[estearum]

No, not really.

It matters whether the margin is higher than other investment opportunities of similar scale and risk profile.

Already, the answer is very often no. In Austin, the answer will increasingly be no. That means people will not finance new construction, so if demand continues to grow it will outstrip supply and prices will go back up until the margin on new construction exceeds that of alternative investment opportunities of similar scale and risk profile.

[pclowes]

I would expect the development of Austin to continue until market equilibrium and then pause. Decreasing margin does not mean equilibrium. Obviously austin is not at equilibrium because we still have price data on developer activity and that would be near zero if developers couldn’t make returns given risk etc.

I guess I don’t see where we disagree?

[estearum]

I mean... that is pretty much what we're seeing:

Austin new housing starts (approx per month):

2019: 1416

2020: 1504

2021: 1495

2022: 2083

2023: 1415

2024: 916

2025: 900

2026: 481

The problem here is that the market obviously does not have perfect information, limited mechanisms to coordinate, and significant lead time. It seems pretty much baked in at this point that many of the projects currently underway will complete into a negative market and (assuming Austin remains somewhat desirable) a whole lot of developers will be wiped out. This will stop development until prices rise again, probably back to a level where housing is quite expensive again relative to local wages.

[epistasis]

Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price." If we're going to be pedantic, you're ignoring the huge amounts of uncertainty on costs that are inherent to any project, the amount of risk versus the expected profit.

And indeed that amount of uncertainty: will I be allowed to build eventually? How long will I have to pay interests on assets before I'm allowed to build? Can I actually build what's specified in code or will discretionary processes arbitrarily change what I'm allowed to do, 18 months into the project?

[estearum]

> Yes really, that deeper understanding is exactly what is meant when somebody says "the cost to build is lower than the price.

It demonstrably is not what people understand it to mean to "the cost to build is lower than the price." The cost to build can be well below the sale price and development still be a totally uninvestable activity.

[lotsofpulp]

Your explanation of fluctuations in supply and demand are not very revelatory. Everything being in flux at all times is kind of an elementary fact of life.

[estearum]

It's clearly not elementary if people here believe that you can just keep building until prices collapse, and people will still keep building.

The question is whether the market achieves equilibrium at a point where 1) developers can get financing to build profitably, and 2) units can be sold at a broadly attainable price to the local market.

The answer appears to be no because the cost of inputs is so high. No one here is talking about directly reducing the cost of inputs. They believe that instead developers will just continue to build units that they sell at a loss, or at least investors will continue to invest in construction that returns less than the S&P 500 or 10 Year Treasuries (they won't).