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Comment by snapplebobapple | Hacker News Reader

It's a natural first impulse, but it's wrong. What is the correct impulse is to be concerned about how lopsided most cities zoning is towards single family, as that is what is driving the market power that makes real estate profitable as a financial asset. If most of a city was zoned to allow up to multi residential highrises rather than most of a city being zoned for single family it would cut the appreciation ability of the scarce and valuable land zoned for higher density already and would allow more people to live closer to where they want to live (i.e. close to work/wherever they daily commute).

The market isn't failing to function because someone realized they could buy up current stock and make a large profit over time, people noticed they could make a large profit over time because city governments zoned everything wrong for the actual demand.

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> because city governments zoned everything wrong for the actual demand

This is the core problem. Commoditization, or rather, people cornering the market is secondary.

City government is doing this because it is elected by those who own single family units. This is self-stabilizing.

If the majority would live in multi residential highrises, there wouldn't be an incentive to artificially create scarcity. Instead, there would be an incentive to drop housing costs even further by increasing supply.

The problem is that nobody wants to invest in a city with a falling housing market. There needs to be some profit sharing between those who build the housing and those who own the real estate in the city center whose value increases when the city grows.

Some people invest in cities with falling house prices. They could be long-term speculators or more likely are landlords who expect the property to cash flow more than a property in an in-demand city. Generally the slower the asset price growth of a property the larger the margins on rent. You trade cash in the future upon sale for cash now from rent.

The thing that can really crater a housing market is a departure of jobs from an area.

Your last statement is not correct. People like to invest where they can make money and multi residential rent is profitable in most places and we have REITs and other financial instruments ready to grow and invest lots and lots into multi residential rentals to generate a decent cash flow to send back to investors. The problem for them now is that there is so little land zoned that way that these guys are often outbid by people building luxury apartment condos (because that's the most profitable up front thing to build and it is relatively low risk because of constrained land supply). In a land abundance situation it shifts profitability from scarce luxury apartments (because they no longer have to be scarce) to rental units, plus it allows buildings to age out into rental units rather than age out into being renovated or torn down to make higher value luxury apartment condos. All we need to do is force cities to zone land this way rather than allowing them to cave to nimby's trying to push up the value of their single family home.

Regarding my last statement: People like to invest into multi residentials now, but are those investments still profitable when the zoning changes?

How do you protect your investment when there is innovative pressure and housing units compete on price? Say you have a building and you try to monetize your investment over 20 years but after ten years, due to innovation, competing units can be built for half your costs. Then your tenants will move if you don't halve your rent which destroys your profits.

In a city with nimby's, that's never a problem because rent remains high, even if costs are reduced.

>All we need to do is force cities to zone land this way

This requires the vote of the nimby's which means that you need other options.

regarding your last point first: no, it doesn't require the vote of the nimbys. The state and/or province could force this very easily and that group of politicians is beholden to a group of people with more varied interests so are less under nimby pressure.

regarding your first point:The loss from rezoning will happen at the time of rezoning and will primarily affect the currently zoned high density land. With newly repriced lower, non scarce multi unit residential land it is unlikely to end up in a large downward risk situation because the sophisticated reits will be pricing what they will pay now for land off of what they think will happen over the next twenty years and will likely be pricing in a rent drop (which is what drives the drop in land prices for high density). You also aren't really at risk of technological disruption because the total turnover/increase in units is low relative to total housing stock even if we ented a building boom. If it suddenly costs half as much to build a high density residential building, it's still going to take decades for that to erode rental costs by half because you don't suddenly have enough supply of that cheaper to build stock to house everyone.

> If most of a city was zoned to allow up to multi residential highrises rather than most of a city being zoned for single family

The problem with this is the only entities with the financial power to build such buildings are large developers and corporate landlords. That leads to either high rents or high HOA fees. We need some way to pool prospective homeowners together to build this kind of high-density housing. Because otherwise we’re trading one problem for another and still failing to make home ownership affordable.

It still does mean more supply, so is beneficial for prices over a situation with less supply.

> We need some way to pool

That's e.g. a co-op, not exactly unusual concept to pay for housing construction at different scales.

But there's a causal connection between the commoditization of land (not real estate per se) and these zoning laws. You've given people a financial incentive to vote in politicians who then implement these restrictions. There'd be nothing wrong with such commiditization (and indeed it would be a good thing) if and only if that causal link can be broken via land taxation.

If people want to have families they should have to move out to the country side and build a family home. Apartments and single person residencies should be the only units allowed to be built in cities where young people have to work and try to build wealth.

Thats just wrong. Land should be zoned for much higher density but if someone wants to buy land and build a single family home that should be fine too. The problem isnt the single family home, the problem is so many cities have 70% or more of their residential zoned single family.

The zoning argument is such a myopic perspective on the problem. The issue with housing affordability is across many communities, most of which have no issues with shortages of buildable land nor even shortages of housing. The primary impact on prices is from the demand side due to cheap credit from artificially low interest rates and speculation by large investors and small time speculators moving into real estate.

Do you have an example city? I'm curious because when there is lots of supply to meet demand why would prices go up?

Virtually every city other than a few that are essentially islands or peninsulas that are fully built out like San Francisco and New York City. Some examples of cities with plenty of residential buildable land to expand into in the United States are Houston, Dallas, Austin, San Antonio, Tulsa, Atlanta, Charlotte, Orlando, Tampa (ex Saint Pete which is a peninsula), Jacksonville, Fort Meyers, San Diego, Los Angeles, Bakersfield, Sacramento, Las Vegas, Phoenix, Baltimore, Richmond, Greenville, Nashville, Knoxville, Chattanooga, and a myriad of other cities.

I already explained why prices go up when there is sufficient supply: hyper-fueled demand from essentially free money and new entrants like hedge funds looking for ways to invest the loads of cash they can borrow for nothing and money from their investors as well. In many cities, more than 30% of all home purchases were from investors.

Because real estate works somewhat similar to ponzi scheme because of low liquidity and lag in the transaction settlement. Everyone wants higher return one over the other on each sale and it ends up in speculation loop.

The price rises without new increase in the supply, because you would not lock-in to a particular house on just your first visit. So, each of these visits from each person constitutes each time to total demand. And demand gets a bit inflated. Speculative nature of real estate on top of that, encourages the sellers to hoard with higher prices (like a synthetic monopoly mindset).

Even if one buyer locks into a higher price, the effective market rate goes up because every seller in that area expects much higher price than that.

Price based on Supply and Demand only work properly in a Open Market with High Liquidity.

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