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'Renters Are Struggling': Economists Back Tenant-Led Push for Federal Rent Control
(www.commondreams.org)
this post was submitted on 06 Aug 2023
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You're so close! Once you figure out those luxury flats will go for quite a lot, then free up downchannel housing you'll understand how this all actually shakes out when people can build.
But that's not what actually happens!! It's like the Laffer Curve, we don't actually see any of these benefits of letting the free market try to create all these supposed benefits and efficiencies. The textbooks say they should happen but in practice they never do. Even when the UK government releases state owned brownfield land, developers build overpriced flats no one in the local area can actually afford. So it doesn't actually create any net new living space because 1) the local populace can't afford it, 2) it gets bought by investors.
How does having investors scoop up luxury flats release downchannel housing at all? I have never seen that happen. Even in places where land is cheap and zoned for residential, like in areas of Utah, they never actually build affordable housing on it. People end up locked into renting.
The Ladder Curve is not a concrete thing. It's a metaphor to explain optimal taxation. It was literally first drawn on a napkin
How does an increase in supply that outpaces demand not lower prices? That's the question you need to answer.
"Locked into renting" and "affordable housing" have no meaning and are useless terms for discussion.
It's not a metaphor, it's as you say, an economic theory for the optimal rate of taxation, which exists somewhere between 0% and 100%. However, in the USA it has been put into practice over the past 30 years, where taxes on the extremely wealthy have fallen drastically over that time, with the thinking being that this would raise government revenue and also all that trickle down hogwash. Only it hasn't, and it has only served to weaken revenues at the local community and state level, and caused wealth inequality worse than the gilded age.
In terms of housing, you are correct in principle, if the supply of housing was to drastically increase such that it outpaced demand, then sure, prices would fall. But this is a specious argument for a number of reasons. First, even if zoning was abolished tomorrow, it's impossible to actually build new housing in most of the world's most expensive cities, such as NYC, London, and LA, because there's simply no space to build anywhere, except on the extreme periphery. London still has some brownfield land, but LA is boxed in by mountains, and Manhattan literally has no more space because it's an island. So where do you actually build? Vertically, okay, but then you have destroy existing structures.
Secondly, and perhaps more importantly, even if you allowed easy zoning, and cleared out lots for mega towers, who is going to actually build so much supply so as to flood the market in order to crater prices and make housing affordable? That's the dumbest thing ever, no builder wants to see prices come down, that would be like DeBeers flooding the market with diamonds, massively increasing supply and dropping the price, and killing their own profits/margins. Builders want high prices, not low, they have no incentive go on a building boom like in 2007 such that prices drop.
So you're left with my original argument: you can't leave housing solely to the for-profit, private sector. They have no incentive to build affordable housing, or flood the market with over supply in order to drop prices.
Yes existing structures need to come down. Homes built for one family should be purchased and turned into large homes for many families.
Yeah but by whom? What's the incentive for private sector builders to do that at scale if it means lower prices and lower margins by dramatically increasing supply?
Why do you think this will significantly impact margins? If a builder builds a house for $300k right now, the cost of the lot is eating a shitload of that $300k. If my home doubles in value (which it has), the land itself is more valuable.
By the same token, if I build a 4 story apartment building on my same lot, I make significantly more money over time than I would selling it once to a homeowner.
Your own answer from earlier said so: increase supply massively whilst demand stays constant, means prices come down. Fair enough.
Well, if prices come down, margins by definition decrease, because building materials and labour aren't decreasing too.
Ergo, even if zoning restrictions were relaxed massively, and permits handed out quickly and easily, there's no incentive to flood the market like in 2007. This is especially true of big high rise, high density properties, as there usually are only a few companies who can build such buildings (in central London there's like 4), so it makes collusion to keep supply low much easier. Sort of like how OPEC works.
This is not accurate.
This is not how the housing bubble popped. It was demand-side, due to (absurdly) loose credit. Home prices were still rising dramatically in 07 - supply was not keeping up with demand.
Why is it not accurate? House prices come down but cost of materials and labour stay constant or go up, what am I missing?
Also, I feel like we have gotten so far off track so as to forget what exactly we are arguing about.
The original discussion was how to fix the housing market so as to create way more affordable housing. My original argument was the government has to do that, by building houses at a loss, which only the government can do.
Your argument seems to have originally been that the true problem is the zoning and government red tape, but I feel like we have both come to the conclusion that neither of those is true. Firstly, even if zoning isn't a problem, in places like LA and NYC there's no physical space left to build, except vertically. In London, the only new land to build is way outside Zone 5. Furthermore, what incentive is there for private sector builders to flood the market with new supply, either horizontally or vertically? No industry likes it when the price of their product goes down, not a single one, and no industry is going to help that happen.
Finally, building vertically requires way bigger companies to get involved, meaning there are fewer of them, meaning it's easier for them to collude to keep prices high. Building a ranch house out in Wyoming can be done by some local two-bit builder, but a skyscraper in Manhattan would need to be some big multinational. Ergo, even if the only solution is Shanghai style vertical flats, the prices are even more suspectible to collusion by the few big companies able and willing to build them.
Or, like I said, bypass all this bollocks and have the government build loads of houses and sell them at a loss, flood the supply and bring prices down for the altruistic, non-profit motive of getting more people into housing. Done and done.
Materials and labor are relatively static compared to home costs. A 10% rise in housing costs was like another 15-20 grand in most cases, before housing costs exploded, factoring in inflation.
Compare that to the doubling (or more - my home is over 250% of what I paid) of home prices (tied to lot value) and the difference is stark.
Even assuming a dramatic increase in parts/labor of like 50% of those costs and you're barely hitting on the final value, all things considered.
Space is the problem and building vertically (even just 2-4 stories) is the answer.
If it helps, consider that parts and labor are generally 30-50% of home costs (assuming "normal" values) and even a doubling of that cost is less than the growth of home prices.
By far, the biggest cost increase has been lot value.