[forgetfreeman]

"Increasing housing supply will absolutely decrease housing prices." True if it's the government building the houses, otherwise you hit a point where construction margins tank well before market saturation is reached. In practice new housing developments have a tendency to drag local real estate prices up (see also: gentrification).

[laughing_man]

That may be true in a very local area, but if you build something really nice in an area that wasn't very nice, the units that used to be mid are now near the bottom and have to lower their prices.

[forgetfreeman]

"the units that used to be mid are now near the bottom and have to lower their prices"

Nah, what actually happens is the lower rung housing is either flipped to capture the increase in area pricing or the lot gets scraped, again to capture the increase in area pricing.

[laughing_man]

That's not the way it works. The "increase in area pricing" is just the result of adding new units. The older ones don't go up in value, so there's no increase in value to capture.

[forgetfreeman]

That's absolutely how it works, I've benefitted from the process several times in some areas and been entirely locked out of the market in others. You might need to closely examine the process (and margins) around house flipping if you're confused on this point.

[laughing_man]

That's not how it works in my experience. And I'm old.

[forgetfreeman]

I've made the bulk of my wealth in residential real estate, and I am likewise old.

[epistasis]

> In practice new housing developments have a tendency to drag local real estate prices up (see also: gentrification).

This is absolutely false, not true, disproven, and made up.

Social housing builders are good for many reasons, 1) they provide competition to the public market, and when efficient don't need to return profit to shareholders so provide a very good competitor in places like Finland and Singapore, 2) social housing builders smooth out the business cycle, because new housing is needed just as much when at the downturn of the business cycle as at the top, so it greatly helps provide stable employment and a stable workforce for housing construction, greatly improving housing.

But the idea that new idea drives up housing prices in any way is, at best, a fiction. It's mostly a lie from landlords and homeowners to try to justify their continued extraction of profits from their idleness.

[forgetfreeman]

"This is absolutely false, not true, disproven, and made up."

Someone should tell the local housing market that then, because this pattern has consistently manifest over the last 20 years here. Without exception everyone I've seen make this claim isn't invested in residential real estate and hasn't closely watched how prices shift in response to new construction. In any event if you're trying to advance the claim that gentrification is a myth you're going to need to bring some serious proof to back that.

[epistasis]

Here's a prior discussion:

https://news.ycombinator.com/item?id=44914153

It is rather fascinating that you would bring up a "gentrification is a myth claim," why would you try to insert that into my mouth?

Gentrification happens all throughout the US, but in the current era it's from the under discussed type from the original literature in the 1970s: through lack of construction. When there's not enough housing to go around, prices rise, wealthier people are the only ones who win the bidding war, etc etc. See Boyle Heights in LA for a classic example of this. No new buildings, massive gentrification because there's not enough housing to go around.

See also in LA for the neighborhoods where prices are not rising: the only places they are building lots of apartments.

Perhaps there was some era when the "rent gap" style of gentrification was actually prevalent, but it hasn't been that way for decades. It's all just shortage driven gentrification in every example I have been pointed to in recent times.

[forgetfreeman]

"It is rather fascinating that you would bring up a "gentrification is a myth claim," why would you try to insert that into my mouth?"

Probably because the sentence you quoted and responded to points explicitly to gentrification as a primary driver of the phenomenon in question. You know, that thing you said was false, untrue, and entirely made up?

"It's all just shortage driven gentrification in every example I have been pointed to in recent times."

Fair enough, allow me to provide a few counter-examples from the regional housing market:

- three massive mixed-use development projects (in different local cities) each added thousands of rental units and mixed walkable retail to what were aging downtown-adjacent neighborhoods. Demand in this quadrant of the city spiked in response. Home prices (regardless of age or condition) in a 10 block radius tripled over the course of 4 years. Surrounding commercial real estate owners where quick to pick up on the increase in traffic and promptly raised commercial rents, driving the majority of pre-existing businesses out. These were (entirely predictably) replaced by national franchises. Area residential landlords, seeing rising commercial rents and real estate prices promptly increased rents.

- There is a phenomenon in local "blue collar" neighborhoods where developers are buying a handful of adjacent lots, scraping the existing structures, subdividing the parcels, and then putting up these utterly vile two and three story skinny block houses that combine all of the worst aspects of private home ownership and apartment living. These new units are generally priced between 175% and 500% of the pre-existing average of similarly sized houses in these neighborhoods. In every neighborhood I've bothered to watch where these things have gone up the sell price of for housing in these neighborhoods has gone up between roughly 75% to 200% over a ~4 year period following. During the same time period cost of similarly sized houses in similar neighborhoods in the area has increased by maybe a 3rd, which suggests that blanket demand for the area isn't the primary driver of the increase.

- Then there's the time two county planning boards colluded with the largest developer in the state to conjure a medium sized bedroom community from thin fucking air (well a swamp actually but you get the idea). ~1k new units added to the market a year for the last decade, targeting the entire spectrum from "affordable" apartments to two golf course communities. The price of housing and lots have skyrocketed in the surrounding area, to the point that section 8 landlords in neighborhoods 10 miles away are backing out of their agreements so they can capitalize on the increase in local rents.

The one thing all of these instances have in common is new capacity was added to an area and local rents and real estate prices increased rapidly.

[paulddraper]

You’re saying that prices are bounded by construction costs.

Sure, as with every other good.

But there’s a long way to go between current property prices and raw construction costs.

[jjav]

> But there’s a long way to go between current property prices and raw construction costs.

How much? Searching a bit suggests that net profit margin in housing industry is about 8.7%

Consindering an investor can get ~3.75% in zero risk T-bills without lifting a shovel, that's about an extra 5% net profit to get involved in building housing.

Which isn't nothing, it's a decent profit. But I also wouldn't call extra 5% a huge difference.