing. AirBnB is not allowed. Huge numbers of units sit never used and off market. BTW that's with a SHRINKING population. Overbuild estimate is 50M units (150M people) with some 20M units unfinished. Prices are insane and comparable to NYC/London @ $10k/m2, when incomes are only 30% as high.
Why? Financialization. Yes, property values ONLY started falling WHEN builders stopped completing buildings. They were not places to live, they were investment vehicles. This is just as true in London, Vancouver, NYC, SF, Miami, etc.
A 1 bedroom in the inner ring might go for around $400/mo, and in the outer ring around $200-300/mo. Double those numbers for 2bdrm, and 3-4x those numbers for the inner ring of a T1 like Beijing, Shanghai, Shenzhen, etc.
By American standards, that might be affordable, but median household income in China is around $300-400/mo, and the urban median household income is around $500/mo.
As such, it can be fairly unaffordable, but buyers who were lucky can continue to demand high(ish) rents while coasting on asset value depending on when they acquired property - especially inner ring property.
> A property bubble generally involves asset values rising past what rents support.
Rent is often used as a proxy for spending, but that doesn't necessarily work in China.
In China, because incomes outside of a couple top tier white collar employers remain low, private rents can be fairly inaccessible for the bottom half, so employers such as large factories often provide subsidized dorms/apartments, but these factory cities tend to be isolated and self contained from the larger community.
Furthermore, despite significant reforms, China still has a corruption problem, and the easiest way to convert black money into white money is real estate, so in that situation, asset depreciation is acceptable because it can make previously non fungible black yuan into fungible yuan or USD sellable or mortgagable assets.
This problem has constantly manifested all over Asia, and has tripped various former high flying economies like Malaysia (1990s), Thailand (1990s), India (2010s), Vietnam (present), etc.
I think it depends. In the US, denser cities are more expensive than lower density ones. If a city doubles in population, it will probably generate more demand due to the extra jobs opportunities/amenities/culture/etc, so people from other parts of the country will want to move there.
The exception is if everywhere in the country increases in size at the same time. For example, Japan has cheap rent at the most populous city at Earth (Tokyo). But one quarter of the whole country lives there.
If the US had something equivalent, with 80 million people in NYC, and plenty of high-rises and missing middle in every city that is currently mostly single-family-homes, then we could have cheap rents everywhere. But if just one city increases density alone, it seems it will just attract people from elsewhere in the country
You might be simply struggling with some cognitive hurdle here, I don't know what it is, and it's hard for me to help you.
Maybe try to research the city of Barcelona, its topology, the available space for construction, the process of developing high-rise buildings, and then try to ask yourself what steps need to be taken to build 100k new flats in the city?
Consider the infrastructure, the cost, the timeframe, steps needed to ensure quality, and make sure that it doesn't become unliveable like american downtowns, compensation to the current residents whose flats would have to be demolished, damage to the city's character...
Then you could maybe think about what happens when rent prices drop, and whether a decrease in apartment prices that follow would have some effect on the number of mortgage defaults.
Maybe consider the political support you'd need for such a development and how you'd get it from the existing residents?
Finally try to do some napkin math and figure out how quickly these new units would be bought up as vacation houses by the rest of Europe and the rest of Spain moving from smaller towns to the newly available stock in the city. For bonus points you could try to estimate how much new housing was built in Barcelona in the last 20 years.
Maybe that'll help. I'm really not sure what you mean by "identification strategies", but thanks for all your research about just letting developers build denser housing. I'm sure if they just listened to your simple advice, the problem would have been solved long ago. NYC and SF are known for their affordable and high quality rentals.
NYC and SF under build severely. Have a look at the chart of their building versus Tokyo, the only place that actually has kept a lid on rental inflation.
> You might be simply struggling with some cognitive hurdle here
Arrogance is thinking your myopic macro model has the power to fix every housing price crisis in the world. While ignoring every important factor but one.
Seriously, all of the cities are massively overbuilt. More so the smaller ones, but even Shanghai, Beijing, Shenzhen, Chongqing. AirBnB is not allowed. Huge numbers of units sit never used and off market. BTW that's with a SHRINKING population. Overbuild estimate is 50M units (150M people) with some 20M units unfinished. Prices are insane and comparable to NYC/London @ $10k/m2, when incomes are only 30% as high.
Why? Financialization. Yes, property values ONLY started falling WHEN builders stopped completing buildings. They were not places to live, they were investment vehicles. This is just as true in London, Vancouver, NYC, SF, Miami, etc.