Comment by Plasmoid | Hacker News Reader

Comment by Plasmoid | Hacker News Reader

We're not building enough housing.

Every other reason for why housing prices are climbing so much is at best a `yes-and`.

Housing starts per capital have been trending slightly downward since the 60's. Recessions have cut house construction harder, deeper, and for longer than in the past. The net result is an increase in prices, except after 2008. Housing construction was tanked to the lowest amount on record and has taken 10+ years to get back to historic levels. We're missing 10 years of housing construction at a national scale.

The is exacerbated in major cities which have severely restriction new housing construction both by imposing direct housing caps and onerous new construction taxes, and indirectly by changing the building code. California requires housing to have solar panels, that is a $15000 cost that new buyers must pay that older owners don't have to pay. LA wants to ban wood construction, the most accessible, carbon neutral housing construction option out there.

If you want housing to be affordable, you need to increase housing production by 50% and keep it there for years.

I really don't think building more housing will fix this problem (though it would be a good thing).

Consider the case of New Zealand.

According to Statistics New Zealand in 1991 there were 1,307,000 private dwellings and 1,252,600 households. A difference of 4.16%.

In 2017 there were 1,855,500 private dwellings and 1,734,800 households. A difference of 6.5%.

During this time household sizes decreased and house prices increased far in excess of inflation. In 1991 the average house was NZD173,000 (in 2016 dollars). In 2016 it was NZD495,000. Today it is over NZD1,000,000 (or about NZD900,000 in 2016 dollars).

In my opinion, what caused this was massive financial deregulation and easy credit.

As I said elsewhere in this thread, consider that a credit fueled speculative boom creates excessive demand. Not all of these excess purchases will become a primary home. When speculation is rampant houses will more likely be:

- Second homes or holiday homes

- Undergoing extensive renovation

- Listed as short term accommodation

- Kept empty while owners reside overseas

- Simply left empty or land banked

- etc

Note that the definition of a household includes "or two or more people who live together and share facilities (such as for cooking) in a private dwelling". Many of these would prefer to live in their own home.

You also ignore that the rapid growth in housing is causing people to buy them. If housing prices were flat then people would buy them largely for the rental income. Instead since they are increasing in value people buy them as an investment.

Many people resist believing more supply will reduce prices. I'd like you to imagine a wizard waving his wand an creating 1000 nice new homes in a city near you where new houses cost $1 million dollars. These homes are all auctioned off. The wizard then create another 1,000 homes and the cycle keeps repeating. People who don't believe supply is a problem will tell you that these houses will keep being snapped up at $1 million each forever no matter how many are built.

> Note that the definition of a household includes "or two or more people who live together and share facilities (such as for cooking) in a private dwelling".

Well yes, it was ever thus. Many people do this and would prefer to live alone, but during this time, average household size has continued to decline.

> If housing prices were flat then people would buy them largely for the rental income.

No investor is going to pay $1,000,000 for a rental return of $40,000/y (before expenses) if there is no expectation of capital gains. I recently signed a lease for $45,000/y on a property valued at $1,500,000. Prices are only this high because of the expectation of capital gains. Without that, prices won't remain flat, they will fall and those that want to buy a home but currently can't will have a better chance. Especially because the major stumbling block for most is saving for the deposit (20% required in most cases).

> Many people resist believing more supply will reduce prices.

I don't deny that it might help. There is obviously some magic number of surplus homes that would cause prices to fall but that number is going to be very high. Any reasonable amount won't have an effect as significant as addressing the demand side of the equation (i.e. making property less attractive than it currently is relative to other investment opportunities).

I once had a job that made me very familiar with the number of residences in certain parts of Wellington city. In a single year, in an area of just a few blocks, the number of residences went from about 800 to about 1300. Prices continued to rise. What did have some effect was the credit crunch following the GFC which kept prices subdued for a while.

> demand side of the equation (i.e. making property less attractive than it currently is relative to other investment opportunities).

I won't deny that making real estate a worse investment won't reduce prices. In the short term. Most of the mitigations I've heard will at best knock a few percent off the current price but do nothing to stop or even slow the even rising prices and poor availability. Basically it works as quick hand-out to people who able to buy today, but not fix anything for anyone else 5 years down the line.

All property discussions won't make sense until you separate land from capital improvements (houses). Property prices will not stop climbing if you build more houses, and in fact, land prices go up if you build more houses. Rents go down per house if you build houses much faster than increasing demand, but you can't build more land.

Supply and demand is not the issue when dealing with something of inherently limited supply, such as location/land.

If you want rent to go down, absolutely build more houses. If you want land prices to go down, tax land value.

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