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Comment by WillPostForFood | Hacker News Reader

You shouldn't always expect prices to go down when there is new supply, because it can also increase demand. If people are investing and building new units in a neighborhood, it is usually improving it, which makes it more desirable, more people want to live in the area, and prices go up. If you are lucky, this reduces demand elsewhere and overall prices might drop.

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No, you should absolutely expect prices to drop, it's extremely well documented.

However, landlord advocates spread the counter narrative, of people mistaking symptom for cause, and unsophisticated public laps it up. People hate to see change and want to blame new buildings for high prices, even though they lower them universally.

If vacancy is at 0%, you increase supply and vacancy is still at 0% you should absolutely not expect prices to fall. In fact, you should expect exactly what is happening, the market will reevaluate it's prices upwards until vacancy reaches some positive value. It's economics 101. This software just makes the process hyper efficient, where as normally it'd be far slower as landlords would not have perfect information.

The only way to fix this is to drastically incentivize building to the point that supply is higher than demand.

Where is vacancy at 0%? This is pretty much impossible.

Mostly agree with your comment though!

Vacancy should be up close to 10%, IMHO, with anything below 5% considered a dire crisis that needs immediate fixing.

it's extremely well documented.

Please share. Remember, prices are at the intersection of supply and demand, and moving one curve will inevitably affect the other.

I was going to link to a review of the literature on the local effects of new construction, which reviews the empirical literature showing that any additional demand is more than offset by additional supply, but I'm having trouble finding the PDF. (For global effects, remember that building new housing does not change the global demand for housing, as it does not create new people, so hopefully it's obvious that new housing supply must be a global downward pressure on prices).

But this newer paper is far more comprehensive on far more topics. IMHO it's far too charitable to some really bad and research with highly biased and methods (e.g. Damiano) but it still does point out the flaws there.

https://furmancenter.org/files/Supply_Skepticism_-_Final.pdf

Unfortunately this review does not cover the spate of papers in the 2020s that I was originally thinking of, so I'll see if I can dig that up still.

> If people are investing and building new units in a neighborhood, it is usually improving it, which makes it more desirable

I'd argue that most people in the US don't want to live next to giant apartment complexes, even if they themselves already live in one. People like sun, and skylines, and space. An attractive, well maintained apartment building that has parking for all it's residents in an area that's not too crowded doesn't have to hurt the neighborhood, but it's not going to make it more desirable. At best it just accommodates the people who already want to live there.

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