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Comment by TheSpiceIsLife | Hacker News Reader

Will building more units / appartments/ houses bring the price down?

Have other cities seen home prices move toward affordability when more housing has been built?

I'm not saying it isn't a good idea, just that the logic seems flawed.

I'm not up on the sources, but a moderately pro-development candidate for Cambridge City Council has often quoted a statistic saying that there are only two ways to bring down house prices:

1. Make the city suck

2. Get the housing vacancy rate to 5.5%

And of course he says this to encourage everyone to work toward #2, and the way to do that without displacing anyone is to build new housing.

I don't really understand the opposite logic, which the NIMBYs like to use, saying that building new housing will drive the price up.

I mean, I am not some kind of libertarian free-market cheerleader, but it shouldn't be that controversial to say that a market exists, that the way to bring down the price in the face of overwhelming demand is with supply.

People point to how expensive newly-built market-rate housing is, but that's a symptom of the shortage. People want to live in good cities. If there's not a new home for them, they'll pay even more for a home someone lives in, so prices go up and a community gets displaced.

Actually, you get double bonus wherever you add housing, because you'll never add enough transportation or parking as necessary so that neighborhood will also start to suck! Also, housing people is a net drain on the tax base so the city services get worse or taxes increase.

Win, win!

Yeah, that's why NIMBY... on the other hand add transit, jobs, or retail somewhere and house prices go up locally with it because people want to live there (reduce their commute and buy $#&+) and it pays enough taxes. Retail moves where people flow. It takes planning and not just building.

So people move to reduce their commute, effectively their use of roads, but that shorter commute will not reduce their use but increase it? Tough proposition.

You also posit that people hold parking at a premium and that new house will not try to capture that premium. Mhhhh

> Also, housing people is a net drain on the tax base so the city services get worse or taxes increase

I'm not sure what you're talking about here. It's far cheaper to provide services at higher density, far cheaper. You need fewer meters of sewer, conduit, etc. Transit lines can be shorter with fewer connections. Additionally, if you bring more people into a municipality, you generate more taxes through increased property values, increased sales tax revenue, and income taxes if you municipality does that.

This is actually not true in California where new housing pays property taxes at 2017 rates. Thanks to Prop 13 there are a lot of homes worth more than a million dollars that are still paying $5,000 or less per year in property taxes.

You probably remember a few years back when the well-heeled Green candidate ran on a platform of bussing in homeless.

https://www.reddit.com/r/CambridgeMA/comments/3pd9k3/my_note...

Those are my notes! That candidate was amazing. Of course I didn't vote for him, but at least he was honest about his plan to lower the rent.

I enjoyed his cynical schtick: a JD/PhD from West Cambridge pretending to be a blue collar guy.

I don't see many people mentioning a proportional value-based land tax, which would probably be about the first thing a traditional economist would recommend?

Brings down prices, hurts land-banking, increases density, generates revenue for infrastructure, captures public benefit from value increase, etc...

The biggest stakeholders (landowners, especially corporate ones) don't want a value based tax, the only way it'll happen is if the rest of the state decides that the circus going on in the city is causing enough problems that taxes are happening with or without the city on board.

I don't see this happening in CA.

Hurts grandmas/grandpas who lucked into houses with high property values, who could be rich but don't want to be because they have personal reasons not to move.

These are incidentally severely overrepresented among voters, and their votes are amplified by how easy it is to paint someone following the economic wisdom as an evil grandma-displacer.

It's much more politically convenient to displace young minorities. Nobody will really speak up for them, and they won't vote against you because you displaced them and they live somewhere else now!

One solution would be to defer tax payments and put a lien on the property instead, payable upon change of ownership. That way no one will be forced out of their home, and the government can even use those liens as collateral if they need to borrow funds for current operations.

Allow those liens to compound over enough time, and eventually they become more than the value of the home. Also, many of these voters want to leave their property to their children, not the government.

Many of those voters also don't want to pay higher sales, value-added, or income taxes. The money to operate governments has to come from somewhere.

Sure, but just how much government we need is always a political question, subject to much debate. The point is, the solution isn't as simple as raising taxes.

Prop 13 is pretty well baked into the state’s politics and any reform would have to start there. Most likely reforms are letting a home’s taxable value increase by more than 1% a year, especially if you are under 65.

I still don't get why younger generations should shoulder the burden of the mistake that was Prop 13. Start by jacking it up on those who have benefitted and profited the most.

“Should” and “will” are different things entirely. Also, homeowners vote more often than renters, which is sad.

> I don't really understand the opposite logic, which the NIMBYs like to use, saying that building new housing will drive the price up.

It actually fits the "logic" of the model you mentioned.

If you build more housing, the city "sucks less", more people want to live there, so the price goes up. This is especially true with modern development, since it exclusively builds luxury units, which make that part of the city really suck less, and therefore drives prices really high, really fast.

Sure, in the very long run, building new housing lowers prices. But in all short-to-medium timeframes, new housing greatly increases all housing prices in the particular area development occurs, which is why you get so many local residents (even renters) opposed to it.

It would seem to me that, even in that case, building new housing increases the housing price in that local area, while not building new housing increases the housing price everywhere.

Is there an alternative plan to make housing prices decrease? The long term is at least better than never.

I know there's the whole thing where you designate certain units as subsidized affordable housing and have people on a lottery/waiting-list to get it, and having some of that probably helps in the short term, but at least in Cambridge the subsidies are becoming unsustainable. Even people making six figures end up needing subsidized housing.

One alternative plan would be to subsidize economic development in underpopulated cities. It's not healthy for our societies long term to squeeze everyone into just a few geographically constrained areas.

The phenomenon you’re describing perfectly describes “we are adding new supply but not enough to keep up with demand” and I think you’re getting the causation wrong. The California LAO has published reports showing areas with more new housing had less displacement, for example.

It's not a simple supply versus demand curve. Sometimes adding a little more housing without flooding the market does end up increasing prices due to gentrification that changes the characteristics of a neighborhood.

Building more housing does "make the city suck" for people who prefer quiet, privacy, and unobstructed views. In some areas it probably makes sense to build regardless of their objections but that will have to be resolved through a democratic process.

If the new housing replaces old housing, without adding any /many new units, it can certainly increase prices (new brand new apartment often costs more than a 20 year old one). That isn't what you are talking about here, but some NIMBYs may think that is what is going on in some situations- in those cases, education is key to persuasion.

In a rational market, yes, absolutely; if prices are driven by a supply deficit then increasing supply cuts prices (or at least reduces price growth, if a smaller deficit remains).

Housing markets tend not to be all that rational, though; there's often an aspect of speculative mania to them. It's likely that increasing supply would cut prices, but it's not actually certain, as it may just increase speculative 'investor' demand from the "house prices always go up" crowd. The Irish property bubble in the late 90s to late noughties was originally driven by supply shortages, but even as supply started to meet demand prices kept going up for a couple of years due to property "investors" (before crashing spectacularly).

what differentiates a real estate investor from a speculator?

Diversification? Although drawing the line there would put plenty of big time "investors" on the speculator side. Maybe it's just a distiction without a difference.

The speculator buys property because they expect it to go up in value; the rent is just covering part of their costs. For instance, if you have an "investment" property, but the rent doesn't cover the interest component of the mortgage, but you think that's okay because you expect it to go up in value, you're a speculator, not an investor.

Ok, so anyone who invests in stocks with no dividends is also a speculator too by your definition? Or is the criteria different for stock investors?

Sure there is bubble like behavior at times but there’s also 68 years of data in SF showing that a 1% increase in supply leads to a 1.7% decrease in rents,

http://experimental-geography.blogspot.com/2016/05/employmen...

In the vast majority of places low supply is causing high prices, not speculation.

Broadly, yes, for the same reasons that destroying housing (as happened in Santa Rosa) increases competition for existing apartments and increases rents. Here's a report from the state LAO about the effects of building more housing on displacement: http://www.lao.ca.gov/Publications/Report/3345

In 2016 SF built 5,000 units, a record, and rents and owner move-in evictions both fell for the first time in a while. (They are not going to repeat that production in 2017 or 2018, in large part due to Prop C).

Across all 50 states, areas where population growth exceeded housing supply growth saw price increases: https://twitter.com/lenkiefer/status/871785655164182529

Austin, Houston, and Dallas don't have very restrictive zoning or rules around new home construction, and they lap California in home building and have seen rents hardly rise at all.

> Austin, Houston, and Dallas don't have very restrictive zoning or rules around new home construction, and they lap California in home building and have seen rents hardly rise at all

not exactly true.. in htx new construction is all luxury, and many people are moving in from out of state; those that can afford it and want to can go to the luxury units and those have had price 'reductions' (from overpriced initial prices) but the 'regular' apts have seen rents rise quite a bit because the newcomers have squeezed the existing people into more competition for the cheaper units..

i posit that subsequently the emptier, overprovisioned high end buildings will start to fail, and become a glut of relatively high price condos, which will then cause the regular housing prices to go up..

Are new cars on average more “luxury” than used cars? If for some reason we didn’t produce any new cars, would the price of used cars rise or fall?

It does if the new units surpass demand, even in the short term. If there are 5k available units but there is demand for 15k over the next 90 days, of course building 1500 won't affect prices much, if at all. You need to build until there is some vacancy, then landlords are forced to lower rent to prevent their units from being vacant, unless they have the means to hold out for someone who really wants that particular location.

Supplying more of something always reduces the price of that thing. The thing to keep in mind, though, is that it doesn’t reduce the price that people actually pay; it reduces the price that people would have paid.

home price increases in my neighborhood of manhattan have substantially slowed their rise in the past couple years as a bunch of new construction has come on the market. this will probably continue through next year as stuff in progress finishes up, and then probably rise again because homebuilders don't start projects when prices are flat.

> Will building more units / appartments/ houses bring the price down?

Ballooning housing prices are a prime example of demand exceeding supply leading to increased prices. Increasing supply will decrease prices or at least limit further price increase.

But it's not like demand is inelastic.

Do we know how much additional supply would have to be built to saturate demand? Is that even freasible?

It seems like an intractable problem to me because it's not like anything we do, in these big popular cities, is going to have much of an effect in the next 12 months to 5 years.

Personally, I solved the problem for myself by moving away from the big city I was in to a sub 100k population centre. There's no way I was going to be able to afford to buy a place within an hours drive of where I worked, not in the foreseeable future.

You’d need 5,000 units a year in San Francisco to keep rents steady. This is the goal SF’s mayor just set for the city, google “Ed Lee Medium” to find it.

It is definitely not an intractable problem given SF built 5,000 units in 2016. Upzoning, lowering impact fees, speeding housing approvals for things like ADU’s, making discretionary review tougher (it currently costs $700 to delay a project by three months), electing pro-housing candidates, having places like Brisbane choose apartments over another office park - all of these will help, it’s not intractable by any stretch.

If we just slightly upzoned the whole western half of the city, and added public transit to go with it (even better if streets were narrowed a bit and street parking reduced), San Francisco could fit a whole heck of a lot more people without ever needing new buildings taller than 4 or 5 stories.

San Francisco zoning through huge swaths of the city is restricted to single-family houses and scattered duplexes, with only a few mixed-use areas. It’s supposed to be a booming city, but more than half of it is zoned to be a sleepy beach town. (And a lot of the Bay Area is even worse.)

Here’s the SF zoning map. All the pale yellow part is very low density; If it were up to me we would change half or more of that pale yellow area to some mix of darker yellow, orange, and purple. http://default.sfplanning.org/zoning/zoning_map.pdf

5000 units, and you think that's a lot? Last year in Warsaw (which is smaller than SF) there were almost 20,000 new apartments built. You now see how much impact all those zoning laws have.

According to Wikipedia SF City and County has a population of 870k, Warsaw 1.8 million. The metro area 4.6M vs 3.1M respectively. So I'd say the same ballpark. That said 5000 units seems like nothing at these population sizes. I live near Wrocław (650k city population, 1.1M metro), there were 10.000 new units in 2016 and this year will be similar. And this number doesn't include private investments (people building a house for themselves), only housing built by developers and sold on the market.

> But it's not like demand is inelastic.

How many houses do you need to live on?

Housing is one of less elastic goods you will find around. Basic food is probably less elastic, it viewed as a single good, but you won't find many other counter examples.

For a more skeptical viewpoint: http://stumblingandmumbling.typepad.com/stumbling_and_mumbli...

I guess SF’s recent experience, where years of rent and owner move-in eviction increases ended the same year we built a record number of housing units, belies this.

Sure we may run into other problems, but right now a third of California renters are paying more than half their salary in rent. I’d take my chances with a lot of other crises to help with that one.

>I guess SF’s recent experience, where years of rent and owner move-in eviction increases ended the same year we built a record number of housing units, belies this.

Care to link me? I'm interested in this.

But mainly I agree with the article that increasing building is only a long-term solution, to fix the ridiculous prices of housing in the short-term different measures are needed - there's just no way to build enough housing in the short term.

http://www.nbcbayarea.com/news/local/Eviction-Notices-San-Fr...

In the short term, building more housing will still result in lower rents relative to not building more housing; its the right thing to do for both time frames.

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