For every 10% increase in the housing stock, rents decrease 1%
academic.oup.com
academic.oup.com
https://news.ycombinator.com/newsguidelines.html
If you want to say what you think is important about an article, that's fine, but do it by adding a comment to the thread. Then your view will be on a level playing field with everyone else's: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so...
https://www.nature.com/articles/s41467-022-31572-1
and you might even come to the conclusion that you should actively make life in a city worse to make it affordable to the poor.
https://en.wikipedia.org/wiki/Henry_George_theorem?wprov=sft...
Think ski resort towns full of million dollar winter dachas that ban poor people housing, ending up full of vacationing millionaires who are wondering why the four-star steakhouse is now only open three days a week. (It's because nobody working there can afford to live in town. And because the vacationers are, for some reason, unwilling to man the grill. Or pay $120 for a steak.)
That's surprising. I see $120 steaks on the menu in Las Vegas restaurants. Why not at the ski resort?
> million dollar winter dachas
Perhaps because the alternative to a $120 restaurant steak is buying nice groceries and cooking at the dacha?
Dunno, but if you've figured out why, you should get in touch with the guys in this article.
https://www.outsideonline.com/culture/essays-culture/how-to-...
That's, I think, the heart of these economic dislocation problems. The destination is fine, but the transition is painful.
Hair salons raise prices (e.g. from $20 to $30) and people pay them.
Or, hair salons move to a cheaper nearby neighborhood to keep prices the same (e.g. $20), because customers would rather travel nearby if it means a cheaper haircut.
Or in reality some of both -- some raise prices and some move, since some people can afford to pay and some would rather travel further instead.
This is what always happens as rent rises. Services and goods get more expensive as well or their providers move geographically.
Land ownership beyond the home you live in is effectively equivalent to a privatized, purchaseable license to tax others.
Each new building adds to the total value of the city, but also competes with the other buildings.
However, if the newer housing is better than the older housing elsewhere in the city, which is usually the case, that older housing should become less attractive.
An extreme historical example of that is the decay of urban cores caused by white flight to suburbs (which were often only a short drive away from the urban cores, and therefore part of the same overall housing market with the same pool of buyers) in the postwar period. Some of the areas now being gentrified in major cities are becoming desirable for the second time.
At the same time, gentrification is inevitable when neighborhoods become more desirable. Better housing, amenities, schools etc. will inevitably attract people who would not have previously wanted to live there.
In cities without a lot of demand pressure on housing, building new housing makes the older housing less attractive. That can at least give displaced renters a place to go. But in cities where demand outstrips supply, it takes a lot of new housing to make a noticeable dent in rents. (I suspect this is where the impression comes from that new housing doesn't help with prices -- in places where demand outstrips supply by a lot, prices can go up even while new housing is being built -- but without that new housing the prices would have gone up even more!)
There are not easy solutions to this. Rent control might appear to be a good solution but in the long term it makes things worse. Building new housing often does change the character of neighborhoods economically, demographically, etc. But if we let that stop us, nothing new will get built except on unused land.
Supply and demand really does work for housing. We are just in a massive backlog on supply, which has built up over decades, and it will take decades to build our way out of it. During that time it will look like the new building isn't helping very much -- but that's because of how bad the backlog is.
For example, in the San Jose area tons of new housing is being built, on unused shopping centers like Cambrian Plaza and former industrial areas like Santa Clara Square. It's dense housing for the area too -- 3-5 story apartment blocks with their own underground parking, sometimes shops and restaurants on the first floor. Thousands of units are coming online. But I still expect rents and housing prices to increase next year. They would have increased even more if we hadn't built that housing, but the backlog is decades deep and demand is also still increasing.
I generally agree with your comment overall however.
If you want to solve the housing crisis you need to reverse the bad policy and add good policy.
Land value tax is one such policy. There are many other, changing in regulation for housing, changes in land use policy, like minimal parking requirements, changes in urban design, changes in transport priorities, the list goes on.
Some of the most beautiful and most admired parts of old cities like Boston are all illegal to build now. Policy has mostly made it impossible to build the kind of places people travel to other arts of the world to experience.
Why would a tax increase on rentals lower rents?
Consider San Francisco, where it takes years just to get permission to build housing: https://www.sfchronicle.com/opinion/openforum/article/sf-hou...
San Francisco is an extreme example, but many other cities are bad about this too.
With a land value tax we are basically telling landowners that they aren't allowed to build and also they will be taxed for not building. Stop hitting yourself! Stop hitting yourself!
A land-value tax would be a lot more reasonable if we allowed people to do what the tax incentivizes them to do.
> With a land value tax we are basically telling landowners that they aren't allowed to build and also they will be taxed for not building. Stop hitting yourself! Stop hitting yourself!
Ok, and with the current system you hurt the people who have managed to build things even more.
Its not like actually impossible to make something productive with your land.
Land value tax, any way you look at it, is fairer and better for society then property tax.
But yes, regulation are also a problem. But just because bad regulation exists, shouldn't mean you should not improve the tax system.
Eh. My landlord is already stuck unable to raise rent because there are ~4 brand new mid-rise complexes within a 3 block radius.
Why would I agree to their rent increase, if for that same price I can just move to a brand new managed property? So every year we negotiate and rent stays about sameish. Actually lower now than when we moved in pre-pandemic.
This is in SF.
A) illegal, and
B) would have to be extremely widespread to not just serve to keep those units unrentable.
The more vacancies across the city, the more difficult collusion is.
I imagine the various property owners in an area see each other more as competition than buddies. Or even targeting different demographics.
Why would owners of a big building collude with some rando who happens to own a place or two?
More than that, and somebody always breaks the pact fairly soon.
There is a good rundown here, written earlier this week: https://www.sfchronicle.com/opinion/openforum/article/sf-hou...
This bit is only situationally true. It's true for infill development: the 2018 condo next door to a 1918 brownstone is likely going to sell for more. But generally "next door" doesn't happen.
In fact in most large urban areas, the more central and accessible areas (SF, say) with (by definition) older housing stock are the most expensive. The new construction in Livermore or Concord is where the cheap housing is.
> evidence that for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet. In addition, I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties.
In Berkeley we lost only 2% of the population but that knocked 10% off real-dollar rents.
0% of YIMBY plans plan for reality.
> 0% of YIMBY plans plan for reality.
I mean, if it were up to me, I'd add 5 million bedrooms to San Francisco. And if that isn't enough, up it to 10 million.
There's only ~330 million people in the US. If we build enough, eventually supply will outstrip demand. Even for big costal cities.
What happens when you double the housing supply? Who knows. Not a single data point in that regime.
I think this effect is probably complicated by generated demand.
Think about a city like SF or Seattle. Adding a lot of vacancies may not drop prices much for a while. Instead, it'll suck in a lot of people from the surrounding area. It's only after there is enough new construction to overcome that effect that people will see price declines in the city.
Of course, if SF or Seattle is sucking in people from the surrounding areas, then the price of real estate in those areas will decrease substantially. It's all about what you measure.
> please use the original title, unless it is misleading or linkbait
I think it would be in keeping with that to change the title to, “New Housing Units in Your Backyard Lower Your Rent”, though I don’t mean to bite your head off for using the verbatim one.
> There is a growing debate about whether new housing units increase rents for immediately surrounding apartments... I provide event study evidence that within 500 ft, for every 10% increase in the housing stock, rents decrease by 1%; and for every 10% increase in the condo stock, condo sales prices decrease by 0.9%. In addition, I show that new high-rises attract new restaurant ...
If a city added 10% more housing, it would be extremely surprising to see rents only decrease 1% assuming no other micro or macro economics changes. It is not very surprising that a new condo building next door only slightly decreases the rent of neighbors since people are usually willing to rent anywhere in a general area and not constrained to a specific 7 hectare area (500ft radius circle).
Hopefully dang can change the title to the original "Do new housing units in your backyard raise your rents?"
In California, housing will not be constructed in response to more demand.
This is... a silly thing to examine. 500 ft is nothing. A 10% increase in a 500 ft area is a tiny, tiny, tiny increase in the NYC housing stock overall.
The cause and effect between housing stock and rents operates at a combination of city level and large neighborhood level mainly. When people shop for an apartment they're usually considering lots of neighborhoods, not a tiny 500 ft area.
Anything you observe at the 500 ft level is more likely than not to just be noise.
Also the HN title is wrong, because it sounds like it's a universal law, when the study is meant to be about a certain snapshot of NYC only.
A 500 ft radius circle around an apartment building in the middle of a row in Manhattan includes about 6 full rows and and about half of 2 more rows, so about 7 rows worth of buildings total.
That seems like it would include enough buildings to see more than just noise.
In other words, rents changing in a 500 ft area is due to housing stock changing citywide. Not housing stock changing within 500 ft.
The noise I referred to isn't the noise of statistical measurement, it's that housing stock within 500 ft is mostly random noise when compared to the change in stock citywide.
How much housing stock increase do you get from a new condo building near the train station or the local elementary?
Or multiple ADUs on a desirable neighborhood?
Very few people pick a tiny area and then only look for availability within it. That's just not how the city works.
A. Housing should be available for everyone in large cities at a price they can afford; and
B. There is no right or economic solution to affordable housing for everyone who wants it, especially in a dense city.
I don’t intend to choose a side in this argument, but here are the “facts” (or approximations) that must be considered in this argument:
1. Land in the U.S. is generally owned by individuals, or by businesses with shareholders (ie. people), not the government.
2. Individuals owning land and buildings are just regular people (or groups of regular people as investors) in many cases, not “bilyunares”.
3. How do regular people own property and buildings? There are three ways:
a. People invest in Real Estate Investment Trusts (REIT) through their savings and/or 401k or other retirement accounts.
b. People invest in banks, or deposit money in banks, which is used to create loans (mortgages) to purchase land and buildings.
c. People pay taxes, and a portion of those taxes goes toward tax credits and Housing and Urban Development (HUD) Section-8 subsidies. The U.S. government spends $6 billion per year to finance new housing for qualifying people.
4. Rents and escalations are both market-based and contractual. The rent collected pays for the cost of upkeep and routine maintenance as well as the mortgage obligations and taxes. With inflation, the cost of everything goes up, and this must be reflected in rents.
5. The most desirable locations will have the highest land prices and correspondingly the highest rents. Desirability results from weather, safety, activities, travel or transportation options, and most importantly: work opportunities.
It would be refreshing to see more of these “facts” (and many more I haven’t mentioned) included as part of the debate.
Have fun and carry on!
https://www.upjohn.org/research-highlights/new-apartment-bui...
Intuitively this makes sense. People predominantly decide move to city/area because of a job, not because of a shiny new apartment building. New construction is a reflection of a high demand area, not a cause.
Housing is a rivalrous good. People will generally pay as much as they can afford. Introduce 30-year mortgages? House prices will go up 50%.
The best single predictor of house prices is population density. Building more units is likely to be a sign of rising prices. Case in point: Most people complaining about prices in the Bay area could have had cheaper housing back home but moved here instead.
Not very insightful, yeah? Perhaps it would be good for things to be a certain way in our country without literally enshrining them in our Constitution. Cities are the economic backbones of modern nations, so it’s probably good for young people to be able to afford to live and work there.
Network effects is the answer. Anyway, not sure what this would prove. There is clearly enormous demand for existing cities to be densified, as demonstrated by our densest, most walkable cities (NYC, SF, etc) having by far the highest rents and property values in the country, as well as the greatest economic outputs.
If you’re a free market economist, you should view it as a massive failure that regulatory capture and vested interests are able to prevent willing property sellers and developers from making this a reality.
If landlords wanted to collectively agree to keep prices low, in the interest of not taking money from the poor to line the pockets of the rich, they could.
If I had a billion dollars, I'd totally be interested in spending $300 million of it creating a bunch of studio housing in Silicon Valley and renting it out at $500/month and watching neighboring greedy landlords cry.
The current crop of billionaires are themselves greedy, though.
It's pretty hard to fight against the market consensus on value, no matter how good your intentions are, unless you could establish some sort of monopoly. In the absence of that, if you sell something for less than its value, you'll end up creating some weird dynamics. You'd invite scalpers, corruption as people compete for access to the resource, and people would probably create secondary markets anyway where they hold the lease and sublet for more than its cost. (Whether legal or illegal.)
There's a reason why home prices in the form of a 30-year mortgage on a home historically have a monthly price close to, but slightly less than, the price of rents. Being a landlord involves financial risk, maintenance costs, liability, and work. That work, the willingness to take on the risk, etc. has a value. That value is approximately the monthly price of rent minus the monthly mortgage cost.
...And actually, historically, it's not even a great value. Renting, and investing spare cash that would otherwise be tied up on a down payment has in many cases been a better investment.
University dorms don't generally permit sub-leasing, and even my alma mater only permitted sub-licensing to other students and only at or lower than the rent price I paid.
Couldn't similar things be enforced on such a system? Sub-lease and you get disciplinary action i.e. kicked out and shamed in the front lobby. Or maybe even wailing noises and automatic fart spray through the HVAC if the room is sensed to be occupied and the official tenant doesn't check in periodically.