There is no reason to suggest increased availability will result in increased affordability. The only way to impact affordability is to lower values, the prices people will sell for.
Not always of course, and were talking about housing which has a bunch of other factors going on but it's usually helpful.
Housing is strongly inelastic market, meaning you can't increase supply when there is demand easily
The market is essentially stalled. It doesn't 'clear'. People would rather keep it idle out of the market than rent or sell under price. On top of that it has entered a bubble territory recently in which people buy, not based on their value judgment of the property, but because they expect to offload it to someone else in the future with a profit.
Housing is not a 'supply and demand market dynamic, but a 'greater fool' market dynamic.
I can’t even imagine the total financial devastation if they suddenly ratcheted up the tax rates via reassessment. It’d be a fire sale for all but the top end of the income ladder.
This theory fails to explain why housing prices in San Francisco fell during the dotcom bust. https://www.bayareamarketreports.com/trend/3-recessions-2-bu...
The main difference is that land is the limiting factor or more accurately legally buildable land in this case with zoning.
In other words demand isn’t constant.
As I understand it, it’s an open question as to whether more housing means lower prices via simple supply and demand, or higher prices via network effects.
When you incentivize people to say no to housing because the more they say no, the higher the value of the house, they are going to say no. It doesn't matter how much the state demands. You don't want centralized forces creating a mess, you want decentralized forces. We need to stop swimming upstream.
The only way out of this is to tax the land equal to those positive externalities. The only way out is a Land Value Tax. When you under tax the land, the price of the house balloons. Once you have a Land Value Tax in place and increased housing supply means lower taxes, all the NIMBY's will quickly convert to YIMBY's - it will be a breeze to get new housing built.
Fix the incentives. Land Value Tax[0].
[0]: https://astralcodexten.substack.com/p/your-book-review-progr...
Isn’t the argument we’re talking about saying the opposite? The more housing (i.e. the more they say yes), the higher the value of their house?
There is price and there is value. The more they say yes, the more value you get. The more they say no, the higher the price.
When you say yes, you grow the pie. When you say no, you get a bigger piece.
People won't stop wanting to move here just because housing growth is slow. While the prices are very high right now, there are still enough people who want to move in who can at least vaguely tolerate those prices. That doesn't mean the system is working, though. That just reminds me of the old stock market adage, "the market can remain irrational longer than you can remain solvent".
Of course, there is such a thing as induced demand for housing. Studies of it show that it's not so strong as to eliminate the effect of adding supply to a tight market.
With these in mind, why would we not expect demand to eventually fall behind supply as California approaches something resembling a healthy housing market?
There are a great many people who have no particular reason to want to change their surroundings. Especially when they are keenly aware of how many of their neighbors will happily shoot down any effort they might make to make a killing.
In short, the massive amount of cash is realistically not on the table in the eyes of many. What they do have is civic pride, property taxes decades out of step, and an ever-appreciating asset. All of which they can reasonably expect to pass on to their children.
I'm a homeowner in a desirable area. In my area I see the urge to veto upzoning and keep the riff-raff out, keep traffic from getting worse, etc. pitted against the desire to increase affordability by upzoning. That opposition of interests makes sense. The idea that I could make a killing from upzoning never occurred to me. It seems very implausible.
Upzoning is both a way for you to make a hefty chunk of change and an affordability issue. It's often more difficult to impugn the motives of people seeking to improve affordability, however.
Look at it in numbers, though. A million-dollar property on a large lot could become two duplexes, each unit $300k-$500k. Or a six or eight story building with multiple units on each floor. There's money to be made there for the likes of you and me. Neighbors who don't get a cut but want to keep the riff-raff away would like us to not consider it.
The price of housing isn’t completely elastic since for a given area it’s a function of the available salaries in the area. You hit a ceiling where above which there are no buyers and below which you get 20 cash offers the day you list.
So oddly the thesis is that housing prices are actually too low and we’re playing by concert ticket rules. Part of this has to do with the availability of mortgages as a function of income. And that there is so much demand for housing at a given price that any increase in supply we could actually realistically build would just get bought up instantly at the current price and we can’t increase the supply enough to actually drive prices down.
Well you'll never do it with that attitude!
Seriously, though. Every action taken in the US, other than the government spending trillions of dollars, is so piddly that no one gets to see a meaningful impact of any policy. And so people make up theories unconnected from reality, with no skin in the game, because nothing will ever actually change.
1. Salaries (and spending proclivities) are hardly so tightly banded that X is affordable for everyone who might want to move to an area and X+1 isn't. Tech company salaries alone vary a ton.
2. Housing prices are not set in a centralized way like concert ticket prices.
Those points notwithstanding, I do agree that if there's tons of pent-up demand for a product, tiny increases in supply are not going to change a seller's market into a buyer's market. It may take a lot of supply to overcome induced demand, market psychology and price stickiness, but there is an amount of added supply that would do it. It's just not the case that every rich person in the world wants to move to, say, San Francisco. Once you've built enough, you're going to have inventory that is moving slower than the sellers would prefer, and sellers will then lower price to make that inventory accessible to a wider pool of buyers.
https://cdn.vox-cdn.com/thumbor/q4QVkPZrTO8_USbDEe6nPfz8w8c=...
This is the skyline of Hong Kong.
https://images.squarespace-cdn.com/content/v1/59f3777b64b05f...
Hong Kong has cheaper housing while also have 10x as many residents. Same goes for places like Tokyo, Singapore, and Shenzhen. No, you can't create more land, but you can create more housing.
Here is another one: https://www.lavocedinewyork.com/wp-content/uploads/2021/11/s...
Moreover, you will find no part of Hong Kong that looks like the photo of SF which I shared.
If your argument is that we can increase SFs population by 10% to maybe get a 30% reduction in average home price, then I agree. But that doesn’t change affordability.
You keep saying this as if supply can be increased arbitrarily. It simply can’t.
You can increase density for short while until you hit limits, but network effects will keep demand increasing as you do.
Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.
True! You eventually run into physical limits of density and what we are capable of constructing. However, this naively seems likely to be far higher than we have now.
Some back of the envelope math is in order, then. SF has a surface area of about 30,000 acres. Kowloon Walled City, a very dense place that actually existed, had between 33,000 and 50,000 people in 6.5 acres. Extrapolating, that puts SF at a possible maximum population of between 152 and 230 million people. That's using construction technology from the 60s and 70s, so we could perhaps do better today.
With this in mind, it does seem likely that the density of the SF Bay specifically and California in general could be reasonably increased. There's quite a lot of room for opportunity to house people between SF's current population of 875000 and a population several times that of California.
> You can increase density for a while, but network effects will keep demand increasing as you do.
Sure! As I touched on previously, induced demand in housing is a very real effect. You're absolutely right. However "any induced demand effects are overwhelmed by the effect of increased supply". https://appam.confex.com/appam/2018/webprogram/Paper25811.ht...
I believe, and please correct me if I am mistaken, that what is described here as induced demand is what you are referring to as network effects.
> Obviously demand is not infinite, but there is no reason to suppose that currently desirable places can be made affordable.
Expensive places have been made less exorbitantly expensive before. That seems like an excellent reason to suppose that a currently desirable place can be made affordable. I understand that this is a matter of opinion on which reasonable people might differ.
Places like SF? What examples are you thinking of?
Manhattan is a lot like SF, but is 4x the density. It has done very little to prevent prices rising.
That's a fair point. But no one (at least not in the comments I've read so far) has discussed the converse: making less desirable places (which are affordable) more desirable.
There are many places which have experienced huge population decreases over the past 50 years or so.
And many of those places are in pretty difficult economic circumstances too.
While many of the most lucrative jobs are in or near urban centers (driving up the price of housing in and around those areas), it's clear that many of those same jobs can be done remotely.
And so what's stopping folks from moving from, say, the New York City area to small towns New York, Pennsylvania or Ohio?
The reasons are several and are self-reinforcing:
1. Large urban areas have lots of economic activity, generally leading to improvements in infrastructure and facilities;
2. Small towns have less economic activity, generally leading to fewer improvements in infrastructure and facilities;
3. Young people flock to densely populated areas because that's where other young people are and where opportunities for economic and career advancement exist.
These (and other) issues lead to the high price of housing in densely populated areas and the slow death of small towns.
So what does this have to do with expensive housing in densely populated areas? A lot.
Improving the infrastructure in small towns (municipal (mult-)gigabit fiber to the premise, fast and reliable rail links to population centers, rezoning to allow more rentals -- both houses and apartments, incentives for small businesses, etc., etc., etc.) could make them much more desirable places to live.
Those, combined with the ability to work remotely, could remedy a significant portion of the housing price issues we face.
If a small town could support remote knowledge workers, other people and businesses would move in to support them.
Over the long term (50+ years), this could significantly redistribute population (and housing) in ways that would be a huge benefit to the economy.
Unfortunately, most people and corporations are only concerned about the next quarter or, at most, the next fiscal year.
There are valid, sustainable ways to deal with these issues, but unless we focus on the medium to long term (10-50 years), it will never happen.
More's the pity.
You "just have" to found new cities. Sounds difficult.
Do you want me to explain it again?
Increasing property taxes in tandem with larger homeowner's exemptions might be more effective in only reducing investor demand (but potentially might hurt renters to some extent, though renting is a more efficient market...).
But, building more densely is a better solution...
Sure maybe it kept them from going even higher but we don’t have the counterfactual available to ever know.
The catch was that the property taxes were still like $15k a year or something.
Edit to add: I have no interest in living in San Francisco, so we've fixed the problem. Only 1 infinity minus 1 people want to live there so if you build 1 infinity houses, everybody's house will be worth zero.
This is something only you are saying, and it makes little sense.
What is true is that San Francisco has limited space, and so even if density can be increased, a new limit will be reached.
Have you noticed that Manhattan and Tokyo are not meaningfully cheaper than San Francisco, despite being much higher density?
The reason is that building more residences doesn’t make it any less desirable to live there, and even supply is still limited.
San Francisco has the highest rents in the world. In the world. They are both meaningfully cheaper than San Francisco.
New York is 3 times as dense and more than 20 times the population of SF and yet is only 10% cheaper.
Explain again how more supply will magically make SF affordable?
Brooklyn[0] has a little over twice the density of SF[1], while the median home price in Brooklyn[2] is 40% less than in SF[3].
(Also consider your density numbers are a bit off. NYC[4] overall has only 1.5x the density of SF, and Manhattan[5] has around 4x SF's density. Not sure where you've gotten your housing cost numbers.)
[0] https://en.wikipedia.org/wiki/Brooklyn
[1] https://en.wikipedia.org/wiki/San_Francisco
[2] https://www.redfin.com/neighborhood/219258/NY/New-York/Brook...
[3] https://www.redfin.com/city/17151/CA/San-Francisco/housing-m...
The East bay is cheaper that SF too, but so what? Your argument is that increasing the density of SF will make it substantially cheaper.
The example of Manhattan contradicts you.
Even a modest increase in density, nowhere near Manhattan levels, would help SF enormously.
The point is that when you compare the two, it be some clear that that even if you did turn SF info Manhattan, you might get a 10% reduction in prices.
A modest increase in density would have no appreciable impact.
But somewhere like the SF Bay Area has a loooooong way to go before it gets anywhere near that bad. Relative to most of the nation, it can get heaps worse in terms of crowding and QoL and still look exceptionally good. I don't see prices going down anytime soon, except if something like the homeless problem evolves into a continuous stream of violence and structure fires.
Maybe at some extremely high level it becomes untenable but both Manhattan and Paris are very desirable places to live and they have 3-4x the population density of sf.
So why do it?
Honestly, California deserves to fail here if they continue to repeat the same ineffectual things while ignoring data and inventing conclusions that have never proven true.