The end of the housing supply debate (maybe) | Hacker News Reader

The end of the housing supply debate (maybe)

cityobservatory.org

73 pointsjseliger121 comments

That there was ever a debate at all is still astounding. Economics has fuzzy areas, but basic principles of supply and demand are very well-established. It's clearly nonsensical to imagine that we can simultaneously lower prices, limit supply, and allow for demand growth. The longevity of this bizarre idea demonstrates how strongly political ideas of how the world ought to work blind us to how the world does work. We'd do well to take the wool from our eyes in other contentious disputes.

It is perplexing to me why the burden of proof was ever placed on "increasing supply decreases prices" when the mechanism by which rent control + limiting construction is supposed to benefit anyone besides those already occupying those units is totally unclear.

I don't even think it's "ought" vs "does" - it's more NIMBY interests being more ingrained into local politics allowing them to somehow gaslight everyone into thinking the laws of supply and demand don't apply to housing.

Yeah, it's not about economics or politics at all.

People who live in an area want policies that will benefit them at the expense of newcomers, full stop.

And when you concentrate value and therefore power in those existing landowners to an extreme degree, you get a political feedback loop strong enough to overpower something as trivial as reality. After all, the market can stay irrational longer than you can stay solvent.

Here in the Denver area, we have a lot of people moving here for good jobs, strong economy, etc. The locals bitch and moan endlessly.

A lady the other night at a dinner party was, in the same conversation, complaining about the "high-density" (townhouses, but she acted as if they were high-rises) housing being built in the area, and moved on to whining about how her daughter was priced out of a home in the area.

I stopped myself.

I can absolutely believe that would happen. Also interesting to watch the debate around conditional removal of the parking requirements for new builds. You see people that complain about lack of affordable housing, but also demand a parking lot/structure for every new building - these things are in conflict.

I do understand the bitching & moaning. I remember, and miss, the days when there wasn't a standing jam on I-25 every single Saturday, you could show up at a trailhead later than 8 AM and actually find parking, or rent a nice apartment in Wash Park for $600. But then I'm an immigrant too, so I don't have much moral authority to tell the more-recent immigrants to GTFO.

The ones who occupy the residences have the votes...

Don't renters also have votes? If so then it's a matter of ratio and willingness to mobilize/fund efforts.

Renters vote but tend to be under-represented on City Councils and such because they are a) younger, b) have less money, c) move more often than people with homes. Renters don't vote as regularly as homeowners.

d) If a place has renters that don't have their own mailbox, it's possible that only the owner will get voter registration mail.

Sincere question: is this a bug or a feature?

feature imo. it doesn't seem inherently wrong that the long term residents should have more say than people who may just be passing through. that said, the degree of difference could still be very inappropriate.

Renters are the minority. 70% of households own their home in Canada.

Using the San Francisco example from the article, renters are 62.5% of all households [1].

[1] http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty....

Not direct votes. The renters can vote for representatives, but city councils are overwhelmingly made up of homeowners. (and a disturbingly high proportion of property developers)

I don't think it ever truly was a debate over supply effects. I think the true debate is whether people agree or disagree on the desirability of more housing, and the "more supply won't help" argument was coopted by those who needed a more palatable argument than straight NIMBYism.

I can tell you 100% there is a debate over supply effects. There are many people (Peter Cohen, Causa Justa, Calle 24, some folks with red roses on Twitter, others) who show up at public comment in SF who believe that more market rate housing increases displacement and causes even higher prices.

I see supply and demand like the Ohm's law of economics, it's always true, but can get a bit complicated when you see things like reactance and reluctance. Sure, there can be interesting discussions about housing, but ultimately supply and demand is always key, but can get complicated do to realities like lack of space (SF) and nimby's (also SF)

The "debate" is likely a result of motivated reasoning. Humans do it all the time. 1. Decide to stake out a position A. 2. Think of reasons that A might be true. 3. Use these arguments to claim that anyone arguing !A is wrong. 4. Feel satisfied.

At least for the folks in the Mission, I think they see new market rate apartments going in, watch rent rising, and conclude the new housing is causing the rent increases.

Which they can probably pretty accurately say it is causing rent increases, albeit not directly. It goes something like this:

1.) New housing starts to get built 2.) The new residents demand safer/cleaner streets or just higher quality restaurants/cafes/etc. Or, sensing a market opportunity, those businesses move in themselves. 3.) Those things happen...and more 4.) More residents want to move in 5.) Prices for the existing housing stock increases 6.) New houses are built because there is demand 7.) go to 2.

QED: rents rise "because" new housing was built.

There definitely IS an equilibrium that will be reached, but a city like San Francisco has an almost unlimited supply of young and wealthy residents that think the suburbs are hell and want to live in a vibrant city.

So the fear of some people that oppose more housing is that the equilibrium point, even if you were very aggressively adding housing stock, would be way above what "normal" people would be able to pay.

So it's really a tough problem. yes, nimbyism is a thing. Yes more housing will eventually reduce prices (or reach a steady state), but the number of houses that need to be added may very well be unrealistic for any city and end up with rents just going ever higher pricing out all but the $200k/yr techies.

By that logic destroying homes in the Mission would decrease demand, which makes no sense.

That does not follow at all.

What it says is "there may be nearly infinite demand for high cost housing in the mission".

> That there was ever a debate at all is still astounding.

It's due to the unfortunate rhetorical coincidence that it's very easy to paint this belief as "trickle down economics" (even though it's absolutely not) and many, many voters will nonetheless be fooled.

Example: https://archives.sfexaminer.com/sanfrancisco/its-still-calle...

If you haven't registered to vote where you currently live, please do so now. In many states (including California) it takes just a couple minutes, you can do it entirely on the Internet, and you don't even need a local driver's license.

Part of the problem and the confusion is this: People have their rent controlled apartments here in SF at a tiny fraction of the "real" market rate. And, so when they see market rate housing going up (hamstringed by affordability requirements, driving prices even higher), they're seeing market rates that are much much higher than rent controlled rates. This causes them to believe that increasing supply actually increases rents. Here's the distinction: Increasing supply ONLY decreases market rate rents, it does nothing for the below market/rent ceiling prices, at least not until supply can be massively increased to point where it goes below the rent ceiling.

I think in some areas (cant speak for all) the debate is about whether other things are affecting the market in a way that should make them the approach to tackling affordability rather than purely worrying about supply.

This then becomes politicised and people paint broad brushes of each argument, one side arguing "its not about supply! Its about x policy!" and the other side arguing "Its about supply and demand!".

Both sides are extremes, when the answer may well lie somewhere along the line in the middle. Specifically, in Australia the debate is about whether the best way to tackle affordability is Supply/Demand or whether it is reducing incentives for investors (tax breaks for house investors). There are solid arguments on both "sides", but its pretty clear that housing supply plays a part in both solutions.. the real question is to what degree it has a bigger impact than changing government policy in this case.

Point is the overall reason/cause doesn't mean it's the only consideration and thinking of it that way can lead to dismissal of valid joined issues/solutions.

I completely Agree. It's absolutely insane that people think limiting the supply of housing can actually decrease prices. And that this is happening in some of the most highly educated cities where degrees are handed out to nearly 50% of the population.

One big thing they don't understand. You MUST increase the supply, absolutely MUST. There's no other way, except to reduce the number of jobs in the area. Every single regulation, every single affordability requirement reduces the total amount that can be built.

I've heard this: People make the argument: well every new market rate housing goes to rich people. What they dont get, is, for each so called rich person who moves into that new development, a new house comes onto the market (their old residence) and that helps push down prices.

It's unthinkable that so many people are going homeless needlessly. We need to increase the supply all the way to point where housing becomes affordable to everyone. And, yes, it will take a long time and a lot of building, but It'll be worth it.

While I agree with your general point, I think both you and the article are glossing over part of the debate. The opponents of adding market rate supply that I have seen aren't opposed to new supply in a vacuum. They are opposed to letting the market dictate the supply because the market usually creates supply at the top.

The costs of buying land and building a mid-market building is not that much cheaper than building a luxury building. This causes the free market to favor new higher price units which leads to other development that pushes out the previous residents. Sure, that new supply will trickle down and lead to more affordability throughout the whole market, but it can still lead to higher prices in that specific neighborhood due to gentrification. It is therefore a balancing act between the health of the whole market and the health of individual sub-markets within it.

You're right that new construction favors luxury housing, but I don't agree that this inevitably leads to displacement of other residents. Most of the effects of "trickle-down housing" are seen in the same market as older buildings must lower rental prices as the condition/amenities age and compare poorly to the newer/nicer buildings. Individuals must move as new construction replaces an existing building, but there will be other units available to move to in a market that is actually allowing new construction. The only situation that causes significant gentrification is when new housing cannot be built and prices rise due to concentrated demand...

>Individuals must move as new construction replaces an existing building, but there will be other units available to move to in a market that is actually allowing new construction

I don't think the emphasized part is a given. There is likely no new construction at the bottom of the market for these displaced people to move into.

For example, let's say a SRO hotel is torn down and a luxury condo goes up in its place. The result is increased supply in the luxury market and decreased price in the luxury market. That decrease in price trickles down throughout the rest of the market. However at the bottom of the market the SRO supply has now dropped and the demand is now higher due to all the displaced residents. There are too many variables involved to say the trickle down effects will always outweigh the direct effects of removing the housing from the bottom of the market.

I'm going to replace SRO hotel with single-bedroom condominium in this case, as I'm not familiar with any modern cities that still allow the construction of SRO hotels... If that's the factor on which your argument hinges, we can talk about micro-housing and "apodments" separately...

In every other instance, new luxury housing in a constrained market allows wealth individuals living in mid-range housing to move up. That frees mid-range housing for middle-class individuals to move out of their low-end units. Those low-end units are now free for the individuals displaced by the luxury construction.

This is the cycle that the article is highlighting in action. The key here is not the number of people demanding low-income housing - that level stays fixed, whether they lived in the old demo'd building or not. The determining factor is available units of supply, which is stable once the middle- and upper-income people vacate their lower-end units. This is an observable phenomenon, as highlighted by the original article and all of the crosslinks therein.

The SROs aren't new construction, but there are still plenty of them around. The example I gave is simplified version of what is happening in downtown Los Angeles as neighborhoods like Little Tokyo and the Arts District are creeping into Skid Row displacing people in low income housing and worsening the areas homeless problem. Meanwhile the new construction in Downtown LA has the areas highest vacancy rates because the luxury market is already saturated. The supply never trickles down because the developer are optimizing for profit and they can see a greater profit with high rents at 85-90% occupancy than lower rents at 100% occupancy.

Here is the first news story I found on Google about the subject.

http://www.latimes.com/local/lanow/la-me-ln-skid-row-tower-2...

Thanks for sharing the article - it's interesting to hear how other areas are reacting to similar situations (I'm in Seattle). I confess, though, that I don't fully understand the applicability of the downtown LA situation to the affordable housing debate. The article linked seems to lament the construction of units that the homeless on Skid Row can't afford, but that seems to be an untenable expectation in the first place. The basic logic still holds that if supply is constrained in downtown LA, the new luxury apartments in the Fashion District will relieve housing demand in the mid- and low-end for that neighborhood. It will be a net good for the area, all things considered.

The protesters in the article seem to conflate one kind of construction with the other: "The protesters say the city should house the neighborhood’s homeless people before it approves another big residential development in downtown Los Angeles."

Market-rate development is a process that can continue to take place while the city grapples with housing the homeless. They don't interfere with one another, since the market-rate construction is private enterprise.

The protesters, further, are falling victim to the same fallacy discussed in the original posted article here: "They also argued that hundreds of new market rate apartments will drive the neighborhood’s rents beyond the means of residents living “precariously” in nearby converted flophouses, hotels, tents and buildings."

The basics of trickle-down housing dynamics work strictly against the rising rents scenario being true. The pressure goes strictly the other way for the existing units in the neighborhood, which have new competition at the top end.

To offer a very slim thread of credibility to the argument, there are cases in which supply and demand interact ... oddly. The canonical case is probably traffic: increasing highway capacity increases congestion.

But, beyond the topical similarity, the cases fall apart. The situation with traffic involves only a small incremental cost being born by each driver, whilst in housing, the internalised costs are large. The drivers of housing inflation -- the interest of numerous parties in increasing asset values (free money for no work!) most especially -- are also highly different.

Actually, that last factor tends to make me suspect that the housing arguments are at least in a significant number of cases insincere.

Induced demand [0], if that’s the phenomenon you have in mind, does not mean that “increasing highway capacity increases congestion.” It just means that adding capacity increases usage of the road, often to the point that so many more drivers show up to use the expanded roadway that the improvements do nothing to reduce traffic delays.

There is no economic mystery in induced demand: it’s Economics 101 once you realize that drivers pay for their usage of roads in time, not money. So when a roadway is expanded, all else equal, the cost of driving on it falls—you’re no longer stuck in traffic; but the lower price (that is, travel time) increases demand for use of the road, just as low prices tend to increase demand in other markets. The result is that many more drivers use the expanded roadway, to the point that they bid the price, paid in time waiting in traffic, back up to previous equilibrium level.

(That said, there are ways in which building more roadways can increase congestion itself. Since land use is closely tied to access, building new highways can spur development in far-off areas, causing people to drive more than they otherwise would. There’s also a theoretical possibility that adding new roads can change the roadway topology in ways that cause people to change their routes in ways that create congestion.)

0. https://en.wikipedia.org/wiki/Induced_demand

And it's this effect that prompts my strong support for tolling all roads. It's better for everyone to pay for scarce resources in money, not the awkward currency of time.

That tends to be more equitable if the money's evenly distributed.

Or if the tolls are indexed to wealth and/or income.

Forget about housing for a minute.

Would you agree that a speculative boom can cause an increase in demand?

That's not the crazy part. The crazy part is arguing that building additional supply in response to that demand will _increase_ prices.

Yes, I can't see how that could be possible.

By fueling the boom? The greater the supply, the bigger the phenomenon, the more people it pulls in.

Notice there are not a lot of speculative booms in things the world only has three of.

Have you studied art auctions much?

That's not all that crazy to me, I can imagine many scenarios where that could happen. The answer is, as always, "it depends". It depends on what you build, how you build it, where you build it, how it's perceived, the time interval across which you're measuring prices, etc. Price of stuff is way more nuanced than surface-level supply and demand. It all comes down to perception of value, and there are a LOT of factors that can affect perception of value outside of scarcity, and they're often very dependent on each other.

It's not as contingent as you think. We normally model the supply curve as a line going up and to the right, indicating that price increases stimulate the creation of additional supply. The demand curve has the opposite slope and effect. These curves form an "effective field theory". They explain what's happening at a high level. In reality, supply and demand curves aren't necessarily linear, and at small scales, they can wiggle around a bit. This wiggling is where your "it depends" factors come into play.

It's disingenuous, however, to argue that this wiggling invalidates the crystal clear overall direction of the supply and demand curves or somehow invalidates the idea that the way to increase the amount of affordable housing is to increase the amount of housing.

Not necessarily. There are things called "Veblen goods". For them, the demand rises as the price rises, because the higher price confers additional status. You pretty much have to be in prestige, luxury goods for this to happen, though, so it's (probably) not relevant to a discussion of entry-level housing.

That doesn't seem to apply in this case however. This article is talking about people paying >$1 mil for shitty shacks in Silicon Valley. It seems very hard to think of people buying those because it confers "status", actually, anecdotal evidence from my coworkers and I, we are ashamed of telling folks back home how much we payed or showing pictures of our new house.

I agree; I don't think it applies in this case either. I was merely pointing out that one small part of quotemstr's argument didn't hold.

The best way to end a speculative bubble is to crash the price by increasing supply.

...potentially degrading your urban environment in the process.

My point is that, if a particular housing market is experiencing a shortage of supply due to a speculative boom, but has sufficient housing to actually house people, then you have two options: tackle the supply side by building more houses, or tackle the demand side by addressing the cause of the speculation (e.g. tax incentives could be encouraging this non-productive, speculative investment).

Part of the "degradation" happens because we forgot that we can build up, as well as out, in much of the US

https://www.strongtowns.org/journal/2015/1/7/americas-suburb...

I don't think we "forget", I think developers are after the quick buck and buyers are after most-sqft-per-dollar. Building up or down is more expensive.

Developers just build places for people to live and work. Like the house you live in. They could build a lot more in places like San Francisco and Palo Alto. Yes, it's a bit more expensive, but that's a pretty minimal component of the price at 2/3/4 stories.

The real problem that prevents building up and in is rampant NIMBYism.

Is it? Assume that land is expensive. If I build up, I can create a lot more units for the same land cost (at the probable price of higher building cost per unit). For some land price, there's probably an optimal height to build to that decreases total cost per unit.

Well, it really depends on where. When much of Silicon Valley was built, I believe land was not really that expensive, and that continues to be the case in many parts of the country.

Building taller buildings isn't degradation. I would argue that it makes the urban environment better, no worse, even if you ignore the housing supply benefits.

This is because newer, taller buildings are almost always going to be higher quality than the old shit that was already there.

The problem the the "it's the supply and demand stupid" justification for high house prices is that it ignores the fact that on what's supposed to be the demand side we have a massive oversupply of borrowed-into-existence virtually free money.

Absolutely. It's ridiculously risky for the economy to give people million-dollar loans for shacks in East Palo Alto when we know that prices will decline once the Bay Area finally adopts sane development policies.

"That there was ever a debate at all is still astounding."

There never was. There are actual, valid debates around construction policy, however. Among them:

  1) should you prefer subsidized housing or market-rate?
  2) should you remove cheap, existing housing stock to make room for market-rate?
  3) does new construction lead to gentrification of affordable neighborhoods?

The article is explicit that the answer to #1 is probably "yes", and it's pretty clear that if you care about the affordability individual neighborhoods, the answers to 2 and 3 are "no" and "yes", respectively, because real estate is obviously not a commodity product. Lowering the mean rent figure for a city does not guarantee that low-income neighborhoods/people benefit from the trade.

See, that's the problem: anti-housing advocates have the wrong moral object in mind. There's no use caring about "neighborhoods". A neighborhood doesn't dream of owning a house one day. A neighborhood doesn't have kids that have to squeeze into a single bedroom. A neighborhood feels neither happy nor sad and doesn't care whether it's preserved.

Interfering with the market almost always produces poor global outcomes, even if interventions can provide an illusion of success in small localized cases. Sure, you can protect your neighborhood from gentrification or whatever, but at the cost of impoverishing an entire city. How is that fair or just?

I believe in caring about people, not abstractions like neighborhoods, and so support greatly loosening zoning laws and allowing builders to build the market-rate housing that people demand.

but developers want to build expensive housing unless they are incentivized otherwise. the margins are better that way. that's what the market gets you.

And when they do the value of existing housing is reduced as it must compete with that new luxury housing.

People who want to live in SF and have $10m to spend are going to live here. If you won’t let developers build luxury condos for them they’ll just buy a Victorian, Ellis-Act the tenants out, and remodel it back into a single-family home. There is literally nothing you can do to stop it.

"See, that's the problem: anti-housing advocates have the wrong moral object in mind. There's no use caring about "neighborhoods"

Yeah, fuck 'em. For that matter, let's not care about cities or states, either. As long as the national mean rent goes down, everything is dandy, right? After all, we all know that real estate is global. Let the poor move to North Dakota. /s

When you have two affordable neighborhoods in a city, and you gentrify both, the fact that rents are a few bucks cheaper city-wide is thin gruel for the people who got evicted. Nor does it "impoverish" the rest of the city to not gentrify those neighborhoods -- they're out some small number of dollars a month.

"I believe in caring about people, not abstractions like neighborhoods"

That's obviously untrue. You believe in the long-term effects of markets, even if they screw actual poor people in the short term. That's fine, but don't pretend you're doing social work in the near-term.

All you can really say about markets is that the only thing they "care" about is the most profitable allocation of capital.

If you want a perpetual right to a piece of real estate, buy it. I'm a renter myself. I accept uncertainty as part of the bargain.

Part of renting is accepting that your tenure in a particular location might last only as long as your lease. If we had it your way and gave renters a de-facto property right to stay in their apartments as long as they liked, we would slow the development of cities and put pressure on the remaining housing stock. The renters benefit and the rest of society loses. That's unfair.

So, yes, "fuck 'em". Fuck people who want to be selfish and profit at society's expense. Selfishness is exactly what schemes like rent control, prop 13, Oregon's weird tax cap, and so on all enable.

"If you want a perpetual right to a piece of real estate, buy it. I'm a renter myself. I accept uncertainty as part of the bargain."

You must have posted this to the wrong thread, because it has nothing to do with anything I've written. There are legitimate, open questions about development policy. That doesn't mean anyone is giving renters a "de-facto property right" to live in their homes forever. How about we start with simply building affordable housing, for a change?

In any case, regardless of your Randian philosophies about what poor folks "should" do to remain in their homes, cities don't function when the people who cook your food and fix your sewers can't live near the city anymore. So these things actually do matter, and the only people currently getting screwed are the poor. We can deal with fairness for rich people once it's an observable problem.

(That said, I'll admit I tremendously enjoy how you jump from complaining about renters screwing society, to complaining about prop 13 in what...50 characters? You're Angry because you're getting screwed by pretty much everyone, it seems.)

> . . it has become an article of faith that building market-rate housing raises rents, rather than lowers them. The logic of Econ 101 — that an increase in supply lowers price — is alien to many progressives, both in the Bay Area and around the country.

Pretty much. I'm progressive on a lot of issues but many public-interest minded people are immune to economic realities. The example about subsidized versus market-rate housing is a great one. Subsidized housing reducing displacement twice as effectively as a market-rate house sounds great. But put another way: permitting two market-rate houses that bring in tax additional tax revenue is as effective as building a subsidized unit, which costs the government a bunch of money.

The "trickle down" effect is also real.

> Building more market rate housing isn’t so much about “trickle down” as it is building enough new housing to keep higher income households from moving down-market and bidding up the price of older housing that would otherwise be affordable to moderate and lower income households.

In Chicago, which has never had rent controls, there are tons of high-end highrises going up. But the high-end units there were built in the 1970's and 1980's have been retargeted now as more value offerings.

Exactly. Affordable, market-rate housing is just old housing that used to be luxury.

It's not that much different from cars. In the US, working class people can largely afford cars, they just buy used.

I live in a very interesting area, across the street from me is a different city with housing costs roughly 10x the costs of mine. I am daily confronted with the absurdity of pricing of housing.

In addition as I've watched rents around me rise, and anticipated my own rent rising, I wonder at the expectation that we should continually get less for more. My house isn't getting any newer after all.

If my employer decided to cut my pay by 10 or 20% every year there's no way I would stay, and yet I must admit that I have tolerated this behavior from my landlords.

Unlike commodities or consumables, for which unrestrained markets influenced by collective expectations of supply and demand are not routinely shocking, the expectation that my house, in which I already live, and for which I have been paying consistently for years, suddenly being much more expensive ... well that feels like a hole in the social contract. A problem to be remedied by legislation if the governing societal expectations do not naturally lead to a different equilibrium.

What if the expectation was that if you let someone live in your home you are granting them significant rights, significant stability, and are assuming significant risk of losing money? This set of expectations is well known elsewhere, but not so much where I live.

So while I am willing to be convinced that a humane and equitable improvement to a cities housing situation can be achieved by building more housing, I would hate for legislative restrictions to be ignored as complimentary and beneficial efforts.

> my house ... for which I have been paying consistently for years

If you are paying for it, not past-tense, then it's not technically your house.

The apparently uneven market for real estate is shocking to buyers because of the variability of supply constraints, caused by geography but also in great measure by zoning regulation. The hackneyed refrain of "location, location, location" as the chief determinant of the value of a property illustrates this point.

> I must admit that I have tolerated this behavior from my landlords.

You have tolerated it precisely because you actually know that the value of property is not fixed. As demand increases while supply does not, the value/price goes up. Clearly you like the location, so you've not moved away. You are part of the demand that is moving prices upward. Your willingness to pay more is precisely what sets the price, along with supply.

> A problem to be remedied by legislation if the governing societal expectations do not naturally lead to a different equilibrium.

As the article points out, legislation focused on remedying the problem would relax constraints on supply caused by zoning, regulatory hurdles, etc. But so often the people complaining about the cost of housing are the same people voting to keep supply constrained.

There does come a tipping point that most land lords don't like to talk about. When interest rates go so low that the cost of owning your own home is cheaper than renting. This is including all the cost of maintenance, water rates, garbage collection, insurance, taxes, and also property tax's that come with it.

Do be careful when you decide to enter the market as choosing the wrong time can wipe out about 3-4 years savings within 2-3 months.

> In addition as I've watched rents around me rise, and anticipated my own rent rising, I wonder at the expectation that we should continually get less for more. My house isn't getting any newer after all.

I think your central confusion stems from the idea that the price of rent is in any way related to the original cost to buy the land and build the building you are renting. It is not.

Rents move to stay competitive with the demand in the area. If more people want to live there, rents will rise. If vacancies increase, rents will fall until all the units are filled. Landlords have no leverage against renters in this regard - if you can find a similar rental for cheaper in your area, you are free to move or negotiate down your rents with your current landlord.

Attempts to legislate this market dynamic away just risk guessing demand incorrectly and limiting prices inefficiently, which results in less housing stock and more expensive/scarce rentals in all cases.

How did you manage to find a housing price gradient that sharp? East Palo Alto vs. Palo Alto or something?

So, it sounds like:

1) Building any kind of more housing is beneficial

2) Building subsidized housing is more beneficial than market-rate housing

This leaves me with two questions:

1) Does subsidized have double the effect because you can build twice as many?

2) Zoning laws seem to prevent cheap housing from being cost-effective for developers to build. If you made it possible to build cheap housing (in LA, maybe by reducing parking requirements), would developers be building cheap housing on their own, without prompting / subsidies?

In order:

1) Yes.

2) More beneficial in limiting displacement only. No considerations of cost.

Answer 1) Subsidized housing provides more benefit because it provides immediate housing stock at lower prices, replacing any stock lost to luxury construction. It is definitely not cheaper or easier to build more - the same areas that need subsidized housing are the ones where housing in general is more expensive to build.

Answer 2) Absolutely yes, zoning laws increase the cost of construction, leading to more expensive housing units. Explicit recommendations in favor of more affordable housing include:

A) Removing parking requirements

B) Allowing more density (more floors, smaller required sq. ft per unit - yes, this is a thing, and fewer yards, set-backs, etc.)

This is something I've been trying to understand for a long time. In New York City because of the rent controls it seems like the market rate has diverged alarmingly from the subsidized rents. From my perspective it seems like this propagates the "Tale of Two Cities" and makes it a much wider leap to go from rent-control or subsidized housing to market-rate. In my naive opinion it seems like in a system without all of the controls in place there may be a more even spectrum of price points and make jumping to the next level of housing easier.

There are other forces at play here too such as foreign buyers speculating on the Manhattan Condo market, look no further then the foreclosure at One57 penthouse to show how it has gotten. I think building more housing at all levels is the best way to solve the affordability crisis, but naturally the higher-end of the market would be built out first due to developers wanting to cater to the highest bidder. The cities current approach of providing tax-incentives to developers to allot a certain portion of housing to affordable housing is seemingly a good strategy to tackle the problem of affordable housing as well as integration.

Does anyone know anyone from Starsky robotics? I think it would be interesting to deploy the remote technology used in it's trucks to construction vehicles. Imagine being able to have continuous delivery at construction sites. For example, excavation is a relatively quiet activity that seems like it just requires a back hoe and a dumpster to haul away waste. If we can be able to control these remotely, would we be able to increase the efficiency of construction sites?

This doesn't seem to address high end housing vs (unsubsidized) low end housing. Is a hundred new units with marble countertops as good, holistically, as a hundred with laminate?

I think a lot of the opposition revolves around frustration with developers building luxury when the intent of the given policy was low or mid market units, combined with a belief that units targeted at the needy market segment would be the best solution.

There are reasons for developers to prefer to build high-end housing over low-end housing.

1. City parking requirements drive up the cost of construction to the point that only luxury units would be profitable.

2. Land acquisition costs (referenced in the article) are high due to zoning laws, so developers prefer to build high-end housing to recoup those costs.

3. Labor costs the same no matter what you're building (beyond some extra for a marble installer or whatever). Labor cost is a function of cost-of-living in the area, which itself is proportional to housing costs. Since the cost of construction is high, a builder is going to build the highest-value product possible at that cost.

So really all the problems boil down to city regulations, zoning, and unaffordable housing creating more unaffordable housing.

"Trickle-down" is a dirty word in many circles but I think it does apply to a certain extent for housing. Today's luxury apartment is tomorrow's mid-market apartment. If I could get a better apartment than what I have for slightly more rent, I'd probably upgrade, but the difference is stupid high (nearly double). In turn, my current apartment would probably be rented by a middle-income earner if it was located somewhere other than Silicon Valley.

It's pretty obvious why luxury development is preferred; anybody, in any market, would prefer to make luxury units.

Yet no other market seems to operate by supplying only luxury units and depending on trickle down. Why are there Corollas, instead of just more Lexuses?

> Yet no other market seems to operate by supplying only luxury units and depending on trickle down. Why are there Corollas, instead of just more Lexuses?

Because no other market has fixed unit quotas set by the local government[1]. There's no rule about how many Lexuses and Corollas Toyota is allowed to build.

The dirty secret of the Bay Area housing market is that a lot of Lexus buyers have started buying Corollas because there aren't nearly enough Lexuses to go around. They can afford to pay Lexus prices for the Corolla, so they do.

But that means Corollas now cost as much as a Lexus. Corolla buyers can't afford that, so they start paying Corolla money for a Yaris. But now Yarises cost as much as Corollas. Yaris buyers can't afford that, so where does that leave them? They either take the bus or walk.

Building more Lexuses will stop the Lexus buyers from buying Corollas. Build enough, and you can even make this whole process run in reverse.

[1] Actually, there was. The US government threatened Japan with trade sanctions unless Japanese manufacturers agreed to voluntary export limits. So Toyota created the Lexus brand to sell more profitable cars within their alloted quota.

> anybody, in any market, would prefer to make luxury units.

It really depends on the market. Builders aren't stupid. If there's no one willing or able to pay for granite countertops they won't spend the money putting them in. They will build luxury units if they are profitable, otherwise they'll build cheaper ones that they can let out. Alternatively you might get a building boom where everyone overbuilds luxury units and prices collapse. Either way, win-win for consumers.

> Yet no other market seems to operate by supplying only luxury units and depending on trickle down. Why are there Corollas, instead of just more Lexuses?

You have to consider:

1. It's easy to ramp up (and down) car production, but not so much for housing. If carmakers had restrictions on how many cars they could produce every year, there's a good chance they too would try to focus on the higher-margin market. But because they are allowed to build without restrictions, they produce something that's affordable to every segment. I'm not saying "build baby build" because real estate is different from cars. But the current regime in the Bay Area is way too far in the other direction. It's like the government saying no one can build any new cars at all for multiple decades. Software engineers making $200k/year would be driving 15-year-old Corollas with the hubcaps falling off and Bill Gates would have the only Tesla in private hands (I'm exaggerating obviously)

2. There actually is (in a way) trickle-down at work in the car market: used cars. Used cars add to the supply of cars on the market, keeping prices lower. A lot of used car buyers are lower-income people who may pay cash because they don't qualify for financing on a new car, or because it may be financially ruinous for them to go into debt on a depreciating asset.

3. Much of the intrinsic value in real estate is in the location and the land. Whereas for a car most of the intrinsic value is in the design, marketing, quality of parts, engineering etc. Where an apartment is located determines how much it will rent for to a much greater degree than the quality of the apartment (assuming basic livability standards are met). $700k will buy you a burned-out 1-bedroom house in San Francisco or 2 spacious 3-bedroom houses in suburban Houston. Why? Because of where these dwellings are located.

SF already has plenty of "non luxury" housing that has been gobbled up for luxury prices, often displacing people who could normally afford such housing. The theory is that building more luxury housing will take pressure off the non-luxury stock.

I agree with that theory, but building more affordable and below-market housing (instead, or simultaneously) will likely have a faster, more positive effect.

But it's impossible to make affordable and below-market housing profitable unless the underlying issues, land acquisition costs and zoning, are addressed. That means the government will have to subsidize these units and they still won't be enough to meet demand. So only the lucky few who win the housing lottery will benefit. Everyone else (most lower-income people, middle-income renters overpaying for low-end housing) still loses out.

I'd prefer that we solved the problem for most people rather than just a lucky few. If people couldn't afford food because not enough farmland was available for reasons like "preserving the character of the area" (imagine that you can't truck food in from lower-cost locations in this scenario) you bet we'd find a way to start growing more food stat. No one would say "Well we'll just subsidize food for some people so fewer people will starve. But it's no use letting farmers farm because they'll just grow Kobe beef and avocados instead of wheat and corn".

> But it's impossible to make affordable and below-market housing profitable unless the underlying issues, land acquisition costs and zoning, are addressed.

Totally agree. Developers don't want to build affordable housing because they in some cases actually stand to lose money when doing so. SF's byzantine planning process makes it that way, and that's not going to change without some heavy reform there.

In a city like SF, it's very expensive to build housing, due in no small part to the city's ridiculous planning process. Developers try to offset this cost by building luxury housing, which will of course fetch a higher price when sold.

From TFA: "Two market rate houses reduce displacement as much as one affordable house".

If you read TFA more closely, they clarify that "affordable house" is a euphemism for "subsidized house".

The point is if nobody builds the nicer dwelling, the person with the money that could have afforded the higher price will just turf out a lower-earning person living in a worse house, because the main feature of the house is that it provides access to the occupant's job.

If you build new luxury housing presumably people now living in less desirable housing will upgrade, making their housing available at lower prices, etc.

This claim keeps popping up. I’ve yet to see it include a citation. Maybe today will be different.

The article you're commenting on is literally the citation for this. Here's his citation, http://www.sightline.org/2017/09/21/yes-you-can-build-your-w...

This kind of mentality that someone's news article counts as a source is poisonous. People read these articles and think that because a few facts have hyperlinks then they must be valid. Half of those links on that page go to other blogs and news site. One even goes to Youtube. Blogs and news agencies don't count as citations to base an argument on. Policy needs to start at peer reviewed research and build up from there.

What, other than an article summarizing research, could possibly be provided as citation? Fund me some peer-reviewed research. In the meantime, we'll just have to make policy by flipping a coin, as there is clearly no other standard of knowledge available to us. /s

> This kind of mentality that someone's news article counts as a source is poisonous.

Most underrated comment in the world.

This coupled with for-profit journalism and the atrophy of critical thinking is giving rise to nonsense like anti-vax, chemtrails, and flat Earth.

In America, the public has been led so astray by both the media and the government about things like basic macronutrients that a recent report found 1/3 of Americans, 100 million people, are diabetic are prediabetic (will have type II diabetes in 5 years).

https://www.cdc.gov/diabetes/data/statistics/statistics-repo...

How about this: https://www.bloomberg.com/news/articles/2017-03-09/manhattan...

Virtually all new construction in Manhattan is luxury.

here's one from the California Legislative Office about "Helping Low-Income People Afford Housing", the gist is that building more market rate housing reduces displacement: http://www.lao.ca.gov/Publications/Report/3345. Other headlines from the report: "Building Less Housing Than People Demand Drives High Housing Costs", "More Private Housing Construction in Coastal Urban Areas", "California Is Building Too Little Housing in Coastal Areas."

It’s in this very article.

What other outcome could happen?

That new luxury housing makes a city more attractive and induces demand from outside. Adding new roads can make driving more attractive and worsen congestion.

Not saying that’s what happens, but a simple supply/demand analysis (ceteris paribus) may not suffice.

No one has seen fit to build much luxury housing in Cleveland, OH lately, but what exists already (at rock-bottom prices) doesn't seem to be attracting much population from outside...

Induced demand is definitely a thing for roads, but that demand is from fixed supply of people. In the roads case, it is counter-intuitive specifically because it causes the same number of people to drive more, on average.

That dynamic simply doesn't hold for luxury goods in general or luxury housing in particular. There are effectively no replicable instances of more luxury good = more buyers unless price falls or supply was previously constrained.

I'd posit it's hard to know what the dynamic would be. Consider certain luxury goods (https://en.wikipedia.org/wiki/Veblen_good) where increasing the price increases the demand. (Conveniently, economists have a model and also a name for things that don't follow the model. The universe can be divided into bananas and non-bananas.)

Cleveland isn't a prestigious world-class city attractive to the wealthy, but if new luxury condos in a tier-1 city come online, it may induce demand from wealthy/speculators who would not otherwise have considered that city, or were picking between alternatives. (Investment, signaling/status-seeking, etc.)

Treated as an investment vehicle, increasing supply (e.g., having an IPO where no shares existed before) can unlock latent demand (people divert income into that investment and drive up the price). Perhaps housing needs to be modeled as a mix of investment, local demand for shelter, status symbol, tax haven, political baton (keeping existing homeowners above water), etc.

Again, not sure how housing actually behaves but it seems complex enough to defy my econ 101 understanding.

I'm assuming you're suggestion that housing is a Veblen good is in jest - I can build a shining, gilded tower in the middle of Wyoming and I'm not going to attract America's wealthiest citizens to Cheyenne...

It seems like you're conflating cause and effect here - If Cleveland isn't good enough, then it must be the tier-1 city that is the cause of the demand. Not the housing itself. Further, unless the new luxury units are sitting empty (a problem Vancouver, BC dealt with for awhile), then the market for rents functions regardless of whether speculation is occurring. I invite you to find an example of vacancies increasing in the same place that housing/rents climb - it won't exist in any of the real estate hot-beds in America.

The main thrust of this article and the research surrounding it by folks like City Observatory, Sightline Institute, etc. is that we now do know the dynamic of housing prices in booming economies. I don't feel like you've provided any evidence that contradicts the conclusions presented in the research, so I'm having trouble pinpointing your skepticism. Let me know if I've missed your point!

People who would, instead of eg living in SF, have lived in Oakland, SSF, San Mateo etc instead move to SF and nothing changes and/or net increased rent results? Continuing to allow the peninsula to add jobs and dump its housing problem on SF obviously doesn't help priced out SF residents. And in SF, at least some of those higher end housing projects remove housing first.

Nothing in economics says it's obvious without observation or experiment that adding expensive housing in SF helps affordability for lower income brackets.

If people who would have moved to Oakland, instead move to SF, wouldn't that lower rents in Oakland?

It is called "filtering" and the process is well-established. http://faculty.maxwell.syr.edu/rosenthal/recent%20papers/Is_...

Folks - please add immigration.

Why on earth people don't grasp that when population is increasing mostly due to newcomers it affects housing ... this bothers me - because it's politicized, nobody can talk about it it seems.

Immigration is just a reality, it's part of the equation - it has real effects on housing costs and wages, one can't ignore it because sometimes the answers might not jive with one's politics.

So, immigration (or rather, population change, which can include births etc.) - is an important driving factor.

Which includes migration between states/regions obviously.

just build more housing.

Not everyone wants to live in a super over-populated / densely populated area...

In general, more saturation of humans == more problems.

People make fun of NIMBY, but at the end of the day who better to manage the neighborhood than the people who are already invested in it..?

> Not everyone wants to live in a super over-populated / densely populated area...

Then don't live in an urban center. That is the nature of cities, and given that land is a scarce, precious resource, it seems perfectly natural to me to not allow property ownership to be absolute and without strings.

You wish to extend control of property beyond the borders of what they own outright?

But that happens all the time. Neighborhood zoning restrictions, restrictive covenants, homeowner association rules, and so on. So Danihan's position is, de facto, what the situation already is in many instances.

So: You wish to not allow any control of property by anyone other than the property owner? Are you sure you really want that?

You just listed the principal agents in the NIMBY crusade, which I suppose it's clear I am in pretty strong opposition to in most cases. Tyranny of the majority is a serious problem in race, class, social, and wealth spectra, and these groups represent that form of tyranny in action. They're great right up until you do something that the majority disagrees with. Not recognizing the red flags this throws up makes me think that you've probably found yourself in the majority most of your life. It's worth considering what these systems mean for folks who fall outside of the majority on any of these issues.

OK, but I don't have to be part of the minority to understand why I don't want my neighbor to be able to tear his house down and replace it with a 7-11, or an oil refinery, or a landfill. Do any of those things throw up red flags for you?

I mean, sure, it changes the value of my property if my neighbor doesn't keep his bushes neatly trimmed. But there's stuff that he can do that's a lot more serious than that. I don't regard opposing a 7-11 on my neighbor's property as "tyranny of the majority" - or at least I regard letting my neighbor freely choose to do those things as "tyranny of the minority", which I regard as worse.

Now, obviously you can take this to extremes, and you can get upper-middle-class white-bread cisnormative-with-2.3-kids neighbors who insist that you have to have exactly 2.3 kids or you can't live in the neighborhood. Also, your garage has to be painted the right shade of blue. That's definitely tyranny of the majority, and I agree that it can be oppressive.

And I guess opposing a 7-11 next door, or an oil refinery, or a landfill is exactly NIMBY-ism. But I moved into a neighborhood where part of the restrictive covenants said that I couldn't open a convenience store on my lot - because it was going to conflict with the one that they were planning for a block or two away, on the corner of the subdivision. That was known in advance to everyone who bought into (or built in) the subdivision, and I don't have a problem with that. I don't have a problem with an oil refinery next door, either, if I know it's coming when I buy the property. (I would probably not buy, but if I did, I would know what I was signing up for.)

And I didn't have a problem with the neighbor two doors down starting a hair salon in her house, even though I didn't know that was coming when I bought into the neighborhood. There was a mechanism where anyone who had a problem with it had a chance to be heard, though. (I don't know if they could have blocked it, or if someone else got to judge the seriousness of the objection.)

TL;DR: I'm not opposed to people being able to do things. I'm opposed to people being able to do things that significantly harm the value of their neighbor's property in ways that the neighbors didn't know was coming at the time they bought the property.

I realize I was being somewhat inflammatory with my talk of "being in the majority" and "missing flags" - thanks for being willing to engage anyway. :-) I also like your characterization of "upper-middle-class white-bread cisnormative-with-2.3-kids neighbors" - this is who we're usually speaking of when we talk about the "NIMBYs".

You're right that there is a difference between starting up an oil refinery and building an apartment complex. The problem with many of these organizations you mentioned is that they weaponize their power (intended for use against oil refineries) against people, lifestyles, and forms of housing they don't like. In Seattle (as elsewhere) it is justified in order to, for example, preserve the availability of free public street parking in front of and near their home. This perceived "right" to public, shared property has extended to mobilizing against dense housing like "apodments" for fear it would "take up street parking" in my town. In my opinion, if you want parking, you should build it on your own plot and not expect the city to limit development to provide it for you free of charge.

You seem to have a pretty reasonable expectation of entitlement - no 7-11, but fine with small in-home business - and I wish there were more like you out there. In practice, these "NIMBYs" move to an area circa 1970 and expect it to never change again. This is untenable in downtown SF, Seattle, or any other major metropolitan area, as I think you realize. The natural evolution of these HOAs, neighborhood associations, and like seems inevitably to be towards oppression - anyone more Laissez-faire wouldn't bother joining one in the first place.

I wonder if there's a distinction to be made between suburban communities, which are often meticulously planned and cities like San Francisco that have developed more organically over time. Those kinds of suburban communities can be replicated. If there's new demand from potential residents, entire new neighborhoods can be constructed in new locations that are roughly the same distance from city centers. But you can't build another San Francisco because the first one is too crowded.

If someone moves into a suburban neighborhood where everyone is part of the same HOA, I can absolutely see that they'd want to be very NIMBY about maintaining the way of life that they bought into and controlling change.

But someone who bought in SF shouldn't have nearly that expectation of control. Cities are places that are about concentrating humans in close proximity to enable enterprises and efficiency that isn't possible with lower population densities. You have to assume that when there's increased demand to live in cities, population density will go up.

The idea that a government - at any level - is going to fund enough subsidized housing to make even a tiny dent in the housing problem is completely laughable. Anyone proposing such nonsense isn’t serious about the problem in the least.

That’s what bugs me so much about so-called progressives who oppose more housing. There is no half-plausible scenario where SF or CA comes up with the hundred billion it would take to solve the bay area’s housing shortage.

A major part of the problem is that it costs too much to build. Too many construction entities living on cheap funny money and a supply shortage after the real estate crash that has still not rebounded. Why does it cost $200,000 to add a second story to a house, for example.

I said it before here, but the situation in oregon is fucked up more than normal. The state constitution limits the rate at which property taxes can be raised to 4% a year, provided no new construction occurs. Increasing housing supply is actually penalized here.

I think that's the point.

Didn't the governor of Oregon tell people from other parts of the country not to move to Oregon in the 70s? Everyone wants their own private paradise without having to share.

As long as we don't have developers that are willing to build only luxury, bought by speculators and remaining vacant. Please answer this.

Interesting article. However:

"Rent increases, which were measured in the double digits eighteen months ago, have gone negative."

I call those kind of increases: decreases.

That kind of wording leads me to believe that he is referring to the rate. I.e. Rent increases are still occurring but at a decreasing rate. Maybe?

Possible, but I think it's more likely poor wording than linguistic calculus.

We don't build housing, builders do. We simply decide what is permitted to happen. We could eliminate restrictions on construction and that would help but the rate of housing growth would still be limited by money available to pay for new housing, which is a lower bound to affordability. It's actually a worse problem than it sounds for, if we're decreasing building restrictions then we're slowing price growth and decreasing the attractiveness of housing to investors. To accelerate affordability, we probably also need to subsidize or at least incentivize then.

That gets to be fairly expensive so where's the money going to come from? My proposal is a national growth tax, whose money is redistributed from areas which don't grow to those which do. That money will be used to pay for infrastructure improvements needed to house those people as well.

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