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Comment by chizhik-pyzhik | Hacker News Reader

The article says rents are falling while housing prices are remaining stable.

I wonder if this means we'll start to see a lot of apartments convert to condominiums to equalize this imbalance?

Rental units generally change hands much more frequently than owned homes. Accordingly, rental units offer a more real-time view of housing cost trends.

There are also a lot of homeowners who locked in at a very low interest rate (both new homes and refinancing) with little incentive to move any time soon.

Somewhat related: there was a discussion on NPR about how new builds will likely be much more popular because of rising interest rates. The cause is that there will be a much smaller supply of previously owned homes because owners won’t want to refinance at the much higher rates at the moment.

According to Slate Money, the reason that new builds are in more demand is that builders have programs that will reduce the interest rate by around 2% making the mortgage lower than a similar price existing home.

The cost of raw materials and labor has gone up a lot more than interest rates in the last couple years.

But at least in hcol areas the cost of the house is in land value, so if that goes down you can pay more for labor and materials while charge less for the finished product. That $2M 1800sqft house is not priced on labor and materials.

Cost of labor is a large part of why housing is expensive in hcol areas. Workers that make $15/hour in Dallas are making $45/hour in Los Angeles.

I originally didn’t think it’s a big effect but apparently per sqft new construction sfh in CA is $500 and in TX is $100. That’s insnane (so 2000sqft new construction costing $1M vs $200k).

Some portion of that is the California codes as well. You can't build the same house California that you could in Texas.

As an example, I read that California will be moving our requirements for roofs to withstand a once per 700 years wind event. They're also more mundane requirements like you have to install Outlets every 4 ft along walls whether you want them or not. Why that's any of the state's business, I'm not sure.

There are some codes that have a big impact, but I don't think that's one of them. In practice insane permitting and impact fees, high labor costs, and onerous requirements for professional services drive up housing costs.

My town in California charges more in permit fees to build a house ($140-180k) than it costs to buy a house in many parts of the country. And on top of that they demand about $200-250k in professional services (excessive architectural drawings, geotechnical surveys, hydrology analysis, blah blah blah).

San Francisco managed to expend a million dollars on a toilet that was donated to the city and installed for free.

We suck.

Am I reading that right (and are you sure)? The cost of permitting alone in your are can add $180K +/- to the cost of a house? If true, that is truly shocking.

Where I live the building permit fee is $8 per $1000 of estimated building cost. A one million dollar house would pay a fee of $8000 total (and most houses near me cost a lot less than that).

https://losaltoshillsca.portal.civicclerk.com/event/3027/fil...

See page 201 of the agenda packet. By the town's own accounting, they are imposing $133,624 in entitlement, permitting, and impact fees per typical housing start. And it's in their interest to under-report in this document.

My own experience suggests that these numbers are obviously low. I've already spent more than double what they claim for entitlement just for a remodel. And they didn't even include plan-check fees (another $8k so far, if memory serves).

It seems a little steep to me, but within the range of possibilities if additional fees and inspections are tacked on. I'm working on a project now and the permit is 5 to 10% of the building cost.

Here is an example for SF: permit fees start at 5% of the project, but environmental review and other assessments can easily tack on another 100k flat rate.

https://sfplanning.org/sites/default/files/forms/Fee_Schedul...

I agree that codes aren't the biggest part of the total, but just find it interesting to think about low costs which are widely applied to protect against rare events. .

What is the ROI and total cost of increasing every roof price 1% statewide to account for a rare and localized 1/700 event.

There are aprox 100k new home starts per year. At say 50k for a roof that would be 5 billion in roofing costs/yr. 1% increase is 50 Million. over 700 years that is 35 Billion dollars in new construction costs

Houses are also repbult or reroofed. Say a house or roof is replaced every 100 years, with 15 million houses, a 1% increase is ~53 billion in 700 years.

So over the 700 year period, that is ~88 billion in costs, or 1.8 Million new roofs.

In conclusion, a 1/700 year wind event would have to destroy 1.8 million roofs, >10% of all roofs in state, to break even on a 1% building cost increase.

Outlets are required every 4 feet to minimize needs for extension cords. Extension cords are a fire risk.

In Seattle, a converted apartment will generally have much lower build quality (e.g., wood walls rather than concrete), so it's not going to appeal to someone in the market for a purpose-built condo. The business of selling condos is also significantly less attractive to developers.[1]

[1]: https://kuow.org/stories/why-are-condos-in-seattle-so-rare-a...

NYT had an article about this recently:

https://www.nytimes.com/2023/02/24/realestate/florida-condo-...

What's the difference between the two? Every rental unit is ultimately owned by someone. And if rents are falling but your equity is rising, you are still coming out ahead.

Depends on the ownership structure.

A lot of large apartment buildings are single-owner/single-management with all units rented. Usually some sort of corporate owner.

Condo buildings might have id rentals offered by individual owners.

The former is (possibly) more likely to ask questions like “is it better to sell the whole building in the face of falling revenue?”

The latter, if their mortgage is lower than rental income, might just hold the unit regardless of the unit’s value. Probably a much less sophisticated owner/landlord than a big corporation.

The big issue is that condos come with a bunch of additional issues surrounding mortgages. Along with very different maintenance models.

It's one of the hidden problems of the housing shortage: condos are very difficult to get financing for which artificially deflates the market for them. Which means that our best form of housing in terms of the efficiency of building units isn't terribly attractive to actually build.

Are condos really the best form of housing? I’d guess apartments were better, in as much as the build cost is similar, but the resident has far more flexibility. Owning a condo when the building hits ~50 years old or so is problematic because of the massive influx of cash needed to replace mechanical systems (or worse).

Renting is always going to be more flexible/mobile. But you can also be kicked out at any time, your rent can often be raised somewhat arbitrarily, and you're probably limited in the degree to which you can modify your unit. (And you'll always be paying rent.)

A fun little TIL: if you're talking between cultures/countries you may be talking about different things here without realising it. For example, an apartment in Australia can be rented or purchased, it just refers to a type of construction, not an ownership structure. In the US it appears to be quite a different set of terminology!

I wasn't aware of this difference until just now.

In the U.S. condos are always owned by individuals, but the word "apartment" can mean different things depending on where you live. In the suburbs, people tend to use the word "apartment" to always mean a rental, but in most dense cities, you can absolutely "buy an apartment" - they use the term like Australia to refer to the form of construction which can either be rented or purchased.

Probably some. A house and an apartment you own aren't really comparable anymore as the appeal of urban living for professionals has declined, however.

Probably most likely impact is the decline on new apartment development and perhaps dilapidation of some of the stock ("if I can't get 3k/month for this place anymore, fine I'll charge 2k but I won't bother maintaining it")

Isn't it the other way round? When rents are higher, how well maintained the house is matters less to tenants compared to the location and rent. But when rents are low, they have more freedom to choose a well maintained house.

If you're talking about long-term maintenance so that skipping it is just deferring costs to greater costs in the future, then why would a landlord do that unless they expect to demolish the house before ever fixing it up?

> When rents are higher, how well maintained the house is matters less to tenants

When I'm paying more than I think I should in rent I start expecting more for my money. Suddenly I want every little thing fixed and I push for things like newer appliances. When rent is low and I feel like I'm getting a really good deal, I'm much more willing to let the little stuff slide.

You're acting the opposite to the power you have. I think people overall act in line with their power. High rents means tenants are weaker and can demand less without being told "take it or leave it".

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