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Comment by raister | Hacker News Reader

Well, houses, it's simple: they (politicians) limit the number of new builds, otherwise prices would fall. It's always supply and demand in the end. Diamond extracting also: they control the amount of diamonds that 'enter' the market each year. Imagine if it was 'flooded': the diamond market would collapse.

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Even in areas where building is effectively unlimited, land is effectively free (or less than $5k/acre) a new house is still moderately expensive. There's a minimum price below which you cannot realistically go, because of flat-cost items, and minimum building requirements.

So you end up where a smallish house costs $200k to build/sell at a modest profit, and a nice large house costs not terribly much more but can be sold at a much higher profit margin.

Sure, but those costs (including land costs) are reduced with triplexes/quadplexes/townhomes, which require moving a mountain to get approved in most zoning districts.

In Oregon we recently re-legalized 4-plexes and some other, denser forms of housing by right in our cities. But it's a pretty incrementalist reform, and it'll take time to see the effects.

The quadplexes have to age and trickledown to being boring housing stock; around here the apartments and quads are going for about the same as older stand-alones and only a bit cheaper than new stand-alones. And when you factor in the usual HOA cost the payment ends up being the same.

In housing the term is 'filtering', which is different from 'trickle down'.

>Even in areas where building is effectively unlimited,

That's pretty much nowhere in the US. Or at any rate, not where people are.

Blaming this on politicians takes voters off the hook too much. There are plenty of homeowners, and ironically, pro-rental groups, strongly advocating for policies that limit supply of new housing.

Housing prices increasingly reflect labour costs, as those represent a higher percentage of the BOM year over year. North America has high wages and so the minimum threshold for a new 2000 sq ft hovers around $250K, bulk of it being labour cost, the rest materials.

This seems like a circle of inflation. High wages push prices up, which push wages up...

My Latin American friends working in construction would not believe this, they are paid crap, and is the American construction company owner who pockets most of the money.

Depends on what they're working in. A certified plumber, electrician, furnace/gas, HVAC specialist, all command market rates set by tgeir associations. Tilelayers, bricklayers, carpenters and cabinet makers also have set rates. There isn't much left that's unregulated, perhaps framing, drywall/plaster, hardwood/vinyl flooring, painting and landscaping.

Probably quite circular too, the labor costs are high because the housing/COL was allowed to become so high.

There's also growing competition from large companies buying up supply for one reason or another. Housing is being used as an investment option by hedge funds, and now there's whole companies running AirBnB rentals. The latter is being limited in some areas and there's a new bill in the Senate to stop the former, but at the moment it's hard for first-time homebuyers to enter the market when companies just pay 20% over asking price and outbid them.

This gets posted a lot and the reality is that hedge funds own a very small percentage of properties: it's hard to find numbers, but anywhere from <1% ("how many single-family homes do hedge fund owners own" / "how many single-family homes exist") to 3% (how many "institutional investors" own) [1]. They allegedly purchased ~27% of the new homes during the first 3 months of 2023 [1], which is a larger ratio (and not ideal), but still less than the majority. The majority of homes are owned by individuals [2], and the main reason prices are high is supply and demand.

[1] https://nationalmortgageprofessional.com/news/democratic-leg...

[2] https://sgp.fas.org/crs/misc/R47332.pdf

[2] https://todayshomeowner.com/blog/guides/are-big-companies-bu...

Institutional investors own less than 1% of SFHs. The only reason to invest in them in mass is because you think the area is dominated by NIMBYs who will prevent new supply. Otherwise theyre a bad investment. So funnily enough YIMBY policy fixes this issue too.

>Housing is being used as an investment

It seems a rather poor investment.

There is also, in the West, rapidly increasing housing demand caused by mass immigration. This also has the double effect of reducing wages.

For this to be true, you would expect to see rapid population growth. There aren't any Western countries with undue population growth levels - the immigrants are brought in to make up the numbers for the millions of babies that aren't being made.

As is often the case in these discussions, my home country is forgotten.

> Canada's population is currently growing at a record-setting pace. In 2022, the number of Canadians rose by 1,050,110. This marks the first time in Canadian history that our population grew by over 1 million people in a single year, and the highest annual population growth rate (+2.7%) on record since 1957 (+3.3%).

https://www.statcan.gc.ca/en/subjects-start/population_and_d...

Canada is also going through its worst affordability crisis in recent memory. I'm happy to have gotten out, but as anyone living there now can tell you, things have gotten very bad, very quickly.

I'm actually an immigrant in Canada, so part of the problem!

BUT: I look around me and I see oodles of space and very little new building going on. 2.7% growth should not be impossible to deal with.

When I first moved to Toronto, I was shocked to discover that there are not only actual houses in the downtown area, but entire zero-rise neighbourhoods.

I now live in Calgary, which is where half of Ontario is moving, and according to this [0] we had a "record" new housing starts last year of 5700 houses and 7700 apartments in Calgary. We probably need closer to 57000 and 77000; we have the financial system to support that, and we have enough room for it. Finding that many tradespeople might be a challenge, but we aren't even trying.

[0] - https://calgaryherald.com/business/local-business/calgary-ho....

Isn't Alberta real estate historically boom and bust?

It’s rather rich to be invited to a party and point out that if the hosts had used their resources better, there’d be enough chairs and food for everyone.

I wasn’t invited to the party, I was invited to move in to the house; and now I’m getting blamed for the lack of chairs when really we have enough room and money to literally install a nice comfy chair for every human on the planet.

That explains Canada’s housing crisis, but not America’s or much of Europe’s. I guess immigration makes it especially worse in Canada, but without immigration driving growth, it would still probably be bad.

The issue elsewhere is not country-wide net population change, it's people moving into just a few cities. So there is plenty of cheap housing where few people want to live

500k - 750k per year in the UK currently.

Here in Norway the primary driver of the housing crisis is that people move from the countryside to larger cities, while hardly anyone does the reverse.

Ironically there's a shortage in the countryside as well, as many of those that move or inherit (ie kids moved) don't sell due to low prices, opting to keep it as a summer home.

And since prices are low it's difficult to get a loan, since sales price is often below the cost of building.

Average wages have never gone down since WW2 (stats are readily available), although immigration may be a factor in dampening the growth rate. For most people on HN, everything before WW2 is before your lifetime.

"Average real-terms pay in Britain fell at among the fastest rates for more than two decades at the end of 2022, as public sector pay deals continue to fall behind the private sector during the cost of living crisis.

The Office for National Statistics said wages in real terms declined by 2.6% in the three months to November, among the largest falls in growth since comparable records began in 2001."

https://www.theguardian.com/business/2023/jan/17/real-terms-...

My comment was alluding to America. UK's a whole different ballgame.

I don't know how immigration work in US but in Europe, most immigrants live on welfare with housing given by governments.

People think that, but it’s not true. The majority is migrant workers, and a substantial portion of them do white collar jobs.

This is a take that would take serious evidence to convince me of. Population growth rates been declining in every western country to the point where, even with immigration, many are below replacement.

"The UK population at mid-year 2021 was estimated to be 67.0 million, an increase of 3.7 million (5.9%) on the population in mid-2011."

https://www.ons.gov.uk/peoplepopulationandcommunity/populati...

> mass immigration.

What are the statistics?

745,000 people in the UK in 2022,

https://www.bbc.co.uk/news/uk-67506641

Also, we don't tax the capital gains of sold additional homes enough. We should tax those gains to the extent that it isn't profitable to own and sell additional property.

Renting shelter is an important piece of flexibility for many people. I was in no position to buy an entire shelter nor tie myself down long-term right after college (and in fact, moved 6 times in the first 8 years, all but one of those being based entirely on my evolving preferences [one was my landlord selling and moving away]).

If you agree that renting shelter is important to many people for valid reasons, someone or something has to be able to own that property that you call "additional" and others call "the place I live".

I agree with this argument, but it's unrelated to taxing capital gains.

Landlords should make money for the services they provide: upkeep of the building, providing living space, etc. But real estate capital gains do not come from productive investment such as in a productivity-boosting new company. Capital gains in real estate are unproductive rentierism, and are a drain on the economy.

One thing that all economists can agree on, from Adam Smith to Ricardo to Marx, is that land rent is bad and should be taxed away. Capital gains on real estate sales are a great way to do that, while preserving profit for those who productively improve land and rent it out to others.

I would agree with you on the capital gains point iff we indexed the basis of properties to inflation.

Because we don't, much of what we call "capital gains" are "return of capital, measured in a greater number of now less valuable dollars". Return of capital should not be taxed.

Is there any other capital gains asset that has an inflation indexed tax basis? I'm not aware of any.

Real estate land gains tend to dwarf any inflation effect, so it's a pretty minor tweak to include, anyway.

Tax treatment of depreciation of buildings is also a big factor here.

Perfectly put. My thoughts exactly.

As someone who rents and is hoping to buy a home eventually, I think both sides are somewhat right. No, I'm not in a position to buy, so I have to rent. However, I think that there's too many single-family homes that are owned simply to rent out right now. I'm okay with multi-family homes (apartments, townhomes, etc) being rented out more than I am with houses. Taxing additional single-family homes that aren't acquired through inheritance or similar means wouldn't affect apartment rentals and would still have the desired effect on single-family homes (which I think was the intent).

> they (politicians) limit the number of new builds,

This theory doesn't work very well, because there are lots of places where new construction is entirely uncapped (politicians are desperate for the new property tax growth), and prices still don't fall there. Prices are lower there than SF/NYC comparables, sure, but still up 300% over the past decade, and still rising every year.

I know everyone takes Econ 101, and then nothing else, but there's a lot more to pricing than just "supply v demand". We have lots of markets with high prices despite adequate supply, or even despite major oversupplies.

> Imagine if it was 'flooded': the diamond market would collapse.

The diamond market was already flooded decades ago (we can literally manufacture diamonds without mining now) and the market still did not collapse.

And of course, the supply price of diamond stones has almost nothing to do with the cost of a diamond ring, which is why Zales can still charge thousands of dollars for a loose diamond stone, that can be infinitely manufactured in lab for less than 1/4th of that price

Prices are almost never supply vs demand. And in a capitalist economy, prices are almost never competitive.

>This theory doesn't work very well, because there are lots of places where new construction is entirely uncapped (politicians are desperate for the new property tax growth), and prices still don't fall there

Can you give an example of such a place?

> the supply price of diamond stones has almost nothing to do with the cost of a diamond ring

Correct. But it does have something to do with the supply of *diamond rings*. Since there is a de-facto cartel between producers, middlemen and retail, it is not easy for new entrants to sell their rings to consumers. So no, there is not an oversupply of real diamond rings that would depress prices. Also, there is a sizeable % of people that want to spend more on a ring, which is quite rare in markets.

Also, I bet that there is a growing ecosystem of individuals and companies producing fake diamond jewellery and selling it direct to consumer (haven't looked into it).

Nobody’s buying property where they think the price will fall. If there’s a cartel keeping prices high, I’d have to be an idiot not to join.

> Nobody’s buying property where they think the price will fall.

Regular people do this all the time. Every renter on the planet is "buying property" that will have $0 resale value to them when they leave, for example.

If every house depreciated to exactly $0 upon move out (or even just depreciated at a controlled normal rate, similar to Japan's housing), most regular people would still buy houses. You still have to live somewhere, and plenty of people would prefer to own rather than rent -- even at a zero dollar resale value.

> almost never

Having agreed with everything up to this point, that's a rather bold claim. I would understand it as "supply and demand are not the primary factor in determining almost all prices". Is this really your claim? What are the factors then? Is there evidence?

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