[SoftTalker]

I think that what contributes to this view is that new construction always seems to be at the high end of the market. This makes sense, it doesn't cost the builder a lot more to build a $500k house than to build a $250k house, and building two $250k houses will take twice the time and close to twice the costs. So builders/developers are going to build what is most profitable, which is the most expensive houses that they think they can sell in the local market.

What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.

[starkparker]

> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.

I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.

If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.

[mediaman]

This analogy seems confused.

If someone in Chicago moves to Seattle, then our policy options are (1) no new condo in Seattle or (2) new condo in Seattle.

Under policy 1, the new buyer from Chicago must outbid locals for the fixed housing supply; they will wind up buying older housing stock, which otherwise would have gone to existing local residents. Prices go up.

With policy 2, the new entrant buys the new condo and does not compete for pre-existing housing stock.

In this scenario, whatever house is freed up in Chicago is irrelevant to the housing stock in Seattle. I'm not sure why you included it.

The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.

[seanmcdirmid]

> The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.

Are you denying that induced demand is a thing for housing? That everyone who wants to move to Seattle will move there regardless of housing prices, and no one will leave because they get squeezed out of the housing market by new arrivals? Or is there a more nuanced argument that I'm missing?

That new condo allows one more family to live in Seattle regardless, whereas if they were competing with existing stock, some family would probably have to leave. We could play a few rounds of musical chairs to prove that fact.

[mediaman]

Yes, people are going to get squeezed out of the housing market by new arrivals if new housing stock isn't built.

"Squeezing out" is done by a price mechanism: a family that would prefer to stay in Seattle decides to sell, because that new buyer (unable to buy the condo, because it hasn't been built) decides to offer a high enough price to induce the existing family to leave.

That's only done by reducing housing affordability (increasing prices) which is the public policy outcome we're trying to avoid.

It sounds like you agree that new supply is good, I think, because you believe new entrants would otherwise "squeeze out" existing residents and I assume you would agree that this is done by price, and so therefore you would also agree that new housing stock (which decreases the "squeezing") also suppresses price level relative to the alternative fixed stock scenario.

[seanmcdirmid]

I never argued that new supply is bad. My only observation is that new supply does not always lead to price decreases since demand isn't fixed (e.g. Seattle isn't a closed system). I think another comment that mentioned equilibrium is probably a better way of putting it. It can take a lot of supply before the price point changes as new supply is added because a lot of people are waiting on the sideline to pay X that is already being paid for existing supply (but they are unable to pay X+1 to force someone out and take their place).

[mediaman]

New supply obviously increases demand because shifting the supply curve to the right (more quantity) reduces the clearing price, which increases demand. That's econ 101. In this classic case, increasing supply both decreases price and increases demand.

But what you're arguing is different: that increasing supply has no effect at all on the clearing price. That would require an unusual demand "curve" that is perfectly flat, i.e., perfectly elastic, where there is infinite demand at a given price and zero demand at just a dollar above that price (or else that infinite demand would have already pushed prices up higher than the pre-existing price).

This clearly doesn't make any sense for the housing market; home buyers are sensitive to price, there is not infinite demand, some people have more or less desire to pay for a house. In fact, perfectly elastic markets essentially don't exist, and very low slope demand curves only exist in some unusual edge cases in markets (such as commodities that are near-perfect substitutes).

[roenxi]

The argument is clear, but where you are coming from or going to with this isn't. You're describing a situation where Seattle desperately needs large amount of construction of new housing. If we're hypothesising this mob of people who will move to Seattle as soon as they see a house for $700,000, house prices in Seattle are going to have a floor of around $700,000. Someone is going to need to build houses for those people if anyone wants to pay less than that.

Thanks to the magic of Simpson's Paradox it is possible to have the average house price go up even if houses get more affordable for literally everyone, which seems to be the situation you're going to. Which is true and interesting, but not really politically important. Obscure mathematical effects do draw attention to the fact that one metric isn't enough to develop policy, but shouldn't eclipse the fact that more houses is what people want, need and should be getting. There is this crowd of people who want to move to Seattle and live in nice houses, let them do that and pay people in Seattle to build them. Otherwise everyone will have to compete for existing housing stock.

[colonCapitalDee]

I've never understood the induced demand argument. Yes, when goods get cheaper demand increases. Or, to put it another way, when we make our cities more affordable more people want to live there. What's the problem? Sure, induced demand means that the marginal increase of affordability is less than it may have been if demand remained constant, but a. affordability still increases, and b. the solution is just to keep adding more housing until things flatten off. I truly don't understand why this is controversial; do you not want people to have desirable things? The rational response to induced demand is "great, people actually want this. Build more".

[datadrivenangel]

It's push and pull.

If your goal is to decrease costs, the amount of supply needed may be surprising of latent / induced demand is very large. If NYC cost 1/4th the price to live there it would probably triple in population, so you'd need 40 million new units to get the costs down that much, and the price of the penthouse looking at central park would probably increase even if mean and median costs go down a lot. If a city is at the equilibrium point where supply meets demand, more housing may only keep prices flat for a large amount of new housing.

[rwarfield]

But the ultimate goal is never to decrease costs; it's to provide people housing.

[seanmcdirmid]

The problem isn't one of "we shouldn't build new housing", but rather the one of "are we going to see prices really fall after 10,000 new units of housing are built?"

It is only controversial if you really expect prices to fall when new housing is built (or to say, if you think the only solution is to build new housing and nothing else). Otherwise, the "building new housing" part isn't controversial at all.

[xnx]

Induced demand is a very popular fake idea and conversation ender. Giving people more of what they want is a good thing.

[starkparker]

I'm talking about perception, not policy. OP's paper is about perception among "rationally ignorant voters", specifically:

> This paper suggests another, complementary explanation for the over-regulation of metropolitan land use: the failure of ordinary voters to appreciate that large, exogenous increases in regional housing stocks would put downward pressure on prices, coupled with voters’ tendency to blame housing providers (developers and landlords) for high prices.

and

> Studies of interregional migration in response to negative employment shocks have tended to find that mobility is lower than economists had expected (Autor, Dorn, and Hanson 2013; Greenland, Lopresti, and McHenry 2019; Yagan 2019; Choi et al. 2024). Similarly, US metro areas with greater regulatory barriers to new supply experienced less housing-stock growth and less in-migration, but no more out-migration, than less constrained metros from 1990 to 2000 (Molloy, Nathanson, and Paciorek 2022). Such frictions mean that regional housing supply shocks will have larger effects on regional than on national prices.

> But again, laypeople have no reason to know of these research studies. Nor do ordinary people have first-hand experience with large, sudden shocks to their metro-region’s housing supply. Regional housing stocks have changed slowly, especially in recent years. Between 2008 and 2023, the total housing stock in the United States increased at an annualized rate of only 0.7 percent, with much of the growth concentrated in only a few active markets (US Census Bureau and US Department of Housing and Urban Development 2023a). Meanwhile, national median home prices have risen consistently except during recessions (US Census Bureau and US Department of Housing and Urban Development 2023b). It would be no great leap for the layperson to infer that only macroeconomic factors and financial markets, and not local supply-side factors, such as land-use restrictions, determine housing prices.

Part of that perception is in locals' belief that new high-end local housing stock can help affordability _only_ if it frees up affordable units in the local market. If the perception is that new high-end units aren't freeing up lower-end units _in the same market_, then locals are going to complain to electeds and oppose new developments, regardless of whether it's rational to do so.

It's Sisyphean to prove to a local that an outsider buying up an attractive unit priced out of the local's reach is actually a good thing for the local; there's no visible benefit and they receive no tangible relief from it. They couldn't afford a home before the new stock is built, and they can't afford a home after the new stock is fully occupied. Either the benefits are on a long timescale, or there are larger problems than housing stock influencing affordability.

The "people moving in to the new expensive houses are leaving their old houses" argument then becomes a non-starter because of the "rationally ignorant" but anecdotally pervasive argument among locals that these new developments aren't helping them.

- Locals see an influx of people from other cities/states/countries moving into attractive units that were built with prices that locals already can't afford. It doesn't matter whether that influx is 10% of the new stock or 100% of the new stock; these new outsiders stand out in _perception_ regardless of reality.

- Locals likewise don't see a short-term increase in attractive housing stock that they can afford, else they'd have already tried to acquire it.

- Developers point to affordable, vacant housing stock, but when that stock isn't in equally attractive places to live as the unaffordable stock, locals don't consider it to be beneficial to them. The fact that the unattractive place would likely become more attractive over time is a hard sell in places where that pitch has failed to materialize in the recent past due to things unrelated to housing stock (COVID, local recessions, outmigration events).

- Locals seeking affordable housing in attractive areas start advocating for enforced rent modifications or pricing mandates that developers oppose.

- Locals are voters who can influence electeds that control policy, and non-locals who haven't yet moved here aren't, so the battle enters the political sphere with a tilt toward locals. Either the government caters to voters and enacts anti-development policies, causing developers to slow down in or exit the local market, or developers lobby the government, causing voters to rebel against electeds and protest harder against developers.

The cycle grinds local regulation to a standstill. Locals get no net benefit in the local housing market, perpetuating the underlying problems. Everyone's perception of everyone else in the situation degrades further, making further changes harder to enact.

[ASinclair]

> If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago

Is the existence of the $700,000 condo the limiting factor for those people moving? If it isn't built would they instead bid up an existing unit in Seattle and put it more out of reach of existing Seattle residents?

[whall6]

There doesn’t need to be a connection between the purchase and sale events. Any marginal unit of inventory added to a market will place downward pressure on the price of that inventory (i.e., make it more affordable). The reverse is true for a marginal bid for inventory.

The effect is so minimal when you zoom into a single sale of one home and purchase of one condo, but in aggregate this causes real noticeable price movement.

[jillesvangurp]

New construction is kept expensive mostly through complex rules that often exist to protect the interests of those doing the construction work, those owning existing houses and property, etc. It's a form of artificial scarcity. This scarcity is crucial to justifying real estate prices, propping up mortgages and the banks that provide them, etc.

There's no technical reason why building some shelter that keeps the rain out and the heat/cold where it should be is not something that could not be done cheaply at large scale using affordable materials. People have been building shelter for tens of thousands of years and it's easier than ever with modern materials. It's not rocket science to keep people dry and comfortable.

People routinely buy recreational vehicles that, because they have wheels, are not considered houses. So, suddenly there are much less rules and you can just produce those efficiently in factories. Except getting permission to park those and live in them is really hard to come by in many places. It's OK for recreational use. But not for living permanently. Which of course some people do anyway. But it's highly stigmatized.

Recreational vehicles come out of factories. Houses are built artisanally at great cost. The only functional difference that matters is mobility and wheels. Why should people not be able to get a nice second hand RV for a few thousand dollars and park it in a nice spot and live there?

Answer: it would immediately devalue the notion of owning brick and mortar.

[nine_k]

Doesn't the price of land play a role? If the developer pays $100k for a parcel of land and builds a $500k house on it, they may have their margin on the $400k, but if they build a $250k house, it's only $150k, a more dramatic drop.

The minimum lot size requirements don't help the situation either.

It likely would be more efficient and profitable to build a townhouse, or even a mid-rise, and let more people live on the same parcel of land, but zoning restrictions often prevent that.

[ncruces]

Not just land, but all the bureaucratic costs, licensing, etc. Developers will always build the most high margin house the market will bear.

It still increases supply, though. And if there's no market for expensive houses, eventually they'll make cheaper houses.

Also, the people on the market who can afford the expensive houses, would still outbid you for a shittier house.

[rootusrootus]

I would not use RVs as a good benchmark. They are super cheap for a reason. The biggest reason not to live in one full time is that they quickly degrade under that kind of use. They are not built for anything other than occasional use. That is on top of their steep operating expenses, even if you can keep it held together.

A better benchmark would be a manufactured home. Transported on wheels, built in a factory, but intended to be used full time indefinitely.

IIRC, stick-built homes are only like 15% more expensive than the equivalent manufactured home, and you have a lot more flexibility in the design. Probably this is most of why manufactured homes are only popular in particular niches.

[supertrope]

Part of it is maintaining current real estate valuations, level of density and aesthetics.

Crime and social class segregation is another aspect. Who lives in a neighborhood matters as much as the physical assets. Bans on MDUs (multiple dwelling units), permanently parked RVs, and manufactured homes serve as a barrier to entry. It’s not explicitly stated but the effect is the same as saying “If you can’t afford a $410,000 house we don’t want you as a neighbor.”

[stego-tech]

> It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.

As I commented elsewhere, that’s the paper math version that doesn’t resemble reality for those of us living in it. Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.

The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.

[colonCapitalDee]

In every single reputable empirical study of housing, adding supply really does bring down prices. Your preferred policy solution would decrease housing affordability, hurting the very cause you profess to champion. If this truly is something you feel strongly about, you have a duty to yourself to investigate the evidence, otherwise you are shooting both yourself and your movement in the foot.

[jeremyjh]

Building a new house and renting the old one absolutely does increase the supply of housing.

[uv-depression]

GP was incorrect that it doesn't increase supply, but correct on pricing. Besides, if I can't afford $3000/mo rent, it doesn't matter to me how many rental units are available at $4000/mo. With massive pricing collusion having been the standard for the last few years (RealPage) and the demand for housing always being extremely inelastic, the supply/demand curve is extremely complex.

[stego-tech]

Again, on paper it does.

But paper often neglects reality. A reality where it can be more profitable to simply hold the land rather than lease out the home on it. Where a constructive loss can improve tax savings. Where the intent is to have it vacant for some other perceived use or gain - like a vacation home, AirBnB rental, Pied-a-terre, or just letting the structure languish until it can be condemned and bypass red tape around teardowns/rebuilds.

Current incentives and structures do not mandate that homes are made available when someone buys another domicile. That’s one of the myriad of issues affecting the housing crisis.

[margalabargala]

All that means is, that building one unit of housing and selling it means that the pool of available housing is increased by less than one unit. It does not mean that the available housing supply did not change, or decreased.

So if building one unit of housing increases the housing supply by 0.7 units on average or whatever, then the same logic applies, just overbuild by 30%.

[bryanlarsen]

how does renting out old stock not increase supply? Renting and buying are relatively fungible. People buy fewer houses when renting is cheaper.

[WarOnPrivacy]

> how does renting out old stock not increase supply?

Raw and overall housing numbers can be misleading by their nature. That is, they can be technically true while being false for many/most people.

    Declaration: Housing supply is increased!
    Actuality: Increase is only in homes for >$100k income earners.
    The declaration is true for >$100k.
    It is not true for most <$100k earners.

   (of those <$100k earners)
   There could be a very slight increase in supply for $80k.
   It'll be less, if any, for $60k earners.
   There is no increase in supply for <$40k (25% of US households).

Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.

Generally, there is no affordable, reasonable housing for typical income earners.

[bryanlarsen]

It's still an increase. Rich people always have a house. If they can buy a rich person house it means they aren't outbidding normal people for non-luxury housing.

[WarOnPrivacy]

What figure divides luxury and non-luxury housing?

Asking for the 25% of Americans who make <$40k/yr.

[rootusrootus]

> Past that, there is a challenge in tossing around $250k and $500k houses as examples of anything. Those numbers are 4x & 8x over what typical-wage households can afford.

Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.

[WarOnPrivacy]

> Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.

80k is 3-4 typical wages. That is, the wages of jobs that are most obtainable make 25k-31k.

The folks in those income brackets are 25% of the population (and 35% of minority groups).

Housing stats are commonly presented as if they don't exist. However until few administrations, they had a long history of home ownership.

[BobaFloutist]

>Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing

Ok, but they have finite leverage and financing. The market can easily overwhelm their access to capital, no investor class has anywhere near enough access to capital to fully corner the behemoth that would be a healthy housing market.

[nine_k]

Doing similar things in Berlin (regulations instead of building more) put the housing market there to a crazy state. Yes, the rents are mostly affordable, but demand seriously outstrips supply, and it becomes a game of chance, personal connections, waiting for a year or two until a particular unit frees up, etc.

[TulliusCicero]

Also, they can only address the luxury market so much.

If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.

[SoftTalker]

Yes, but you'll only do this once the luxury market is saturated. As long as you can sell more luxury homes that is what you are going to build.

[TulliusCicero]

Right, but there's only so many people in that market. The reason it never seems to be saturated is that building more homes in expensive areas is typically very restricted and difficult and time consuming to do, mostly due to local/state regulations.

[jeremyjh]

Then it isn’t saturated.

[TulliusCicero]

Right. The real problem is regulations that prevent saturation.

[dwaltrip]

Housing regulation should be dramatically improved and streamlined, but we also have a deep cultural problem of nimbyism.

Humanity needs to learn how the cooperate much more effectively, or we are going to fuck everything up.

[PaulHoule]

My take on it as a small landlord (have two houses on my farm, one has two rental units) is:

I don’t think a lot about the pricing of my rental units and I’m not quick to raise them but when some new development comes into town and puts up billboards with their eye-popping prices and runs ads in the paper and on web sites and on the radio I think “Gee…. I must be leaving money on the table because I could raise my rates 50% and it would still undercut what they’re advertising a lot”

Of course the money they are spending on advertising indicates that their pricing is aspirational and they may very well next year be telling the city that they can’t afford their property taxes because they can’t fill the units and might be telling their lenders the same in a few years.

In Ithaca we got “luxury housing for seniors” that was nuclear reactor late and they can’t fill

https://ithacavoice.org/2025/03/library-place-to-sell-at-a-l...

(Don’t seniors with money go to Florida?)

A few market rate projects had an affordable component which has been part of a surge which has taken a bite out of our homeless colony but it is now like that talking heads song where they’re “burning down the house”

https://ithacavoice.org/2025/08/inside-asteri/

My understanding is many “luxury” developments are shoddily built and not a good place to live

https://www.nytimes.com/2022/04/15/realestate/condo-defects-...

[Dig1t]

>and building two $250k houses will take twice the time and close to twice the costs

Building densely is actually more profitable, there’s already incentive to build as densely as possible for developers. Adding an extra story and creating a duplex, triplex, etc doesn’t cost much more and means you can sell multiple more units. Building as tall as possible and getting more units into the same footprint is almost always more profitable than just building one single family house.

The problem is that zoning limits what type of building is allowed to be built on a site. Who controls zoning? Existing homeowners that already live in the area, so of course they are going to make sure that new builds are low-density, as it impacts them less (parking, traffic) and keeps their home values high.

Source: I tried to build dense housing myself and was stymied by zoning.

[supportengineer]

In other words, housing capacity is created and "trickles down" to the bottom.

If there was such as thing as a $250k house within a few hours drive, I would buy all of them and just sit on them, maybe rent them out.

[crooked-v]

What you're missing here is that housing is only a good investment because it's in such short supply. If plenty of $250K houses were available, they wouldn't be doubling in price every few years, and "sitting on them" and eating the maintenance costs would just lose money compared to other investments.

[DevX101]

Increasing the supply of the high end market often occurs while simultaneously reducing the supply of the low end market. This happens when landlords renovate their buildings. So it's very possible that adding supply can limit price inflation on the high end, while increasing costs on the low end.

[bondarchuk]

I wouldn't count renovation as "adding supply", though.

[supertrope]

Yes that’s gentrification of a neighborhood. Neighborhoods evolve over time. Displacement is bad but measures to fight it can be even worse. If no new construction can be approved over it being a gentrification signal, rents will zoom up even more. In the most competitive metro areas there are no cheap rent areas left within an hour commute.

[bilsbie]

I think we should start using hermit crab analogies. Everyone understands that you need more of the biggest shells to free up shells for the little guys.

[dkarl]

NIMBYs actively target this misconception. "New housing is luxury housing."

> eventually the price drops happen on the older, smaller homes at the bottom end of the market

I'd be interested in how long "eventually" takes for single-family homes. I think for rental units it happens very quickly.

[Ekaros]

In such market fixation on inefficient single-family homes is very weird. In desirable and growing markets those might not ever go down. Population in such market should just accept more dense configurations.

[majormajor]

The land value gives a strong floor. And nearby development increases the land value even if it makes the state of the house itself look worse and worse.

[bluGill]

depends, it takes decades and often people remodle their old houst thus bringing up the value.

[appreciatorBus]

There is also the recursive nature of a shortage 1. housing becomes a bit scarce for any reason, even a temporarily transient reason 2. prices go up 3. people point to high prices a reason new housing is bad, enact laws to limit it 4. housing becomes more scarce 5. goto 2

[amelius]

What if a Chinese real estate investor buys US property just for the sake of it? Just one of many scenarios this doesn't take into account.

[WalterBright]

Why would he leave it vacant?

[glial]

Because the value always goes up and managing renters and repairs is a PITA.

[WalterBright]

> value always goes up

History shows us that there are many bear markets in housing. There's also Detroit.

I sold my previous home in 2000. It recently sold for 4x what I sold it for. A great ROI, eh? If I'd invested in the S&P 500 in 2000, it went up 6.61x. And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.

[gottorf]

> And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.

And of course, had you let it sit empty the whole time, you still would have had to pay commissions, taxes, insurance, and maintenance (because an empty home goes bad very quickly).

There are very few scenarios where the appreciation at the end would be big enough to leave you with a profit after all those expenses, especially considering financing and/or opportunity costs.

[Straw]

If you don't include rent, real estate has significantly underperformed equities as an investment:

https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf

[loeg]

> the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.

This effect, in this context, is called "filtering."

[greenie_beans]

so you are suggesting that one house is better than two to alleviate supply? this is exactly why market incentives isn't the cure. we would have more housing if we built more housing. if we built double the housing, then we would be in an even better place.

this logic makes zero sense to me.

[tempestn]

As your sibling comment says, there is only so much market for luxury housing. If the land, permitting, etc. exists to build two houses, then two will get built. And if there's only sufficient demand for one of them to be high-end, then only one will be. (In aggregate on larger scales of course, not literally any given two houses.) It's not necessary to force a given developer to build two houses instead of one; if the economics make sense, and are predictable, the developers will come.

[firesteelrain]

What’s considered luxury housing vs upper middle class?

Like there are plenty of houses marketed as “luxury style” in my area and command $500k-$700k easily but it’s just fancy looking. Not built with any better materials, wood, concrete, drywall or brick that you can get any local Home Depot.

[supertrope]

It’s just puffery for new construction. Every single cookie cutter middle class subdivision calls itself an “estate.” “Affordable housing” is a nicer way of saying low income.

[greenie_beans]

the market logic just proves my point. logging off now bc i'm about to get flamed by YIMBYs and georgists! you can go read my comment history for my argument: https://news.ycombinator.com/item?id=44555384

[SoftTalker]

It's better than none, which is what you'll get if you start mandating what developers can build. They'll just go somewhere else where they can make more money.

[greenie_beans]

love this debate! the market built a ton of houses leading up the the GFC until the market decided it was too risky: https://fred.stlouisfed.org/series/HOUST

this was in a similar regulatory environment we face today. so if you take the market logic, then the market caused the problem as much as regulations.

[lcnPylGDnU4H9OF]

> so you are suggesting that one house is better than two to alleviate supply?

No, they are saying that building one high-end house still has the slightly unintuitive effect of increasing the supply of low-end homes. They also give their reasons for believing this.

[greenie_beans]

i'm very aware of how filtering works in the housing market. but if your goal is to increase supply, then 2 > 1. therefore, in my opinion, filtering due to market mechanics and developer incentives is not the most optimal or efficient solution.

[lcnPylGDnU4H9OF]

I'm just saying that OP didn't say that it was the most optimal or efficient solution. They were really only saying that it had the filtering effect. If your point is that we should offer incentives to build two homes and disincentives to build one home then I'm with you; I was just pointing out that you were putting words in their mouth.

[BrenBarn]

Maybe, but for people currently living who need housing, all that is academic. It's another case of "the market can remain irrational longer than you can remain solvent".

[m463]

I think you might be right, and I think people who buy new care less about price.

[rayiner]

Supply and demand requires thinking about equilibria and intersecting curves and is out of the reach of a largely innumerate population. Most Americans don’t even really have a strong grasp on millions versus billions versus trillions.

Americans also think in terms of stories with actors, and supply and demand doesn’t have any obvious actors. “Prices are high because bad people are choosing to keep them high” is an easy narrative for people to understand. There’s an obvious villain, and the success simply requires the hero to defeat the villain. This leads to a funny meme: https://www.reddit.com/r/neoliberal/comments/13l1lmn/present...

[supertrope]

People prefer a teleological explanation. It has the allure of a simplistic solution. Having a direct and complete solution out there is emotionally satisfying. Just like how subduing the villain saves the day, why not tax/ban landlords/immigrants/Wall Street/your favorite outgroup here? If there’s no simple solution available that’s not nearly as hopeful of a message. Politicians and marketers peddle simplistic “solutions” to a willing audience.

[entropicdrifter]

This makes sense in a world where the market adjusts rationally and there's an unbroken chain of people from different levels of wealth who can afford to buy houses. Unfortunately in the US right now, that is not reflective of the present scenario due to the immense generational wealth gap and housing bubble.

[pwarner]

But that's a supply problem. Create the supply, prices will drop and that bubble and generational wealth challenge begins to heal.

[entropicdrifter]

The US has 28 empty homes for every homeless person.

It's a market manipulation problem that's not going to go away for as long as we maintain the perverse incentive of using real estate as an investment vehicle. Japan has never had this problem and likely never will because housing depreciates in value there like cars. A 30-year-old house is often worthless or near-worthless in Japan.

[morkalork]

And in Canada there is a huge amount of backlogged demand. There are areas where rental listings for roommates show two beds to a room and 10 people crammed into a house. Unwinding that is going to take a long time.

[lcnPylGDnU4H9OF]

> people who buy those are leaving their old houses

I do not believe this is accurate, at least not in the last ~10 years or so. The houses are purchased by hedge funds and other smaller investors.

[legitster]

> The houses are purchased by hedge funds and other smaller investors.

The hedge fund thing is way overblown. Even if they buy up homes in hot markets, their incentive is still going to be to sell them if/when the market cools. Corporations do not enjoy the same tax incentives as homeowners in this country, and the risks/costs to rent out older homes just doesn't pen out for non-local investors. If PE wants to get into housing, it's such a better deal for them to just build apartments.

Currently less than a percent of homes are owned by private equity. And the majority of those are owned for the purpose of turning around and selling them, like Home Partners.

(Zillow also tried buying up homes for the purpose of arbitrage and it ended up blowing up in their face).

[lcnPylGDnU4H9OF]

I believe you are correct on the hedge fund point; I was confusing it with something else that's related but different (I recall investing in a platform that made some of its profit from financing the construction of homes). The effects that I worry about still seem to be actualized by the "smaller investors" I mentioned, such as the head of a household being able to afford to purchase another home as a rental or a replacement as they rent out their old home.

[petsfed]

I suspect that people conflate "buying a house as an investment" with "investors bought a house", which is leading to the incorrect idea that hedge funds or private equity are somehow cornering the market.

I think the reality is that the main component of investor pressure is from people who hold onto an overly large/well placed home far past the point of utility, because they want to sell as late as possible and maximize their return. Follow that with small-time landlords, and then finally actual explicit investors buying homes as some kind of commodity. A lot of the dysfunction of capitalism (so-called "late stage capitalism") is induced by people trying to outsmart the market, time the market, etc. when they really don't have the knowledge or information to play such games.

[jeremyjh]

They purchase them, and rent them out, and that is still a net increase in housing supply.

[connicpu]

If you reach a point where housing supply out paces demand plus the vacancy rate those investors are willing to tolerate, that's when rent prices will finally start to drop as the big landlords need to generate more revenue to keep up the capital and operational expenses. And if rent prices drop far enough then it will no longer be profitable to spend all that capital snapping up starter homes, and eventually may even be placed back on the market.

[SoftTalker]

Only because they are scarce enough to be worth doing that.

With greater supply, there comes a point where you can make better investments than buying up empty houses. And so they will stop buying them.

[lcnPylGDnU4H9OF]

I don't see how that really matters. If you keep making homes and investment buyers keep buying them then the price will keep going up and regular folk will still be priced out. If you make so many homes via this strategy that institutional buyers are no longer interested, I think it's because the homes have somehow become genuinely worthless, at least to the investors. I don't see how to do that without legislation that makes the investment unattractive (unprofitable) to them. Policies such as rent control, "you can't buy that house because you're not living in it", etc., are the proper solution.

[BobaFloutist]

Investors have finite capital, and it's easier to corner a tight, pinched market than a large market with lots of liquidity.

You don't see PE making huge investments in gas stations, because you can always easily just go to another gas station, and there's way too many of them to easily corner the market. We could pretty easily make housing similarly unattractive.

[epistasis]

Why would the price keep going up if more and more houses are being added? Prices go up when there is a shortage. Everywhere that has been building adequate housing sees prices falling.

[supertrope]

Scalpers won’t bother scalping an item that’s widely available at MSRP.

[whall6]

What data do you have to support that only hedge funds and smaller investors are purchasing new builds?

[seanmcdirmid]

> What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.

Two things to think about when making this argument:

* Older housing could have been torn down to build new housing. So before, you had a rooming house with 10 or so low cost tenants, and now you have three town homes with three very rich families moving in. Life just became a lot harder for people in the lower end of the market. Gentrification of entire neighborhoods is an extreme example of this: a blighted neighborhood is great for cheap housing options, but then people start coming in and redeveloping it and...it is no longer blighted, the neighborhood is better, and the cheap housing is gone replaced by much more expensive housing.

* Demand is induced by new supply. We accept this as a fact for highway construction, but it is somewhat also true for housing in a hot market where everyone wants to live. So building a bunch of new housing in Seattle could attract new resident, causing the population to grow, rather than adding supply to deal with fixed demand. Yes, adding housing in Buffalo isn't going to run into that, and yes, overall the situation becomes better for the country (or world if you are inducing demand from other countries), but locally you feel like you are going nowhere with the problem. A more extreme example of this is handing out housing to your unhoused population (you'll almost certainly wind up with more unhoused than when you started even though you've given some housing).

[wahern]

> Demand is induced by new supply. We accept this as a fact for highway construction.

Induced demand is only a thing with highways because use of the highways is free; there's no counterveiling cost pressure unless and until traffic jams start forming. By definition induced demand doesn't exist where the market can set prices for using newly created resources.

Closer to your point (if we stretch really hard) would be something like lowering crime. If Seattle successfully lowers crime without, say, increasing taxes, then Seattle becomes a nicer place to live, and people can (and will) move there to enjoy lower crime without having to directly incur the cost of lowering that crime. One of the externalities of that "induced demand" would be an increase in housing prices. So obviously Seattleites who oppose residential development should just promote more crime.

The fundamental issue here is that people don't like being subject to market forces and the insecurity that engenders, particularly when it comes to housing and labor. That's understandable. They do like market forces when they get to enjoy lower prices, though. But the feeling of insecurity is particularly acute when it comes to housing and the issue of new development. That's also understandable, notwithstanding that it's simply irrational and empirically disproven that NIMBYism makes for lower prices than the alternative of allowing market development. You get higher prices with NIMBYism than YIMBYism, period; though there's simply no guaranteeing that absolute prices will come down, especially for a city that permits development where others don't. That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.

[seanmcdirmid]

> So obviously Seattleites who oppose residential development should just promote more crime.

I knew the fent addicts on the D line in Ballard were good for something! But seriously, you know, there are two sure fire ways to lower housing prices: make the place a crappier place to live, or just get rid of jobs/economic activity. My dad was in Seattle working for Boeing after Vietnam, and got hit by the "will the last person to leave Seattle turn out the lights" Boeing bust. It is kind of like falling oil prices: you know, drilling more doesn't really affect the price of oil as much as reduced demand due to an economic recession.

> That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.

Isn't that the main problem? This is the main problem with progressivism at a local level: even if you are making the world a better place, you could be failing to improve your place (seeing no benefit for your money) or actually making it worse (seeing negative benefit for your money). How many of us are saints who are willing to sacrifice our own lives for the greater good?