That second demand can be huge, favours already hot markets (appreciation, liquidity, long-term durability of value), and can suck up unholy amounts of investment leading to very little actual housing supply created.
Ironically, the best way to promote more housing supply in such markets is likely to reduce prices, Both through increased supply (densification, new construction, relaxed zoning and codes favouring these), and through increased land value tax, which both eats up investment and store-of-wealth value, and encourages development in order to meet increased carrying costs.
Vested interests, from homeowners to real estate brokers to banks, will resist such measures as they directly reduce the value of their asset portfolios.
Every step of that has side effects that people may not like.
Nobody talks like this about traffic. More lanes, same slow traffic speed. Yep, that's newly satisfied demand. It's also widely considered undesirable and self-defeating.
It's not irrational to think that slowing down or distributing the growth elsewhere - geographically - would be preferred.
It’s only considered undesirable by urbanists. Building more lanes allows more people to travel without making commute times longer. That’s a win. (Here in DC, we are moving from six car trains to eight car trains. That doesn’t make the trips any faster, but allows meeting unmet demand. Nobody disputes that’s a win.) There may be a downside if you’re just encouraging people to move out of the city into suburbs, but in many cases living in the city isn’t an option for those people to begin with. In any case, no equivalent downside exists for housing—the new houses will generally be sold to people who weren’t living in your city and paying taxes there to begin with.
More lanes = same traffic
It's:
More lanes = MORE traffic
It's called induced demand.
1) Build more houses
2) Reduce the amount of lending banks do
3) Distant third, if the government has mucked up the tax/renting incentives so much that people are leaving houses empty that should be fixed.
They all sound good to me. However, if the complaint underlying "prices are too high" is that people don't have a place to live then that can't be fixed without growing the stock of available housing. Growth is required. We don't want people to have to chose where they live because there aren't enough houses being built, we want them to move based on economic opportunity or because they like the lifestyle.
Traffic is different from housing. In a moment of flippancy, I suggest that nobody wants to be sitting in traffic, but they are happy to be sitting in their own house.
4) move the jobs to less expensive cities. The discussion largely driven by a very small area in a few cities that have been extremely successful at job growth in tech, finance, and lobbying. There isn't a housing affordability crisis across most of the country.
5) move the people to less expensive cities. The discussion largely driven by a very small area in a few cities that have been extremely successful at job growth in tech, finance, and lobbying. There isn't a housing affordability crisis across most of the country.
> 3) Distant third, if the government has mucked up the tax/renting incentives so much that people are leaving houses empty that should be fixed.
From what I read, the amount of lending banks do is specifically because of government policy. Specifically, fixed-rate 30-year mortgages do not occur in the wild. You're more likely to see 10-year mortgages -- and that means borrowing a lot less.
How will this reduce the actual cost of housing? If banks lend less, interest rates will go up, which will lower the value of homes. However, the value of the home will go down in proportion to the higher interest rates. So the homes will be valued less, but they will cost exactly the same taking into account the higher interest rates.
The only one who wins here are the banks who get higher interest rates.
You seem to be going to the real cost of housing; there are very complicated feedback loops and if there is a good argument for what should happen in theory I don't know it.
My personal belief is that if you reduce bank lending then they will discover they can't raise the interest rate enough to make up the losses from people borrowing less money. You might reasonably disagree.
Note that in practical terms the way a bank loan works is that a buyer can elect to jump to the front of the queue of buyers by promising some of their future earnings to the bank. Since all buyers have this option, the equilibrium is likely a bank extracts some portion of the future income from all the buyers without changing the ultimate order of the queue (the buyer with the most money is likely the one who can promise the best return to the bank to stay in front). It doesn't really cost the banks anything to create a loan, they just account the money into existence. That factors in.
Given that frame, it seems likely to me that reduced bank lending activity will be to the net benefit of the buyers at maybe some cost to the sellers. Exactly how it shakes out depends on the details of how lending activity is reduced.
I agree with the first sentence, but not the second. Reducing a bank's ability to lend is similar to creating a price floor. It will certainly drive up interest rates, and this will effect each party differently.
Banks: Even though banks will make more money on each individual loan, banks will make less loans overall and it will be a net negative.
Home Owners: Obviously it will hurt home owners as the value of their home will decrease in proportion to the interest rate.
Home Buyers with Capital: The effect on home buyers is more complex. Some, that already have capital and do not heavily rely on mortgages will do better, as the value of the home decreases. The higher interest rates don't effect them as they don't need to take out loans.
Home Buyers w/o Capital: These folks would do worse. The buyers with capital will blunt the effect of higher interest rates. So even though home values would decrease, the decrease will be slightly less than it would otherwise be because those that don't require loans will be unaffected. Thus the total cost of purchasing a home with a large mortgage would increase.
Conclusion: Slowing lending will hurt home owners, banks, and those without much money. It may help people who are already cash rich. It will likely exacerbate inequality, not help it.
Maybe if you focus on the wealthy it is, but it’s more complicated when you consider the less fortunate.
Here’s an analysis of Seattle that concludes "by overbuilding housing for the wealthy, Seattle has achieved some short-term improvement in affordability for the middle class, at the expense of substantial displacement and continued upward pressure on the most vulnerable."[1]
[1] https://knock-la.com/seattle-a-cautionary-tale-for-supply-si...
At best you can say that the reduction in middle-class rents didn't immediately cause a reduction in lower-class rents. Why is that an argument against? Is it inherently bad to improve middle-class living conditions?
I honestly fail to see the left-wing case for taking the side of wealthy, unproductive landlords against middle-class workers engaged in productive occupations.
It clearly describes displacement and gentrification as harmful to what you refer to as “lower-class” people.
Finally you end on an unsupported political talking point that paints a false dichotomy. Progressives are concerned about the most vulnerable people, including “workers engaged in productive occupations” who are displaced by wealthier gentrifiers of working class neighborhoods.
> And that’s a good thing too—you’re increasing the tax base of your city.
To say something is good because it gives more money is the capitalists fallacy. There are many examples where this capitalists fallacy leads to situations that benefit a few and damage the vast majority, and sometimes even preventing technological advancements via political regulation or market domination held in place by self-preserving wealth.
Let me give an example. The national or even supranational electrical grids are essential to industrial economies. It's continued functioning is very important, so it is considered a stable financial investment to buy a share of it. The electrical grid is used to transport electrical energy from the producers to the consumers, which often are very far from each other. Selling and buying electrical energy directly in this market is not possible for households. The energy amounts traded there are vast compared to what houses need. Modern decentralized energy production and storage, like solar panels and batteries in homes can provide storage and production capacities that are relevant to the quantities in the electric grid. However, if houses were allowed to band together and act together as a distributed or federated net of producers and storage units, the long distance transport of electrical energy via the grid would be less important for the economy, and thus its stability is less important, and so it's worth as an investment sinks. Depending on how much value the grid was assigned before, this devaluation might "destroy" a lot of wealth, and therefore be bad according to the capitalists fallacy. Yet, the society gains from this technological advancement. Even more problematic is that wealth is correlated with political power, so those that have invested in the grid can manipulate society to prevent this technological advancement.
I can give more examples, like externalizing costs on environment and society, articifial lock-ins without right to repair, and more.
Capitalism is a tried and true heuristical approach to achieve economic and technological advancements, but directly working with the unquestioned assumption "more money" => "good" is worse than myopic, especially when it comes to basic needs such as food, drinking water, housing, and basic medicine.
The point that the government then gets their cut of the value created is often specifically noted because it's typically the government officials who you have to convince to enact the policy you support.
However, there are streets in London of very highly priced completed uninhabited houses, which serve as speculation objects and money parking vehicles. There are many examples in Germany were newly constructed housing lead to a increase in rents of already existing housing. Where is the value for the very real people who must leave the city because they can't afford the rising rents, even though they have their work there and their children go to school there?
Housing is one of the examples where a rise in monetary value for the same product has immediate negative sides, and a house in one place and an otherwise identical house in another place are not the same product. I see a sometimes more or less pronounced conflict between the right of having housing and the right of owning property.
I'm not arguing against building more houses, if that is the doubt. I just don't think that housing should just be unregulated so the market can have its go at it as if that were the god-given solution to every problem.
Inhibiting this is another benefit of building even more housing. Speculation only occurs when people expect housing costs to increase or at least stay the same. If you build enough to actually start to lower prices then the speculators will try to get out before they lose their money and thereby put even more housing on the market.
> There are many examples in Germany were newly constructed housing lead to a increase in rents of already existing housing.
This can happen when the shortage is so bad that it's actually harming quality of life in the city, e.g. by making local traffic worse because people who want to be living in the city have to commute in instead.
As you start to relieve the shortage you start to address those problems, which improves quality of life in the city (good), but that makes housing there more valuable and makes people willing to pay more of a premium for it, which increases demand.
That isn't actually a problem -- the demand isn't infinite and improving quality of life is a gain -- it just means you still aren't building enough housing to satisfy the pent up demand.
> Where is the value for the very real people who must leave the city because they can't afford the rising rents, even though they have their work there and their children go to school there?
This is one of the situations where you're almost out of water but the middle ground is a desert. If you don't build more housing, the status quo is untenable. If you only build a little bit it can even get worse. To actually fix it you need to build a lot. Not an infinite amount, not an impossible amount, but quite a large amount. And the status quo if you do nothing is that you die a slow death.
> I just don't think that housing should just be unregulated so the market can have its go at it as if that were the god-given solution to every problem.
Government: <causes problem by imposing unnecessary rules>
Government: We should address this problem by imposing some additional rules.
...
There are things markets are bad at. Matching supply with demand is not one of those things.
The market matches supply with demand by definition, one can say. But at what price?
Of course, some people go the fundamentalist capitalists path, and say 'fuck those that can't afford to live where they are now, they don't deserve to live there and should leave'. I disagree with that radicalism.
Housing is different from other products.
Housing is essential, so everybody has to satisfy their demand. This may justify regulation.
Housing is not arbitrarily replaceable, so people may be forced to compromise important parts of their lifes when moving. This may justify regulation.
These issues are not created by government regulation. They are there. If regulation is used to internalize these aspects into the market, then it would be myopic to view that as the pesky authorities meddling with the market.
It is possible to build more housing under regulation taking into account these aspects and other aspects.
At the market clearing price. That is why rules that constrain supply are so problematic -- they raise that price.
> Of course, some people go the fundamentalist capitalists path, and say 'fuck those that can't afford to live where they are now, they don't deserve to live there and should leave'. I disagree with that radicalism.
If you own property somewhere, the amount it costs you was set in the past. Whether the price goes up or down doesn't matter to you until you do leave.
Price increases can push out renters, but the whole point is to ultimately get costs to go down. That doesn't push out anybody, except maybe speculators.
> Housing is essential, so everybody has to satisfy their demand. This may justify regulation.
The "regulation" that allows more people to satisfy their demand would by definition be regulations that induce more housing to be constructed. So this would be things like not imposing tax on buildings (LVT instead of property tax), tax incentives for new construction etc. But notice how easily this is reframed as really just removing existing legislative disincentives from new construction.
By contrast, the rules we have now do things like expressly prohibit taller buildings or impose minimum parking requirements and other costs that do nothing but make housing more expensive for the people who could otherwise do without those things and would not willingly choose to pay their cost if not doing so was available as an option.
You can't just say "we need rules" without specifying what they are. Bad rules are explicitly worse than no rules -- and bad rules are what we have. So we can start by getting rid of those. Only if the problem then continues to exist do we need to worry about replacing them with something else.
But notice also how hard it is to find and enact good rules. When rents are high you get numerous loud people who don't understand math or economics proposing counterproductive nonsense like rent control and designated affordable housing, and then those get enacted precisely because they don't reduce overall rents, allowing the politicians to lie to the proles about helping them while increasing the rents collected by the landlords.
Doing wrong is worse than doing nothing.
Soviet Union had the same problem: in a vast country being 99% shitland, there were very few livable spots where everyone wanted to live. They solved it by basically implementing an internal immigration barrier: only way to live in such a place was either for the Party to send you there, or to get married to a local. In the end it is either that, or simple pricing out of those who can't afford, unless you can make more places in your country livable.
i.e. like you said, if it isn't pricing keeping people out of the most desirable areas, it's some other mechanism, such as queues, migration barriers, etc. And analogously, waiting lists are used for operations in the public health system.
[0] http://www.bbc.com/capital/story/20160517-this-is-one-city-w...
In a Soviet Union it wasn't even that bad because all of the country was Communist: whole economy being centrally planned, it made quite some sense for the Party to be able to decide who gets to live where, because without right cadres where you need them, how will you execute the Five Year Plan. Would be much worse to do the same in the system which is otherwise market-oriented. An SV startup has money but unable to hire workers locally because there are simply no slots for them to live here, are reserved.
That's not in dispute.
> And that’s a good thing too
It's a good thing if the tax revenue plus positive externalities created by the additional residents outweighs the public service cost and negative externalities.
It is by no means given that this is the case.
> If you keep building, then at some point the unmet demand will be met
Assuming that the unmet demand doesn't expand faster than you build, sure. And since if you build fast enough you adversely impact living conditions and decrease demand, that's actually quite easy to guarantee. OTOH, no one in the existing population wants that, and no in government wants that on their resume.
Can you realistically meet unmet demand in a small city with high global demand other than by crushing demand by making the city unattractive to live in? It is not obvious that the answer is yes, and it's not really an attractive experiment to run.