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Comment by falcolas | Hacker News Reader

They have 10% of their stock sitting empty, waiting for their asking prices.

Builders earn their money by selling houses for what the market can bear. The act of building itself is merely a cost.

You're making a lot of bold claims in this thread based on this 10% figure. But what's the evidence that builders are doing this as part of some sort of strategy to keep prices high and not a normal level of vacancy due to turnover and general market inefficiency? (Some assets in all markets will be overpriced and not sell immediately. How do we know that 10% is too high?)

Your theory also ignores the fact that builders have other ways of investing their money. Why build a house and let it sit vacant when you could have just not built that house and invested the money elsewhere?

builders would always prefer to build more and sell more, if a home costs me 200k to build and it currently sells for 500k but current regulations only allow me to build 100 of them then that's $3m profit (actual margins aren't this high).

if a law comes along that suddenly gives me the power to build 200 but the asking price drops to 400k i'd rather build 200 homes and net $4m

All things being equal, companies want to sell as little as possible for as much as possible. We all want to make the most amount of money with the least amount of work.

You also need to factor in the time it takes to build a home. If I can build 100 homes a year I'd rather take $3m profit each year than build the cheaper homes for $2m profit. Sure, if I can scale up infinitely, then I'll go ahead and build infinite homes for infinite profit. But in the real world there is significant risk in scaling up. If I build too many homes and the prices go down, then I'm now hurting my own profits. It can be better for me to do the lower effort thing and build less for a higher profit margin.

You're making the classic move of conflating developers with landowners. These are two very different groups, with two very different incentive sets.

Not to sound too much like a marxist, but @falcolas has a point here. If builders were offering a public service, they would likely sell their new homes (condos, townhomes, high-rises, etc.) for cost plus a reasonable percentage. But new homes go into a speculation market where the exchange value of the home factors in profit by the rentier class who add nothing to the value of the transaction.

> the rentier class who add nothing to the value of the transaction

I lived in one of the most expensive rental markets in the US for a while, so believe me, I'm not inclined to defend landlords, but the availability of rental units do serve a function. Even if we make the crazy assumption that a law forbidding the ownership of more than one residence would have resulted in a median home price one-third of what it actually was in my market, for half the time I lived there, I couldn't have afforded a down payment and a mortgage, and for the other half, I wouldn't have wanted to. There's a risk in tying up a significant chunk of your net worth in an illiquid asset.

For what it's worth, I believe rent-seeking (in the economic sense) behavior should be heavily discouraged as a matter of public policy, and believe that a system of taxation that is centered around land-value tax is the best way to achieve that, at least for residences.

> a public service [...] for cost plus a reasonable percentage

This type of regulation only makes sense for natural monopolies like utilities and whatnot.

The only parallel is that Marx also reasoned with a simplified, “armchair-economist” understanding that failed to account for credit, innovation, competition, risk, and return, among other things. Each of these are fundamentally critical aspects of the real economy, far better understood and articulated since his work. In modern times, we recognize Marxist principles are primarily designed to create disruptive but centralized authoritarian systems.

Marx's Das Kapital third volume is about the effect of credit and competition in a capitalist economy. Innovation and why it develops so much more in capitalist economies than in previous systems was something considered already in the first volume, like risk and return and how these are not the things that justify the capitalist profit. Marx also wrote very little about creating any system, only pointed general tendencies as part of his dialectics. Marx work is the culmination of classical economy, so much that is very hard to find a third option besides either abandon the core classical economy principles or becoming at least partially Marxist. While one could always disagree with the tenets of classical economy, and nowadays the great majority of economists are from other schools of thought, most attacks against Marx reverberated over the Internet are very unjust, originally formulated more based on political bias than on a real understanding; and then, they are inadvertently repeated by the dynamics of the Internet.

Um. Are you suggesting that denizens of internet comments forums are somehow not armchair economists?

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