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Comment by ProjectArcturis | Hacker News Reader

The point is, rental markets without rent control are also failing to provide affordable housing. It's a quandary with no obvious solutions.

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All of these places suffering from severe housing shortages have some government policy which can clearly be linked to it. Sweden has rent control, London has a labyrinth of building restrictions based on historical preservation among other things, etc.

There's an obvious solution here, it's just not one most people living in these areas wants to hear.

> All of these places suffering from severe housing shortages have some government policy which can clearly be linked to it.

All these ill people have doctors around them, which also can clearly be linked. That in itself doesn't seem to be an argument.

(Note I'm not taking positions here, I don't know enough about the topic)

Sweden had a functioning rent control system for many decades until relatively recent changes. Please feel free to elaborate how you can clearly link the current situation to rent control and not those changes.

Land value taxation and reduction of regulations which artificially limit supply are the obvious solutions.

Taxing improvements to land makes it less likely that people will build or renovate, so all such taxes should be removed. Taxing land, however, disincentivizes landlords from holding land idle.

Regulations are also important.

If there is a mandatory minimum amount of parking that must be provided, then it becomes that much harder to build more units, even if you are near transit and most of your tenants don't need cars.

If there are height restrictions, restrictions on mixed-use development, restrictions on the number of units allowed, and so on then these will likewise cap the amount of supply.

The problem is that the people who like rent control also dislike land value taxes. Land value taxes mean that if your neighborhood gets a successful shopping mall then the land value goes up and some people are priced out of the area.

The reason people support things like rent control is "I've lived here my whole life but I can't afford rent anymore because it keeps going up."

I agree. Rent control vests certain residents who for whatever reason have chosen to remain tenants in the same place for a long time, at the expense of newcomers and overall economic productivity. But for people who hate change, it works as intended. Makes it hard for new people to move in, and makes building new things an unattractive proposition.

However, with respect to affordability, a key complaint across the board, LVT does indeed help by reducing the amount of speculative holding and removing tax penalties for improvements. Under LVT residents will be able to afford better accommodations for less money. Particularly if other onerous policies are removed such as rent control, building restrictions, parking mandates, taxes on demolition, and the like.

The half-assed solution is progressive taxation. Your first plot will be taxed very little. Every plot after that more and more.

It's not perfect because it is basically a subsidy to owner occupants so it won't help suburbs become denser. However, it disconnects the impact of taxation on home owners and commercial developers/investors which means home owners will be more willing to tax developers. The one benefit is that large scale development will naturally consider denser housing because they want to optimize their tax burden.

Building social housing is an obvious solution.

A media that is very "concerned" with housing shortages where rent control is concerned suddenly loses its concern and gets overly concerned with crime, delinquency, public debt, etc. when a solution that brings down property values is mooted.

Raising property taxes will also help as it will act as a disincentive to use land unproductively or as a store of value.

Social housing (or other approaches to subsidized housing) are a necessary piece of the puzzle. However, they are also extremely expensive: around my area the commonly cited number is $500,000/unit. It would take a very major political shift to finance enough housing to even cover the 1-2 million people/year US population growth rate (~$750B/year), let alone resolve the backlog.

A more feasible option is to let private developers (who collectively have access to trillions in capital) to finance housing creation for rich/middle class people, and rely on government subsidies for low-income housing.

It might be worth considering both whether under supply factors into that cost and size of unit. Developers may not reasonable choose to build small units that may be quite sufficient for people's needs while coming in cheaper than the stated figure.

The $500k figure is the cost the local housing agency spends building units sized based on actual need and with optimizing cost part of the focus. Private developers around here regularly create housing costing anywhere from $700k to $2 million per unit

A lot of people complain when a new luxury apartment tower goes up because it gets filled with rich people, but surely that would mean that all the existing average housing just got cleared out by all of these rich people leaving and is now freed for less wealthy people.

The problem is if two towers worth of rich people move to the area but you only build one tower. Then half of them will move into the luxury tower and half will bid up the prices on the nearby average housing.

Obviously the solution is that you should've built two luxury towers. However, people watching the situation sometimes get the counterfactual wrong and conclude that if the luxury tower hadn't been built, none of the rich people would have moved to the area. They then conclude the best idea would be to build no new housing at all and do everything they can to make sure that is the case

The obvious solution is to build more housing.

Or to raise interest rates:

https://www.bankofengland.co.uk/working-paper/2019/uk-house-...

And how will raising interest rates make housing more affordable? If you have enough cash to buy a place outright, maybe, but normal people get mortgages. Raising interest rate will make monthly payments higher, which will exactly compensate the drop in house prices — this is in fact how raising interest rates reduces asset price.

Increase in mortgage availability is directly linked to price increase.

Yes, but the point is that price increase doesn’t affect affordability if the lower interest rates compensate for it. Why does it matter for affordability that house prices went up 20%, when mortgage rates fell so that the monthly payments did not budge much?

But this is not what happened. Median carrying costs for real estate have fallen, so that US housing affordability has increased (for buyers).

The places where this is not true are all places that have seen significant population growth and have not permitted sufficient new construction. For example, in Jacksonville, FL, the median home costs $250k, which would leave a payment of ~29% of the median household income in Jacksonville using a 5% down payment. Similar math works in other cities where builders have been allowed to keep pace with population growth.

I think this is about interest rate on savings side. Ten years ago in Poland you could get saving account paying 7% interests. 5 years ago you could get one that pays 3%. Right now interest rates are almost at 0, and saving accounts pay ridiculous 0.01% interests. Which has the effect of people taking money from the bank and buying apartments, as an investment.

With high interest rates, you might get good return on savings account, but it will make the mortgage payments much higher. Most people prefer to get a mortgage and move in earlier in their lives, instead of saving for decade or two in order to buy house/apartment with cash in their mid 30s or even 40s.

Not only that but if you’re paying a mortgage you’re not paying rent. Buying means your housing cost is now an investment (minus interest, tax, and upkeep) rather than just an expense. Now it could well be a terrible investment, but in theory you’ll own something of value in the end in addition to the housing you had as you paid.

I am assuming those rates aren't adjusted for inflation? Real rates have certainly decreased in the USA, but when we had high rates we tended to have high inflation as well.

Yes, rates were not inflation-adjusted. But in our country it is the opposite: in times when savings account paid 7% we had maybe 1.5% inflation. Now, when the rates are near zero we have 5% inflation. So keeping money in the bank means losing 5% yearly - you can see how that motivates people to buy some real estate.

Zoning, not interest rates, is inhibiting residential building the most.

Raising interest rates makes everything else more expensive.

When people talk about how raising interest rates lowers the cost of housing what they really mean is that interest rates lower the value of income streams derived from monopolies and land is the biggest monopoly of them all. Monopolies basically can do perfect price discrimination, the more money you have, the more the monopolist can charge. Thus the obvious solution of giving people more money doesn't seem to work.

Raising interest rates is basically the opposite. What if we take everyone's money away? If people have less money the monopolists will charge lower prices. This didn't really solve the monopoly problem. After all, the monopoly allows perfect price discrimination. If the monopoly power is strong enough to get 30% of your salary it will always get 30% of your salary no matter how high it is. What really happened is that you now have less money to buy non monopoly goods.

Here are the practical implications: You can spend $1000 per month on your mortgage at 5% interest or -5% interest. The -5% interest house is significantly more expensive but the monthly payment is still the same. You still lose $1000 no matter what you do.

My city (Portland) has incentives for developers to build affordable housing - adding affordable units to a project increases the allowed density of the development, allowing more total housing on the same lot, and presumably, more return for developers.

Portland does still have high rents, so it’s hard to point to this as a “success”, but I think it’s a good template for how you can encourage affordable units without putting the whole city under tight rent control.

There is no solution. There’s only so much land, not everyone wants to be surrounded by skyscrapers. Some people will get to live where they want, some people won’t. Supply and demand.

All half measures to «fix» the housing market are just variations around this theme. If there’s political consensus against the only solution that fixes the root cause — building much more — then any other measure to alleviate the problem will be varying degrees of dysfunctional and ineffective.

I’d be delighted to be proven wrong, but it seems unlikely.

What you call dysfunction I would call the market reaching equilibrium. The market is working efficiently if pricing signals cause housing seekers to look elsewhere due to limited supply or market clearing prices beyond their means.

For example, not everyone can afford San Francisco, but there is a lot of buildable land besides SF in California (the Central Valley, for instance). Everyone should be housed, but it’s likely it might not be their first choice.

I'd agree if San Francisco was full, but it's possible to build up and increase density so people can live close to their jobs.

People per square mile: San Francisco: 17,246.4 Brooklyn: 35,369.1 Manhattan: 69,467.5

Those jobs can be remote, and it is cheaper to encourage employers economically to support remote work than to reshape entire geographies with housing.

Speaking of Manhattan:

https://www.nytimes.com/2021/07/01/nyregion/manhattan-vacant... (Office Vacancies Soar in New York, a Dire Sign for the City’s Recovery; Nearly 19 percent of all office space in Manhattan has no tenants — the highest on record — as companies shed leases and embrace remote work.)

https://www.bloomberg.com/news/articles/2020-12-05/even-befo... (Even Before Covid 2,600 People a Week Were Leaving New York City)

People in SF simply aren’t willing to pay that much for the shoe box condos/apartments necessary to reach manhattan density. That’s what the market is signalling. Because of course even the most die hard nimby would likely take a 8 figure buyout offer for their 7 figure home. If the developer could afford that and still profit, i.e. if they could then sell the units at thousands of dollars per square foot.

If demand ever reaches that high then the market will move to a new equilibrium.

You can have large apartments in tall buildings. There just aren't enough high rise buildings in SF.

My point is, the political leadership in most of these locations wring their hands and say "oh no, it's terrible, our janitors and nurses and families with little kids can't afford to live here, it's horrible" and then implement some sort of half-assed kludge that's only effective at giving naïve folks the impression that they care.

Rent control would be one such measure. Other examples are loans with better-than-market terms for certain privileged buyers, publicly-built houses sold at lower than market rates and so on. The market reaching equilibrium for everyone and the local government saying "sorry, but screw you" to buyers is at least honest, if a little heartless from the voters who live there.

I suppose it's fair enough as long as other markets with decent job options are available elsewhere. If not, I would classify it as a failure of democracy if a significant portion of society has no better option than to pay most of their productive output towards rent. This probably varies a lot by location; San Francisco wouldn't be the first example I'd use. Maybe Oslo.

This makes sense in an economics-textbook kind of way; but systematically excluding low- and middle-income people from a given city would not turn out well in reality, I think.

All cities need janitors, teachers, baristas, grocery clerks, garbage collectors, etc. in order to function, and those people have to live somewhere at least within a reasonable commuting distance to the city. You can't have all the garbage collectors move out to Bakersfield and have San Francisco _just_ be a citadel of software engineers, unless the software engineers haul their own garbage, or the garbage collectors in SF also get paid $100k+ per year.

Doesn't that dilemma also have an econ 101 answer though?

The teachers, janitors, baristas, etc will move to the location that gives them a better quality of life. If they decide that's not San Francisco, they can move to a better city. If SF wants them back, SF can sweeten the deal for them.

I guess it's kinda sad that not everyone who wants to live in SF gets to, but I'm not sure how "closing the door" is any more fair.

I don't think they actually have a choice though. In person jobs are available in specific locations

I think that's an important issue. If there isn't a real choice about where to live, it's a much bigger problem. I guess I'm under the impression that the labor market is pretty tight across the country right now. I was under the impression that people had pretty good opportunities if they moved out of SF/Seattle/whatever, but I guess I haven't seen real data to back that up.

I think that "SF can sweeten the deal for them", while true in theory, does a lot of work in glossing over exactly how it could sweeten the deal for them. By offering higher pay? Or perhaps by somehow providing more affordable housing?

Which (as I understand it) is kind of the topic of this whole sub-discussion: it is not easy to find a solution which will sweeten the deal for them (aka: make it economically feasible and attractive for low/middle income people to live and work in a city with a housing shortage and high housing costs). Rent control is one such proposed solution. It has its benefits and drawbacks, of course, as evidenced by all the debate about it here.

It's a self solving problem though. If businesses _need_ janitors and there are very few janitors around, those remaining ones can charge very high rates for their work.

Then you either pay very high rates for basic labor or you push the government to build cheaper housing. It all fixes it self.

There is a solution, if you want to live near a city, you get high density housing / towers. If you want to live in a remote town, you get low density single houses.

It makes no sense to reserve city space for single level buildings.

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