Supply is supply. Harlem is largely former luxury units.
Anecdotally, the luxury building opening down the street let me negotiate down my rent. It sucked the highest earners out of my building (and renter pool), which reduced my landlord's leverage. And it let me compare perks (e.g. included gym offsetting a membership), which increased mine. End result was a modest rent reduction.
It does not work in the real world. Supply is not supply. For one, these condos being built can essentially not be rented, and that means that they are not supply for low and middle income individuals.
In Canada for example, the only province with functional and affordable housing is the one that enacted serious rent control and public housing, and they didn't have to build a lot. Seems to me that supply and demand isn't the whole thing if your goal is to have affordable housing.
Detroit. Rural communities.
In real estate, it takes a while (years) for supply to catch up with demand. What you're seeing is simply city populations are rising quickly.
As for rural communities, they are not comparable in the slightest to cities.
[0] : https://detroit.curbed.com/2020/3/4/21164568/detroit-rent-ra...
[1] : https://worldpopulationreview.com/us-cities/detroit-populati...
Anything can be proven by discarding data that doesn't fit. Rural population is in decline, and prices drop with it. You can even buy entire towns in Appalachia for a song.
> Detroit
Your own cite says: “New housing construction has barely kept pace with the growth in housing demand over the past decade.”
This is an empty statement the article writer wrote to attempt to justify it. Housing demand in Detroit cannot have increased, because the population of Detroit was and is decreasing. If you can explain to me how a decreasing population can mean an increase in demand, I'd be all ears.
Sorry, it's your cite.
> explain
Simple. People sharing living arrangements deciding to not share anymore. Fewer families with children, more single professionals. Confusing Detroit the city with Detroit the metropolitan area.
The share of unoccupied housing exploded from 2010 to 2018, to 23%, according to the census. This is a sure-fire indicator that supply is far, far superior to demand. And yet, the price of rent increased. This means that supply and demand simply does not explain the rising price of rent. I don't see anyway that demand might be higher than supply, while unoccupancy rates are above 10%.
Also, if you want a source that doesn't make empty, baseless economic statements without backing them by facts, there is this one: https://www.metrotimes.com/news-hits/archives/2019/03/06/is-...
I simply used the one above because it was clearer about the primary source used. But of course, websites run by real-estate investors will make baseless claims about supply and demand, without backing them up with any data, that is simply a fact of the matter as such a mentality seems to be widespread.
"Despite the increases in Detroit, the city's average rent is still among the lowest in the nation at $610. But that's quickly changing in and near downtown and Midtown, where the flow of new residents is creating a greater demand for housing."
But yes, Toronto needs more affordable high density rental housing, as well as much better transit.
Cleveland is not actually that cheap (it just looks dirt cheap to people earning Californian dollars). And Cleveland would instantly be as expensive as California, if Silicon Valley headquartered there instead of California -- the fact that 900k people once lived there would not help in any way.
The prices of places is largely not determined by supply or demand. It's determined by the value of the property around it, and that property in aggregate is determined by the wealth of the jobs congregated there, and the concentration of capital located there. Only by redefining "demand" to not mean "persons needing homes" but instead to mean "anything that impacts the price" can you make a supply vs demand model work for housing.
> The population of LA in 1960 was 2.4 million. Today, its over 4 million in the city proper. Units in LA are on the market for a weekend, you sign your lease on monday, and move in by thursday.
The population of Grand Rapids, Michigan was ~198k in 1970. Today, it's still ~198k in 2020 -- same population, almost exactly. Despite this, units in Grand Rapids are on the market for a weekend, you sign your lease on Monday, and move in by Thursday. Despite this, units cost has increased by about 700% during that time.
Because, again, supply and demand are not the primary factors in housing costs in the US. They haven't been for over 50+ years now.
The value of something is set by what people are willing to pay for it. I.e. supply and demand.
> Despite this, units cost has increased by about 700% during that time.
Average inflation since 1970 is 565%. 700% is within that, as inflation measurements are inexact and there are regional differences as well.
Taking Cleveland for example, despite there being a massive surplus of housing units as you say, the average price of rent is 1123$, while the average household income is of only 26179$. This means that the average household pays 51% (!!) of their income into housing in recent years, while there is a surplus of housing.
I don't understand how this can be stated as supply and demand. It seems to me that rent simply increases so as to saturate the budget of the lower class, regardless of supply.
I would also observe that in most cities the average price of housing as a share of average income is steadily rising. This leads me to believe that what is actually happening is that prices of rent are increasing synchronously,
Non-occupancy tax. Vancouver has one.[1]
1. https://vancouver.ca/home-property-development/empty-homes-t...
Alternatively, if a city council has the votes to implement a non-occupancy tax, they may have the votes to nullify HOA clauses that forbid renting. Or levy additional taxes on such HOAs. Since it's the HOA that's forbidding renting, the HOA should foot the bill for the non-occupancy tax, not the owner of the unit.
It's fairly common to include HOA dues and fees in the rent when renting out a condo.
However, even in Vancouver the occupancy tax is not being enforced nearly rigorously enough for such an effect, and the occupancy tax is still too little.
And the land is expensive because there are not enough places like them.
https://www.strongtowns.org/journal/2017/8/1/how-luxury-hous...
Simply supply and demand is not a sufficient mechanism to explain the housing markets in cities such as Toronto.
It takes chutzpah to assert a negative. But I appreciate that you honestly don't believe it. Perhaps this will cause you to update your priors?
[0]: https://research.upjohn.org/cgi/viewcontent.cgi?article=1325...
Why would you think that to be the case?
The Strong Towns link you provided gives two examples of apartments build approximately a century ago.
Trickle-down economics at its best.
Build luxury apartments, fine. Probably not exclusively though, as in many cities the need is more pressing than that.
It's almost as if an equivalent amount of mid-priced housing would suddenly become available. I wonder who you think would move into that?
Build up.
Typically, migrant tech workers who came from somewhere else.
In the rest of the world that is not San Francisco, there is, in fact, an unprecedented rate of construction of new properties. Seattle has more active cranes building than anywhere else in North America. The Vancouver skyline changes year-over-year as 30-story condos spring up like mushrooms around SkyTrain stations. Toronto is building and densifying at breakneck speed.
And yet, rent in each of these locations is sky-high, squeezing the lower classes.
Could construction be faster? Sure. Would the problem be worse if there was no construction? Probably. Is construction fixing the issue? Hell, no, it's not. Not even close.
Property developers are probably going to preferentially build high-margin housing, right?
And they’re going to preferentially build those at a rate that doesn’t meet demand, in order to keep prices high.
So what’s missing?
The law of gravity is super simple, but it produces all kinds of complex results.
Underlying the complex behavior of the real estate market is supply&demand driving it.
Whereas the law of supply and demand is not only preceded by a lot of assumptions that never are true in practice, and even with all those assumptions still has serious exceptions that apply to more and more and more goods as you move from theory to practice.
The laws of supply and demand are simply not useful for analyzing this market. Any attempt to use them will have to be accompanied by more classical incentive analysis and experiments that mean that ignoring it will give you better results than relying on it in this situation. Attempting to apply it gives you ridiculous conclusions, like that demand for housing is increasing everywhere in the world at the same time faster than supply, even when in practice supply is often greater than demand, leading to empty buildings, while prices still rise.
You're right, but the underlying rules are simple.
> leading to empty buildings, while prices still rise
That's still supply & demand. In this case, it is likely that the demand is rising fast enough that delaying renting the building will result in higher rents in the future for that building.
It's a chaotic system, and I mean that in the mathematical sense, where simple rules lead to complex (and counter-intuitive) behaviors.
I agree, it is indeed a chaotic system, and is even worse than that because there is no simple rule any agent is following.
If it is the case that not renting a building will result in higher revenue because rents will be higher in the future, then that building will not be rented out and neither will similar buildings, which will continue increasing rent at increasing speeds; and at the end rent will increase towards infinity. The simpler explanation is that no, not renting a unit does not lead to higher revenue, as leases are at most YoY, the YoY increase in rent would have to be over 50% for this to make sense, which isn't the case, and in fact actors in the market simply do not act as one can accept in any way, which is why you can't use supply and demand, or any basic economics for that matter.
For rent, for instance, you could have supply completely equal or even significantly higher than demand, as in there are significantly more buildings than tenants and more empty buildings that tenants looking for landlords, and still see prices increase. Indeed, if the landlords are coordinated or if they know that their tenants will not act rationally in the economic sense, you can simply have a system where all landlords continuously increase rent every year. And there is nothing that any tenant can do, so they have to pay increasing amounts of rent every year. In such a system, because commodities are not perfectly fungible, because actors are very far from fully rational, because knowledge from every actor is imperfect and because there are hidden costs both monetary and non-monetary, you can have a system where supply is higher than demand, and yet prices rise. No matter how you dice it, no matter which definition of supply and demand you use, the laws of supply and demand aren't being followed. Rental markets tend to follow this pattern, in even more complex ways with other effects that lead to supply and demand breaking down even more.
This is why trying to use macro-economic laws such as supply and demand without carefully going through each assumption behind them is a very dangerous mistake.
They are. By the principle of equivalence, it is just mapping the Lorentz frame onto curved spacetime.
pg. 386, "Gravitation", Misner
> actors in the market simply do not act as one can accept in any way
If other actors are acting irrationally, others can make money off of them. There are always smart people looking to make money off of irrational people, to the latters' detriment. Hence it is self-correcting.
> knowledge from every actor is imperfect
Imperfect knowledge is a common reason given for free markets not working. This is not true at all - another word for "imperfect knowledge" is "risk", and risk is certainly priced in everywhere.
> not perfectly fungible
Another word for this is "friction" and it is priced in to supply & demand, it is not separate from it.
> no matter which definition of supply and demand
I prefer not to make up my own definitions of terms in order to win an argument. I'll stick with the standard one.
> the laws of supply and demand aren't being followed
Your preconditions are incorrect, and hence your conclusion isn't, either.
Comments should get more thoughtful and substantive, not less, as a topic gets more divisive. - https://news.ycombinator.com/newsguidelines.html
Are you interested in address the core of my argument, or only those two words in isolation?
Of course developers are going to build high-margin housing. But why is it high margin? Because there is high demand and low supply. “Luxury” housing is only marginally more expensive to build than “affordable” housing. The expensive parts of development are the land, labor, and construction materials, not the light fixtures, appliances, and flooring. Shouldn’t we be celebrating that developers are building a much better product then they could be if they cut a few corners?
To the second point, developers are not in collusion to keep supply down, and the suggestion is absurd on the face of it. They are developers. They make money by increasing supply. The more they develop, the faster they develop, the more money they make. Developers generally sell properties once they finish them and move on, because they are not in the business of property management. Maybe there’s a non-absurd argument to be made that property management companies are in collusion to keep supply down, but they aren’t. Aside from the fact that it’s illegal, it would be impossible. There are too many of them and the market is too fragmented for a cartel to form, and defecting is too easy.
Or are we just going to pretend that the world works just like an economics 101 textbook and close our eyes to the real problems instead?
Because that does seem to be what’s happened in many cities.
One issue here is ideological: is housing a universal right, or is housing a capital good to be accumulated and regulated to be artificially scarce?
The other side of the "or" is a particularly egregious example of the excluded middle (separate from the missing middle housing shortage). The idealogical gap, if anything, seems to stem from willingness to believe that supply and demand affect housing affordability. I believe they do. The "regulations making housing artificially scarce" are exactly those inhibiting supply.
To that point and your question---of course landlords will always raise rent to the extent that the law allows it and the market will bear it.
luxury condos is also a loaded phrase. In an expensive city, all housing is expensive, even if it is 50 years old and used to house working class people. So-called "luxury housing" is just regular-sized new apartments, with a few thousand dollars of added perks like sleek recessed lighting and upgraded appliances to help sell it.
If you take out those loaded phrases, people are absolutely moving from existing, mid-tier market rate housing into only slighty more expensive new construction market rate housing. The more new construction housing you build, the more supply you have, and the more prices come down. Which allows market-rate housing to become affordable to more of the population. That was the case 10-15 years ago, and could be true again in the future if we just let people build enough housing to match the incoming demand of new residents moving into cities.
Based on your logic we should ban all new market-rate construction and magically prices will come down. That is nonsense.
However, if you build an apartment with pretty colors and a pool and grill and some artificial grass for your dog to poop on, that engineer working for google in that cigarette stained apartment in palms might just stomach the premium on rent for a better place, and that slumlord with the cigarette stained apartments might have a little bit more trouble finding tenants at top of market rent rates.
I don't have a stake in this matter but there appears to be some evidence to support this idea.
> Between 2016 and 2019, the GTA added more than 325,000 jobs, but only 102,000 new homes. [1]
[1] https://www.thestar.com/business/opinion/2020/02/15/toronto-...
In most major cities in the U.S., any sort of property, even an empty dirt lot, is prohibitively expensive to the majority of the population. In LA in particular, the median home is unaffordable to 75% of the population. And the median home is a rotting bungalow precariously positioned on wooden posts built in 1947.
They would have to be really cheap though, because in NA condos can generally not be rented out.
You can own a condominimum townhouse (a row of single family homes with front yard, driveways, garage attached by common walls) or a condominium apartment (in say a 30 storey building with 10 parents per floor)
And yes, you can rent out a condominium apartment. Approx 60 % of the rental units in the Greater Toronto Area are condominium apartments.
Plop someone into an "affordable" unit and you are basically locking them there forever, as they cannot afford to move. That is a very bad situation to be in.
What the alternative? It's either single family home or condominiums (apartments).
There are also duplexes and triplexes, and apartments, as well as housing co-ops and subsidized or state-built housing. These are much better, imo, than condos.
Your argument seems to be that there is a sizeable chunk of the population that cannot afford to own their own home. Yes, and?
We live in a global market and as a result, citizens of successful cities have to compete with people not just from that city, but from people outside, who are willing to bring in some cash. Oops, that means a bunch of people now can't afford to own a home.
That's the world we're living in. If you want to cancel inflow of capital into big cities, that's a political decision that has nothing to do with building or not building housing. If you want to 'just build affordable housing', you're really saying let's give permanent government assistance to a slice of the population. Are you qualified and knowledgable of all the side-effects of doing so? I'm not, so I don't even bother pretending I have a solution.
People need to become 1% smarter, to realize how complex human societies are and quit wishful thinking of 'just give/build more stuff for people who don't have enough'. You're a software developer, you know what a ball of mud most codebases are and how hard they are to refactor. Human societies are a worse version of that and it's a thankless job because by re-factoring one bit, you potentially break a dozen other places and boy will you hear from them.
This isn't even a question of competition. Prices are increasing purely because the market can bear more expensive housing. The net effect is that real wages after rent are decreasing year after year since the 80s. At this rate, the day will come where the real wages of the average citizen of the US after rent will be lower than in the disaster that was the Soviet Union.
The problem is actually even more complex that simply capital inflow into big cities. Because capital is already centralized around big cities, and has been for a while, which leads to the question, where is that capital coming from? And the answer is that it doesn't actually have to do with capital moving, as that mostly cancels out, but instead with growing inequality.
Also, if your end statement is that it's ok that most people aren't able to own their home anymore, aren't able to own their cars, aren't able to own their furniture, aren't able to own their phones and so on, which is the direction in which things are happening, you shouldn't be surprised when heads start to roll in the next economic crisis. Literally. This is not a small issue, it is a massive issue. The incentive, historically, for the average person to continue participating in capitalism is the promise that eventually they will be able to have their own property, and maybe pass on some capital to their children. If you take away this incentive, the system will likely not survive for much longer. There is a reason why the first people that the population turned against in the Chinese revolution were the landlords. I don't want to see this happen again.
So yes, if fixing this issue will break a few other places, I don't care, we can see what we will do later. This is one of the most important economic issues full stop.
If you could see into the future and know for a fact that you couldn't change a thing about it, would your concerns cease to have meaning?
If the answer is yes, then it is a matter of determining what in your short lifetime, you can realistically change and what you cannot.
For me, I've determined that the things I cannot change are human nature, including my own. What I can do is modify my lifestyle to be exposed to more of the human traits I cherish and fewer of the ones I resent.
That's the conclusion I've come to. Housing prices and inequality simply don't make the list of things I can do anything about and even if I could, I believe I'd be playing human sin whack-a-mole. I whack one sin, another one pops up. At some point, I just had to accept that there are traits human possess that upset me, and find lifestyle solutions to mitigate them, that's all :)
This line of argument scares me, because we are so unaware of how human made our problems are.
"Money is like an iron ring we've put through our noses. We've forgotten that we designed it, and it's now leading us around. I think it's time to figure out where we want to go - in my opinion toward sustainability and community - and then design a money system that gets us there."