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Comment by rbanffy | Hacker News Reader

> If developers build more luxury housing

According to this reasoning, if Ferrari builds more cars, Fiats will get less expensive.

I don’t think that’s how it’s supposed to work.

The vast majority of affordable cars are used cars. Used cars are cheaper when there's tons of new cars, and they get more expensive when new car production slows - prices jumped so much in the past two years that some used cars were sold for more than they were originally purchased for.

We treat that weird situation as obvious undersupply in the car market, but somehow expect it with houses. Why should old, used houses sell for more than their purchase price?

The mental model of buying something new/used doesn’t apply same as cars. Unlike a car, the structure is simply an improvement that’s factored into the price of what you’re purchasing — the rights to the physical space itself. Sometimes a lot of the “value” is locked up in the structure, and sometimes the structure is barely functional and most of the value is in the land. At some point that ratio of the land:improvements values reaches a point where the “used” structure is relatively worthless and gets replaced, the ratio rebalances.

People forget that houses depreciate. It's the land that appreciates.

This isn’t true in all markets. Higher labor costs (for instance, caused by higher rents…) makes it more expensive to construct new homes. That makes any existing homes more valuable, potentially even accounting for depreciation

The cost of replacing a house appreciates, but a new house has higher value than an old one.

If Ferrari sold 10 million cars per year, you don’t think that would have a downward pricing impact on other cars?

Basically, not sure how to interpret "sold 10 million cars".

2 scenarios come to mind:

1. Ferrari decrease their sale prices, thus they are more affordable for all, thus exerting price pressure on Fiat.

2. People somehow have a bucket more money and now buy Ferraris. But with all this money sloshing around, Fiat might as well up their prices because it'd make little difference on the end customers purchase decision.

In either case, the Ferrari and the Fiat are closer on price but the price pressure on Fiat varies. Curious to know your thoughts?

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