[tirant]

That means there’s an invisible hand keeping prices up, or basically that the market is not free enough. That’s caused most of the time due to excessive regulation.

Another reason is high demand in locations where offer is limited due to physical limitations. There’s always demand to live in Broadway, and offer can never catch up due to its physical limitations.

[laserlight]

> That means there’s an invisible hand keeping prices up, or basically that the market is not free enough.

Nowhere in the economic theory there is a proposition stating that prices should fall below affordable levels, given enough competition.

[Sankozi]

We are not talking about economic theory. We are talking about house prices. Time after time it has been seen that free-enough market can lower the prices to affordable levels.

[laserlight]

Fair, but the thread has evolved into a discussion on the theory. We are definitely in the territory of theory when the invisible hand is mentioned.

[Sankozi]

I took "invisible hand" as a joke. The one with pattern : either (fairies/magic/invisible hand) or (sensible argument/observation here).

[sophrosyne42]

The relative abundance of land compared to other factors of production is, in fact, such a proposition. But when land is restricted through zoning laws this stops holding true. In other words, we must eliminate restrictions on production for the benefit of all people, but particularly the poorest.

[FuriouslyAdrift]

I mean I would love to bulldoze that strip of forest next to Beverly Hills and put in a hog farm. It would provide tons of jobs.

[fc417fc802]

We don't need economic theory for that it's just common sense. Humanity has been erecting structures to live in for approximately our entire existence. The modern economy is mechanized. How could a wood frame structure or a small high rise possibly be unaffordable if the market is functional?

Stop and think for a second. Someone in good health with a willingness to DIY and a sufficiently flexible schedule can literally build their own house from the ground up. It's a substantial time investment but not actually as much as you might think. Housing isn't very resource intensive compared to the rest of the modern economy.

The only possibilities I can imagine to explain unaffordable housing are broken regulations, critical levels of resource exhaustion, natural or man made disaster, and gross economic dysfunction.

[foxglacier]

It's regulations. But before you call them broken, some of it is safety. Safety standards keep rising with technology and the economy as people can afford more. Same with cars. There's also zoning restrictions in some places designed to prevent slums by requiring large residences. I guess that's happening here too.

[cylemons]

Also living standards, ancients houses are dead simple and today could probably be built with usd 5k-10k in a couple months. But most people wont accept a home with no electrity, no lights, no AC, no indoor plumming, etc.

[foxglacier]

Yes that too. We're a bunch of spoiled brats complaining how much we have to work but it's only because lifestyle creep keeps pace with wealth.

[michaelmrose]

The average person would need a MASSIVE investment in time to learn all the skills required in addition to investment in tools. Furthermore people won't lend joe random the funds required in the same fashion as they would for an actual finished house OR constructing a house via a contractor.

[lumost]

The invisible Hand may be monetary policy. The median household may simply no longer be able to afford the median home due to the continued wealth distribution shift brought on by interest rate targeting.

[jjav]

> That means there’s an invisible hand keeping prices up

Construction labor is quite expensive and so are the raw materials (and going up). Means there is a hard lower bound on cost and unfortunately it's not that cheap even if they built at zero profit (which nobody will).

[locknitpicker]

> That means there’s an invisible hand keeping prices up, or basically that the market is not free enough. That’s caused most of the time due to excessive regulation.

No. Why do you guys fall so easily for the "regulation" cliche?

The answer is far easier: unwillingness to invest.

Why are there investment funds willing to burn through tens of millions in stupid stuff like NFTs or pets.com, but investing $10m on a 5 story apartment building that can get you a solid RoI of 20% is frowned upon?

[otherme123]

Why the investment funds have to build the houses? Houses has been built/funded from zero by the future owners since forever, either individually or through cooperatives. That way, "investors" don't need a positive ROI, and they happily lose money overall if they get a home.

I know some people that are currently "willing to invest" in buying a ship container or two and transform it into a house to get costs down. The problem? Regulations don't allow them to put the container in their own property.

[Dylan16807]

Using a shipping container is almost always a stupid plan compared to just putting up some wood. As much as I want to make zoning more flexible, I'm not in a rush to change that particular regulation.

[otherme123]

Sounds arrogant to block someone else plan to have a home, just because you don't like it. And then claim regulations are not the problem, but lack of willing to invest.

If you think containers are a bad idea, don't buy one.

[Dylan16807]

The demand for containers is rare and they don't really save money over building small out of reasonable materials. That specific regulation isn't blocking anyone from having a home.

[fc417fc802]

The invisible hand is zoning. There's plenty of investment available but you literally aren't allowed to build what would be useful in most cases.

Sure you're free to go out into the middle of nowhere and build all sorts of wild stuff but there's no market for that because that isn't actually what anyone wants. You can't blame the investors when what people actually want to pay for has effectively been outlawed.

[Sl1mb0]

The good ol' invisible hand;

Literally an appeal to ignorance.

"What else could it be?"

[sophrosyne42]

OP used the term incorrectly. The term was used by Smith to refer to the fact that in the market, order occurs by the alignment of incentives of different people without any central planner.

[KellyCriterion]

This is theoretical MBA101 speech:

In reality, those ideas do not apply to the housing market, esp. as there is no real competition; and because the demand is absolutely inelastic (if we are already applying in MBA-wording universe)

Also, that this is true you can see if you compare to housing markets which "are more free than the Australian"

[jjmarr]

The regulation is single family zoning. Zoning makes it impossible to stack high rise apartment buildings in the areas that people want to live in.

[bpt3]

People want to live in those areas because of the lower density. Remove that and they become much less desirable.

[Sankozi]

Of course demand is elastic.

Do you think, people will migrate to a city with an unaffordable housing (unaffordable for them)?

Unless you are living in North Korea, the competition is also there.

[KellyCriterion]

No, it is inelastic:

- inelastic means the demand is more or less independet of the price; you can't "just stop renting & living" if prices are going up, your options to bypass are highly limited -> therefore its called >inelastic<

[Sankozi]

You can "just stop renting" and move somewhere else.

Housing demand is less elastic than, let's say, potato demand, but it's not "absolutely inelastic" as you have said.

[AlexandrB]

Good transit and road infrastructure also both make demand more elastic because the choice of where you can live without changing jobs expands.

[KellyCriterion]

In MBA101-bobos world this is true in theroy, in practice its not. (let me guess: You do not have children, yet, right?)

Thats always the biggest difference:

In theory, there is no difference between practive and theory - but in practice, there is ;-)