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Comment by fallingfrog | Hacker News Reader

A lot of people are saying that housing supply needs to go up to resolve the problem. This is essentially correct! But the market is not doing it, so government intervention is reasonable. The government should buy land, construct a whole bunch of high quality housing on it, then rent it at below market rates. Rents in the rest of the city will collapse downward to compete.

Problem solved. This is the same tactic that the us government used to make electricity cheap in the 1930’s with the construction of the grand coulee dam.

Edit: Look: governments all over the world are willing to plow unlimited amounts of money into the stock market when rich people are in trouble. But when young people just starting out can’t get an affordable apartment, somehow nothing can be done.

Let’s get real. This is a matter of priorities.

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The construction market is heavily regulated in Germany. The government is actively suppressing the creation of supply by issuing permits very slowly (or not at all) due to zoning laws and similar bureaucracy, or due to financial reasons: in a lot of places, the city itself is already the biggest owner of housing. They would reduce the value of their own assets.

In many Asian countries you can just buy a townhouse, break it down and built a flat. Something like that would be unthinkable in the West.

Indeed, quite a number of countries don't have a concept of zoning at all, or nowhere near what it is in US.

Most of South Asia lives with nearly completely unregulated construction. Somebody just building a very narrow highrise on their townhouse plot is nothing unheard of, if not quite popular. Google Dhaka, or Karachi.

Most of China's villages near big cities in the south are chock full of self-constructed 5-10 storey apartments.

Wealthier South East Asian countries are starting to flex bureaucratic muscles on that, but I believe rather cautiously. A highrise flat, even completely illegally constructed, is way better than a slum, by any measure.

> The government should buy land, construct a whole bunch of high quality housing on it, then rent it at below market rates.

They can't, because they'd need to zone that land for housing use (a different part of the government is responsible and won't do it) and they'd have to relax the regulations for building houses to make it cheaper (another different part of the government is responsible and won't do it). You can't spend your budget on subsidized housing if you also want schools, infrastructure and low tax rates.

Low tax rates for existing landowners are not the goal here; low rents for young people are what you want. One makes the city grow and thrive, the other just allows old or rich people to have big piles of money.

I said high quality housing, not crappy housing. No need to relax regulations or fiddle with zoning.

No, I meant tax rates in general. Berlin levies lower business taxes compared to other German cities, complains that it has less tax income and gets subsidized by the other German states while still complaining about being poor. It's an act, they could just raise taxes, but prefer not to.

> I said high quality housing, not crappy housing.

Okay, so what services should be cut to pay for high quality housing and then rent it out below cost? Schools? Fire fighters? Social programs?

And since zoning should not be a concern, do they just build over parks?

You raise property taxes to pay for it, you don’t cut anything.

You build it in zoning that is designated for housing.

> You raise property taxes to pay for it, you don’t cut anything.

But that's my point. Berlin is not raising taxes and there's absolutely no indication that they will change that. If they wanted to spend more money, they'd either have to raise taxes (not going to happen) or get even more subsidies from the other German states (unlikely, because they're already getting billions per year, and those who have to pay aren't too happy about Berlin's wastefulness).

> You build it in zoning that is designated for housing.

They don't have enough areas zoned for housing, and they aren't even issuing enough building permits for the required amount of apartments that need to be built right now. How would that be changed? Do we just clap twice and voila, government suddenly works efficiently and the red tape gets cut back to reasonable levels?

The problem is that people want more housing, but they don't want denser cities, they don't want construction sites, and they don't want parks and open spaces to be converted into housing zones. Especially in Berlin, people are extremely against new development, see Tempelhofer Feld.

But if you raise property taxes, then the rental rates must go up, to pay for those taxes. That's one of the problems in many North American cities, where yearly rising local city taxes can make housing unaffordable.

False.

Real estate (land) has an inelastic supply. It's not possible to bring more to the market. It is possible to utilise existing real estate more intensively, by building more densely, most often by building up. Each storey added to a building multiplies the available land intensity accordingly. (Modulo a small exception for staircases, elevators, and some building utilities.)

If you tax the unimproved value of land, you make lower levels of utilisation comparatively more expensive. Rents cannot increase, as people effectively pay the value gained by holding the property --- in the simple case, earning potential.

So higher land value tax -> same rents -> less profit to landlords.

Landlords and property holders can increase their returns by adding more units (intensifying land use). Which then increases the housing supply.

The counterintuitive result is that housing is something you get more of with higher taxation rates, so long as those apply to the value of the land itself, and not improvements to the property.

Absolutely, property taxes are pretty much always "passed on" in Germany as well.

Berlin still has plenty of rope in business tax though, which is a significant part of local funding in Germany. Their strategy has been to undercut comparable cities by a good margin to attract businesses that might move to Berlin, while at the same time complaining about not having enough tax revenue and needing financial support from both the German federal government and the other German states.

But since they benefit from the current setup, there's no incentive for them to change it.

> rent it at below market rates

if the gov't rents it out at "below market rates", a black market would form to take the arbitrage profits (legal or illegal).

By that logic, the construction of housing by the private sector would never make rents drop either. There’s no difference whether the government or the private sector does it.

No, with sufficient supply all owners/landlords will have to drop their asking prices. Problems tend to arise when a portion of landlords keep their prices artificially low.

In the first scenario the housing supply is fixed. in your hypothetical housing supply is increasing

In popular cities around the world zoning is the main factor limiting housing supply. Governments are actively intervening to constrict supply.

Government intervention is literally the reason the market is "not doing it"

This is... obviously not true?

Demand exists at a lower end of the market, where there is less incentive for suppliers. There is no affordable housing stock being created. Government exists for things precisely like this situation.

Imagine car suppliers were only allowed to build 1M new cars per year (in the US, consumers currently buy about 17M new cars per year). Suppliers would no doubt use their limited quota to produce high end cars for the richest customers.

This is essentially the situation housing suppliers have in many major cities. The solution isn’t government built housing. Private suppliers are perfectly capable. The solution is to lift the quotas.

What quotas are you referring to?

Is your claim that fewer regulations would result in a net increase in affordable housing stock?

Zoning.

Yes.

Thanks for the reply. We have pretty compelling historical evidence that the market does not solve this problem.

It depends on what you mean by "solve."

Can the market 100% solve all housing problems? No, probably not. Can the market solve A LOT more housing problems than it currently is? Yes, absolutely. The market is hugely constrained by government enforced zoning in a huge number of places right now. It's the primary housing issue of our time.

Zoning laws are not the thing restricting affordable housing supply, certainly not in Berlin and rarely elsewhere either.

I don’t know generally that zoning laws are the problem in Berlin but famously voters fought against adding housing units at the old airport vs the communal parks that were there:

https://www.google.com/amp/s/amp.theguardian.com/cities/2015...

It certainly seems like voters are prioritizing things besides affordable housing and getting what they want (expensive rent and nice parks).

I don't think you can generalize from that specific scenario to your broad claim.

It is not necessary to usurp famous city landmarks to offer affordable housing. Berlin is large and underdeveloped.

I can't speak for Berlin, but it's basically illegal to build new housing in sufficient quantities in virtually every major American city. Due to this fact, prices have shot up everywhere.

The entire state of California now has a housing crisis with > 30% of residents spending more than a third of their income on housing.

Some estimates indicate that the US as a whole has underbuilt by around 5M units of housing. There are quite a few causes to this, but exclusionary zoning is definitely one of them.

> Imagine car suppliers were only allowed to build 1M new cars per year

Analogies like this don't work and you know it.

There is plenty of evidence that housing supply is significantly limited by zoning regulations in lots of places. And in those places the little bit of construction that does happen tends to be targeted to the top of the market.

So I'm not just making an analogy. I'm reasoning from the available evidence.

The zoning laws aren't a product of government-en-vacuuo, however.

They're the result of moneied interests, most especially real estate and banking interests, constraining supply.

Government is the mechanism through which they act, not the source of the problem itself.

The interests in favor of zoning are almost all homeowners actually. Not sure if that is what you mean by "real estate interests."

Source?

Except it is obviously true, and you can see in this very thread examples of policies that would reduce housing prices that people don't want to take. Zoning restrictions, quality requirements, bureaucracy all adds costs, and all of these are imposed by the government

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