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Comment by matchbok | Hacker News Reader

> “Who are we building for? What income brackets can afford these units being put up in Vancouver?” asks Andy Yan, director of The City Program at Simon Fraser University in Vancouver.

That is such the wrong question to ask. We live in a market economy, no single person decides what sort of thing gets built - the market does.

Today's luxury apartment is tomorrow's affordable one. It is unfair and unrealistic to expect the market to build brand new and cheap apartments. Those words to not go together.

We can't just build more houses in the same size of city - it needs to expand outward. Stuffing more apartments in the same square mile won't do much.

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The goal is to build housing that is actually used as housing as opposed to a vehicle for speculation.

Legislative policies determine the type and terms of the "market economy" that is lived in.

If today's luxury apartment had a decent probability of being tomorrow's affordable one it would not have demand. Unless of course one assumes that luxury buyers are seeking to lose money.

Brand new luxury housing stays brand new forever?

It becomes affordable after an extended period of its price decreasing, or appreciating slower than inflation... Which we're all waiting to see!

Well, how long is tomorrow?

Housing that becomes affordable by the time I am dead is not really "affordable" housing for me.

It becomes approximately fifo. Oldest or otherwise least desirable housing becomes affordable housing as demand is met with newer more desirable housing being built. But if you're never building new housing, nothing gets pushed out the bottom to become affordable.

That would make sense if location didn’t matter and people couldn’t renovate buildings.

That's just noise as long as construction keeps up with or outpaces demand. The problem is some cities have held back construction for decades, so it will take significant construction to get to the other side of the supply curve.

As a thought experiment, what if you doubled the supply of housing units in Manhattan? Or 10x? 20x? I have a hard time believing housing prices would remain high.

A market with more homes per housing seeker is more likely to contain one for you.

As long as that ratio is less than one, some people are excluded. Price is what that looks like in a market. Under central planning it’s typically lotteries and waiting lists.

Supply/demand balance in the region is much more important than the characteristics of any particular unit, and that’s what pro-growth activism is targeting.

I hate to be the one to tell you, but it's not all about you.

It can. There are millions of houses and condominiums across America that are worth more now than when they were built.

Housing isn't like a car. It doesn't depreciate as soon as the first person moves in.

Speculators do lose money on average.

Speculation just means flipping it to someone who wants to live in it.

It can also mean:

- Holding an asset until users become more desperate

- Taking an asset off the market in order to drive up the price of other assets in the category

- Buying an asset to hold, if reliable bonds aren't available in your locale, or there are limits to what assets you can book locally

Not to mention ulterior motives:

- Money laundering

- A vehicle for bribes

Money is quite complicated actually.

A dwelling has zero intrinsic value. Ultimately, it only has value if someone is living in it. Having real estate sit empty can only be a temporary affliction.

Supply & demand - it's the law.

--- Buying real estate to just hold is almost always a losing proposition because of taxes and the time value of money. It is not like a bond, because bonds have guaranteed payouts. Real estate fluctuates in value, quite a lot. It's very easy to lose pots of money in real estate.

Thinking that users will become more desperate is hoping that the government will prevent supply from increasing, or that customers don't simply find other solutions. I suggest looking up what happened when the Hunt Brothers tried to corner the silver market by buying up the supply. Buying up your competition to drive up prices pretty much never works unless the government makes entry of competitors illegal or very hard.

>> Ultimately, it only has value if someone is living in it.

I got kicked out of my unit vancouver unit (3500$/month) because my landlord wanted to sell. In Vancouver's market a unit with a renter is worth LESS than a vacant property. Clearing it out to repaint and upgrade a few faucets is worth more than the rent income. That's how twisted the market has become.

Professional landlords like paying tenants. Investors see them as potential problems, irritants and impediments to redevelopment or construction.

Selling a unit with a tenant is hard, even if the new buyer is planning to rent.

Typically before and after the sale there is work being done on a unit that can’t be done while it’s occupied. Also the new buyer might have different screening they want to do for a prospective tenant, or may want a different lease term, etc.

It’s worth losing a couple months rent to be able to show the unit when you want, to have it cleared out so the buyer can inspect it, and sell it without a lease attached that they may not like. It also limits the buyer pool to sell it already leased to someone a prospective buyer doesn’t know and doesn’t want to know.

>>The goal is to build housing that is actually used as housing as opposed to a vehicle for speculation.

You're completely ignoring Econ 101.

Housing that is used as housing and housing that is a vehicle for speculation are not mutually exclusive. Rental properties produce rental income and appreciation for their owners. More people looking to make money from real estate investments results in more capital investment going into expanding housing stock, and thus more rental supply, which drives down rental rates.

The places which suffer the most from lack of affordable housing tend to be those that put in place the most impediments to profit-motivated investment. In other words, they ignore basic economics.

Agreed! We need laws to limit speculation.

The problem is the real estate market is very heavily regulated. So even if the market is demanding 50,000 more high-rise condo units be built...it can't happen if the area only approves 5,000 units. That's why it is so important to have smart regulations that promote growth. In real estate, it is easy for certain groups to be anti-building because they know it will skyrocket their existing real estate investments.

smart regulations

pick one

http://cityobservatory.org/housing-cant-be-affordable_and_be...

The bigger issue is that "higher density" compared to the old status quo still isn't producing enough new housing to moderate prices; if prices remain high, there are only two fundamental methods to deal with high prices: increase supply or reduce demand.

>Today's luxury apartment is tomorrow's affordable one

That isn't necessarily true. It is most obvious when a neighborhood is experiencing gentrification. For example, imagine a SRO hotel in which the rooms are no more than one or two hundred square feet. Buildings like this used to be incredibly common in the Skid Row neighborhood of Los Angeles and multiple neighborhoods in San Fransisco. Many of those buildings are being knocked down in order to replace them with high-rise luxury condos. Since the new buildings are high-rises replacing much smaller structures, the new units can have several times more space per unit and still increase the density of the lot. The problem is that a 1000 sqft unit with amenities like an in unit washer and dryer is never going to drop to the price of a 200 sqft SRO room that doesn't even have an in unit toilet and shower. The new and old homes are so far apart that they don't behave like they are part of the same market.

And on the other end of the same point, not all luxury residential buildings become affordable.

Case in point: The John Hancock Center in Chicago. 700 units of luxury living since 1969.

Apartments may depreciate, but in a good number of cases condos don't get any cheaper.

As a thought experiment, imagine the city tore down every other building in Chicago and filled every square inch of real estate with cookie cutter copies of the John Hancock center. The number of total available units in the city would skyrocket. Do you believe per unit price would remain the same?

The per unit price would obviously drop compared to the existing John Hancock Center. The per unit cost citywide might drop (I don't have enough information about Chicago to say for sure, but it is certainly feasible). But it is unlikely that any of these new units would be as cheap as the cheapest units that currently exist in Chicago. That is a problem that this market approach to affordable housing doesn't solve. Housing isn't a single market in which every unit is interchangeable. You need a wide variety of different housing options in order to house a wide variety of people.

Obviously in a real scenario different types of housing would be built. But if you increase the supply of total housing by 20x, then I feel confident some housing would be cheaper than the current cheapest housing. Even if that just means the current cheapest housing becomes cheaper than it is today. If you doubt this would happen at 20x, don't let me stifle your imagination. There could be 50x or 100x more units. Do you honestly believe there is no amount of supply that would result in significant housing price drops, even at the low end?

I am not sure what point you are really getting at here, but sure, if you increase the housing supply 100x there would be a significant drop in housing costs. I don't know how admitting to that fact impacts the real world considering actual growth rates are probably 4 orders of magnitude smaller. My original point still stands that we can't just leave things up to the market to fix the bottom of the housing market.

Ok, so we agree that at 100x the current supply the price would drop. What is stopping builders from creating 100x supply?

There's only two things I see that make sense as answers here.

One is regulation/zoning. Let's assume we could fix that.

The second would be if the sale price dropped below the nominal cost of constructing new units, with some wiggle room in there for opportunity cost to builders who might make more money by choosing to build elsewhere. Do you believe that's the case currently in NYC, Chicago, etc? Is the price so low that it's not even worth it for builders to bother creating new units, because they couldn't recoup their costs?

>The second would be if the sale price dropped below the nominal price of construction new units, with some wiggle room in there for opportunity cost to builders who might make more money by choosing to build elsewhere.

You also have to factor in the opportunity cost of the land/unit too which is where the argument starts to fall apart. Why build a unit that rents for $X when you can increase your build costs by Y% and charge a rent higher than $X + Y%. That is why new construction generally comes in at or near the top of the market. Construction costs generally don't make up most of the costs of new homes in places like San Francisco, Chicago, or Los Angeles.

But sure, if you want to create a world with no zoning laws and with 10000% increase in housing supply, I am sure it will solve all the problems with pure brute force.

There's not an infinite supply of wealthy people at the top of the market. The more of those units that get built, the tighter the margins get squeezed and the less attractive it becomes to build those.

Fixing zoning laws doesn't necessarily mean having no zoning laws.

Ok, building more housing is "brute force." The other option on the table seems to be a tiny sliver of poor people win the artificially low priced housing lottery. I understand why that might feel good, but I don't see how it actually solves the problem in the long run.

At the Hancock Center? Yes. People pay a premium to live there because it's near shopping and jobs and transit and the lake. Crap neighborhoods will continue to be crap, just with cheap housing that nobody wants to live in.

People aren't water. They don't flow to any available crevice. They go where the stuff they need and want is.

Another thing the new luxury unit does is it reduces competition for the units just below it on the value chain from wealthier buyers who now have more options at the higher scale.

This effect cascades all the way down the price curve. In macroeconomic terms, increasing supply shifts the whole curve below that point.

This is true so long as the new supply isn’t itself causing new demand, e.g. foreign investors leaving the unit empty.

>This is true so long as the new supply isn’t itself causing new demand

Which is where your argument falls apart. Cities aren't closed systems. The price reductions won't trickle down to the bottom of the market because at some point there is always going to be people who are willing to move in from neighboring neighborhoods, cities, or regions. It isn't like the only people who live in San Francisco are the only people who can afford it. There are plenty of people who could afford the worst possible home in San Francisco but decide not to move their because they can't afford a home they want. Once those middle of the market prices come down, people will move in to fill that new supply.

> Today's luxury apartment is tomorrow's affordable one.

Housing ain’t exactly the same as the used car market. I don’t think there’s such thing as a house that was once going for $1M+ that is now “affordable” unless it’s in a horrible state of disrepair.

The crappy student apartments where I went to school housed upper-class families in their day (before suburbanization). It happens. Deteriorated grandeur has a certain charm.

More to the point, there are plenty of homes that were affordable and in disrepair not long ago, that are now going for $1M+ in exactly the same physical shape. San Francisco’s problem is definitely not that its housing stock is too nice.

That isn't even true of many cars. 20-30 year old luxury cars sell for tens of thousands -- which might be cheap or comparable to new low-end car, if you don't consider cost of ownership

Agreed, it is complex. I'd argue, though, that older apartments in nice neighborhood usually rent for less than brand-new ones.

The price of the land is set by the rental profit.

If you tax land to increase the cost of carry you will see prices fall. Taxes work.

Increasing taxes on all landlords would cause upwards pressure on rents as lanlords would need to collect more money to cover their costs and hopefully save enough to be able to retire one day.

Disclaimer: I am a landlord

Totally wrong, this is not how prices are set.

when my margins go down I will raise the rents. I currently could charge more but I believe charging slightly less than market gets me a better tenant and some goodwill since I am not a full time landlord.

Anecdotal. Not the rule

I think "just build denser housing" is tomorrow's "let's just add lanes to the freeways."

We have to consider the whole system - jobs, office space, etc. If more housing just makes a healthy job market grow even faster in a loop, you've changed a lot just to stand still affordability-wise.

Do we really need ever-growing city centers vs some more disperse way of working and living?

Even in the unlikely event that prices did stay the same after building massively more housing, it would still mean a whole lot more people able to live in a highly desirable area.

Who are you to tell people where and how they should work and live?

It would be a peculiar question to ask if Vancouver was a closed system but it's not.

The reality is that many of these new condos are being marketed extensively in HK and other places where there are deep pocketed investors looking for good yields and which may not be able to participate in their own local market.

With this context, it's very appropriate to ask pointed questions about 'whom a development is for.' Is the development accessible by locals whose income is limited by the nature of the local economy, or is it intentionally developed for a global audience whose incomes a local may be incapable of reaching?

> Today's luxury apartment is tomorrow's affordable one.

Moreover, today's luxury apartment turns yesterday's luxury apartment into a less expensive one.

" the market does."

Markets are a product of a lot of rules that favor one thing or the other. It's not a natural law that markets and the rules have to be exactly the way they are now.

Does Canada not have an affordable house act that mandate that part of the newly created stock be put on the market for an accessible renting price?

To be fair, they were leveling perfectly good lower income housing to make way for luxury apartments.

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