Supply constraints do not explain house price, quantity growth across US cities | Hacker News Reader

Supply constraints do not explain house price, quantity growth across US cities

nber.org

222 pointspessimizer366 comments

This paper primarily considers house prices and quantities in terms of single-family homes. They use data sources like the single-family repeat-sales index and the median home value from the American Community Survey, which mostly tracks single-family homes.

This focus limits their analysis by not fully accounting for multi-family housing units or rental markets, which are far more significantly impacted by supply constraints.

This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent.

They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s.

[1] https://www.lewis.ucla.edu/wp-content/uploads/sites/17/2020/...

I also don't see a detailed run down in the paper of zoning laws and other local regulations and how that contributes to cost. They looked at a lot of top level numbers (from what I could tell) without diving into the specifics.

Zoning laws while not completely uniform, do seem to follow patterns across the country. The long and short of it is, the more desirable some place is to live, the more restrictive zoning laws and harder it is to get approval for builds and it depresses housing inventory over time.

All of which, they argue, ends up not predicting the movement of prices.

Meanwhile, simple income level does predict the movement of prices.

Doesn't that seem like a given? That people without the incomes to afford housing in a given locality don't own housing there?

No. It’s a given that people without the incomes to afford housing won’t enter that locality, but many could remain from before it was a popular place to live.

Gentrification actually only affects a very small percentage of people who end up refusing to sell and holding out until they cannot afford anymore.

But the point remains that a 90 year old living on Social Security could potentially own a million dollar home.

> Gentrification actually only affects a very small percentage of people who end up refusing to sell and holding out until they cannot afford anymore.

In California, gentrification almost never affects long time homeowners. Once you pay off your mortgage, your only housing costs are maintenance and property taxes which are highly subsidized thanks to Proposition 13.

However, renters who make up 44% of all California households very often do experience increasing housing price pressures which drives them to move to lower cost (and lower opportunity) areas. Some municipalities have tight rent controls, but most do not. There's a state law which prevents rent increases in older units above 5% plus inflation but that is still an allowable rate which quickly outpaces income growth.

I happen to like some rent controls but I'm not saying that universal rent controls are a solution here. There just has to be some explanation for why housing construction costs seem to grow just as fast as housing prices in general. If housing prices are growing faster than wages and the producer price index for materials then it cant just be construction labor and materials!

What I am alluding to is that there is simply a lack of locations which are able to be developed into new housing. Sometimes that's onerous land use constraints, very long project entitlement and permitting timelines which increases financing costs, local taxes/fees or exactions on development, or some combination of all of these!

The surest rent control is widespread availability of affordable, ownable housing.

But that would require builders to build affordable homes, which is the same effort and lower profit than building luxury.

A new construction unit is always going to be priced higher than a similar sized and located unit that is older. This should not be surprising.

The claim that housing supply advocates make about affordability is not that new units will be most affordable than but that older comparable units will become more affordable due to the increased competition. The people who’ve been bidding up the prices on older rental and resale homes will choose the newer housing instead because they are able and more willing to. The older stock becomes more affordable. Time goes on and even newer buildings cause what was once new to become a more affordable option. It should eventually get to a point where nobody would ever choose the older (again, similarly sized and located) units with poor amenities because it’s not worth it compared to newer options that are a better value. And those get replaced with new construction. That’s how a housing market should function.

But instead we have housing that is over 100 years old going for ever increasing prices even without modern renovations. Thats a broken market.

That's not broken. That's location, location, location.

Also, your average 100 year-old house is a much higher quality structure than your average new house. And 100 years old is about the pinnacle of craftsmanship.

Higher location values are supposed to lead to more intensive land use (more dwelling units per acre) but we don’t tax land enough for this to work properly. I’d still consider a housing market without land value tax to be fundamentally broken. Adding on arbitrary constraints on building (eg, beyond health and safety regulations) makes it si much worse.

As for 100 year old houses being considered high quality… there’s definitely going to be a survivorship bias for such buildings that didn’t get replaced while they could (prior to mass downzoning on the 1970s) but they literally didn’t have building codes back then. Lots of money needs to be spent to retrofit old buildings for modern seismic and energy standards.

Also — not saying you’re guilty of this — there is a lot of racial prejudice when folks criticize the “poor craftsman” of modern construction workers compared to those of past generations, as they more often tend to be Latino workers these days.

> "there is a lot of racial prejudice when folks criticize the “poor craftsman” of modern construction workers compared to those of past generations, as they more often tend to be Latino workers these days."

This is nonsense. The reason people say nearly all modern construction and manufacturing sucks is because the primary focus is on reducing costs and increasing production efficiency/speed. Something that needs to be replaced sooner is also seen as a benefit rather than a problem - planned obsolescence.

“Modern craftsmanship is shit” mainly comes from using things like OSB and laminated beams. Anyone who actually studies modern building techniques realizes that modern houses are significantly better than old ones in many many ways - perhaps the only one they’re not being that they’re not using old growth lumber.

> laminated beams

Is there a drawback with those except price? Like do they fall apart earlier?

Where I live there is a separate tax on land and structure. But my understanding is we're unusual that way.

Land tax reform is debated amongst economist. It is a form of wealth taxation, and in America we generally don't tax wealth. And even if we did, unlike having $1 million in the bank - which is a known amount of wealth - the value of land is rather hard to quantify. You could arbitrarily say that all land in the city is taxed at $10 a square foot per year. Clearly that would be inequitable by some land is worth considerably more.

Land, unless it's farmland, generates no income and our tax policy is generally based upon income income tax.

Your average surviving 100 year old house, maybe. I’ve seen enough of them to realize that though they may be build out of wood that is old and hard and thick, they’ve tons of issues that just pile up over time.

Perhaps it is different in temperate climates, but old houses can be an absolute hassle.

Wood isn’t used because it will last forever - brick and stone are better for those purposes. Wood is excellent, just not the best. It’s much more efficient though.

That’s probably a big part of it, but of course making anything stand the test of time is extremely difficult.

Maybe you live in a tropical climate but wood can last 100s of years as long as the roof is maintained. Unless it is a timber house the outer walls will need replacement every 100 years though.

>But that would require builders to build affordable homes, which is the same effort and lower profit than building luxury.

This is only true because they can't build homes in significant volume in most localities due to land use and zoning regulations. It took 3 years in my former neighborhood to build 20 houses, because of the review and public comment period. This is the same story I've read about across the country: any locality that is desirable to live in has had increasingly strict regulations and processes that artificially constrain the building of housing inventory of any type.

Given this, if you can only build 20 units instead of 2000, you'll end up building in the luxury category, as its the only way to maximize any value of the build without other incentives.

If instead they could 2000 or 20000 homes that meet building code, builders could not only compete in earnest but you could do things like selling units at lower prices per unit but its made up in volume, or each housing unit could be denser (like town houses, condos etc).

You can't overlook these aspects. Real estate is not a functional marketplace and should be seen as the definition of government regulation overreach in many respects, but home owners tend to vote in blocs, so politicians won't touch it

Even in places where there’s infinite land literally you can buy 50 acres and develop it tomorrow and people are building it. They’re only building high-end luxury homes. Even the cheapest smallest townhomes are definitely into the low luxury area.

If they wanted to, they could build them much more affordable and save 30% off the total price, but nobody does it. Why not? It takes the same amount of time and you might as well build the more expensive one because someone will buy it and you get a percentage of the sale price.

>Even in places where there’s infinite land literally you can buy 50 acres and develop it tomorrow and people are building it.

Where is there both desirable places to live and infinite land you can build on?

Also important: how are those plots zoned and what is the process for the builders to get approval for their builds?

Builders are building and the houses are selling; in suburbs all over the country. I presume the people buying them desire them, they're spending close to half a million for them.

The builders get approval from the county if outside a city, or the city if inside one, or build a new city.

This doesn’t answer my question. Where is it both highly desirable to live and lots of land to build on? And what are there zoning and building regulations?

“All over the country” isn’t a specific answer to the question at hand

Luxury has the same cost of land and utilities.

Costs like 15% more and sells for 30% more. Building economy is a losing proposition.

Good catch - I definitely should’ve pointed out that I was referring to owners only. In that sense, it’s somewhat of a transfer of wealth from the rich to the poor.

For renters though, you’re absolutely right that they suffer much more directly.

> Gentrification actually only affects a very small percentage of people who end up refusing to sell and holding out until they cannot afford anymore.

Not quite just those who refuse to sell — because housing costs impact the cost of every other local service, maintenance in a gentrified area often becomes unaffordable for those who hold out, and then they can’t afford it. Roof replacement is the classic example. Another example (though not as relevant to the 90 year old on social security) is childcare costs.

No, they specifically looked at changes in income. Incomes go up before housing prices go up.

Correlation != causation. The lack of factoring these locality inputs means they lose the broader context of their conclusion and that’s what makes it incomplete to me

No no, you're misunderstanding. The study did factor locality-specific inputs like the ones you're describing. In fact they included all of them by measuring the actual realized supply production for each locale.

It's that those factors don't appear to matter.

They do matter a lot. I disagree with their conclusion that they don’t matter.

There is plenty of available evidence that when zoning laws are less restrictive and buildings get faster approval the overall cost of housing comes down over time in significant ways.

The way income factors into this tends to be driven by the fact that the weather the neighborhood the more time that is spent at city hall by residents lobbying for regulations to preserve their market values in their neighborhoods in order to achieve artificial local scarcity which drives the home values up.

That’s what I strongly feel they didn’t quantify

What evidence? What papers examine this question and finds that those things make a difference? I’m curious.

One is in regards to the lasting effects of Houston's 1998 zoning reforms[0]

Another looks more broadly at patterns of regulations and how they affect the market[1]

Bloomberg also did some nice reporting in this space[2] as well which goes over many cases of attempted land use / zoning reform and various outcomes, most notably that trying to only single out 1-2 regulations is at best token reforms and more meaningful comprehensive reforms are needed to zoning and land use laws.

This is simply what I have easy access to at the moment, but there is more out there that studies housing as an ecosystem and they all seem to be converging on similar conclusions: the real estate market (housing in particular) is functionally broken around the country

[0]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3659870

[1]: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.32.1.3

[2]: https://www.bloomberg.com/news/articles/2022-05-24/the-limit...

It predicts movement in policies. As neighborhoods get wealthier, they trend toward regulatory capture. Zoning laws get more onerous, building codes get more restrictive (ever wonder why you don't see 25 story condominium complexes for example?) and the cost of entering the neighborhood is artificially inflated as a result.

They correlate, but it itself is not the cause in the sense that income levels directly cause housing prices to go up. What they do enable though, is as folks become wealthier they tend to also spend more time lobbying for these types of city regulations to preserve their home values. They spend more time on this as the income bracket goes up. Couple this with the fact that wealthier home owners tend to be older, they often have more time relative to others in many respects to lobby consistently for the status quo.

The issue I have with the report is it takes none of that into account, and instead takes the correlation (that income rising === higher home prices) without looking more closely at what happens as the income trend goes up.

>It predicts movement in policies. As neighborhoods get wealthier, they trend toward regulatory capture. Zoning laws get more onerous, building codes get more restrictive (ever wonder why you don't see 25 story condominium complexes for example?)

This. Once people are rich enough to have no real problems the setback of someone else's shed on someone else's land and the spacing of outlets in the walls of other people's houses suddenly start looking like things worth caring about, all of which drives down the efficiency by which dollars can be converted into use of land.

>and the cost of entering the neighborhood is artificially inflated as a result.

Worse, it's a feedback loop. High cost of entry means only more of the same will enter

>This. Once people are rich enough to have no real problems the setback of someone else's shed on someone else's land and the spacing of outlets in the walls of other people's houses suddenly start looking like things worth caring about.

Worse yet, the seeming backbone of the US real estate market is that homes are your biggest investment. They're seen as both a place to live and an asset that is a portion of your net worth.

For it to be both, means owners will always incentivize the asset increasing in value and as we see, the result is most home owners will fight zoning de-regulation tooth and nail. Its worth noting that this is true regardless of which political party is in power locally, assuming we're talking about the US.

As a result land use reforms are some of the hardest to get through legislatures in the US. For example, it took years for California to pass a law that simply allows people to rent secondary dwellings on their property, and this was heralded as a big deal because it usurped local regulations banning such practices. Keep in mind, this does relatively little to move the needle on real estate pressures (there's only so many places that have excess capacity of this nature to begin with and there aren't a ton of incentives to create more, as the law is still limited in a variety of ways). This took many years to get through, and its a very very very small reform!

I am both a land owner (I have a niche farming operation, but don't live on that land) and a home owner, and I find this obsessive behavior among other land/home owners to be misguided at best and appalling at worst.

The simple truth is it can be either an asset or a commons good, but it really can't be both. Thats a major part of the issue to begin with, and why I'm an advocate for the Land Value Tax

> it itself is not the cause in the sense that income levels directly cause housing prices to go up.

It quite literally is directly the cause. The price of real estate in an area is overwhelmingly defined by the productivity of the local area.

Productivity goes up → income goes up → real estate prices go up.

Thats too linear and ignores quite a few things:

What really happens is:

Productivity goes up → income goes up → real estate prices go up -> existing home owners and realtor organizations (at minimum) lobby for regulations to keep those prices up -> stricter zoning laws and build approval processes get passed -> demand isn't met as housing supply is artificially constrained to protect existing owners over new entrants, including new housing styles that maximize land usage (e.g., multi story condominiums or dense town house projects)

What should happen is:

Productivity goes up → income goes up → real estate prices go up temporarily -> new builds to meet current and future demand go up (as you would see in any other type of marketplace) -> housing prices come down as there is always going to be incentives to maximize land value in desirable places in a myriad of ways, and doesn't always mean building cookie cutter single family homes as we often see now (due to the aforementioned regulatory constraints that zoning regulations impose)

There is an artificial cap on how it works, and its done through zoning laws and other build regulations that make it anywhere from onerous to illegal to build housing in a maximally efficient way, all in service to protect existing owners home values as much as possible, at the expense of anything else.

This is why I will always advocate for a land value tax. Because it acts as a forcing function: you either pay the tax (which gets higher as time goes on) or you maximize the value of the land (which usually means selling off parcels to meet the tax obligation / lower future obligations, and/or building something to utilize the land, of which the most straightforward is often more housing, and denser the better as it increases utilization)

No, seriously. I am a landlord. How do I set rent? I ask myself: "How much do people around here earn?" And I set my price at ~30% of that.

I am currently selling a house. How do I set my price? I ask myself: "What salary would someone moving to this area likely be making?" And I set my price accordingly.

Literally none of the zoning laws are necessary. This method is how price is set in 100% of real estate transactions in 100% of localities, regardless of any other regulations.

FWIW I'm also an LVT zealot. Have you read Progress & Poverty yet?

I would have been part of a development project that had it been approved[0], would have been involved in selling a high rise of condos, and the question that kept coming up for me is: "how hasn't someone undercut this market yet?" which is why I pursued it.

Because for instance, you'll rent at 30%, but if there was honest market pressure (and lets face it, there isn't) why wouldn't someone else rent at 28%? Or 25%? etc.

Zoning has real hidden costs, as do all the review stages etc.

Whats funny is how stable all this has been for landlords, builders (to some degree) and realtors. If an area is desirable to live in, you would see economies of scale trickle in - like I mentioned in other comments, why do you think we don't see 25 story condos in desirable areas? Thats zoning in action. You literally can't build it even if you had all the money in the world, because the local laws won't allow it[1]

>Progress & Poverty

The Georgism book? I have read it, been some time since I have and should really revisit it.

[0]: fellow local citizenry ultimately rejected my proposal - I knew it was likely but I had to try. Thats why I have a niche business on that plot now.

[1]: and I have some first hand experience here, its what I originally wanted to do with an aforementioned plot of land that is now a niche little farm growing speciality apple varieties

> Because for instance, you'll rent at 30%, but if there was honest market pressure (and lets face it, there isn't) why wouldn't someone else rent at 28%? Or 25%? etc.

They do! And then like all other markets, equilibrium is found, and that equilibrium point is what moves up as incomes move up.

They don’t though not really. We didn’t allow housing to have the same elastic market fluctuations all other markets do.

Yes, there can be minor variations in prices (especially with renting) but the fact of the matter is unlike any other market there is artificial scarcity up and down the chain with real estate

> there is artificial scarcity up and down the chain with real estate

Which, according to this analysis, does not actually significantly affect prices relative to other factors.

I understand your theory and I intuitively don't find it "wrong" per se, but you're staring at an analysis that shows you otherwise. Your critique of it not factoring in things like policy is explicitly wrong: all of those factors are fully accounted for in the ultimate supply elasticity.

So if policy is accounted for (it is), and your theory doesn't hold, it's time to either come up with a different critique of the study or acknowledge it as clear evidence against your theory.

It accounts for them in as so far as acknowledging their existence and assigns them limited scope.

What this paper misses is the behavioral economic aspects that these regulations promote, or more importantly do not promote.

They can see the trees but are missing the forest.

No, those policies only matter, definitionally, in so far as they actually affect the elasticity of supply. The elasticity of supply is what they measured and found it does not matter, ergo those policies (and all related hypothetical supply-elasticity-affecting forces) effectively do not matter relative to other factors (well, one factor in particular: income).

I would have dug a hole and filled it with water if they rejected my permit.

If you set your rent at 30% and months, maybe years go by and no one applies, what do you do?

This is discussed elsewhere but "market prices" are a distribution of bids and asks. A buyer or seller can be on the high or low end of that distribution, which does not change the fact that the distribution itself moves up as local incomes go up.

Market prices are based on whatever number the investor decides to make up.

Whether it be another investor or a website telling them to do so. There is no basis in reality.

The "housing shortage" is really an "affordable housing shortage". Don't get the 2 confused. One is based on reality...one is based on speculation.

Setting rental rates at 30% of median or average income for the area is the wrong way to think about it.

Setting rental rates at 30% of "What the average renter makes" is more reasonable.

This is the issue. There is no "what the market can bear". It is all "that's the way it is".

Every year there is a new excuse why prices go up (covid, fires, elections) but the numbers don't seem to align.

Also, I am not talking about SF or Bay area...the bad math has spread across the country.

Edit: And yes...my area has many vacant homes and even more commercial buildings. They are building high rise towers which people purchase and leave vacant. They buy houses that used to be rentals and tear down the entire neighborhood and leave it that way for years...further pushing out the rentals. It is sad to watch the town I love destroy itself from the inside.

It's not "bad math." It is exactly what the article (and I) describe: real estate's prices are principally set by the local income levels.

If the market couldn't bear it, you'd have vacancy. But you do not.

Wouldn't allowing for high raises raise land value alot for homeowners in say SF?

I.e. it would be in their financial interest to allow it.

I see 25-story condo complexes pretty frequently. [0] Income level is pretty high here. [1]

0: https://www.dccondoboutique.com/midtown-at-reston-town-cente...

1: https://www.bizjournals.com/washington/news/2013/09/24/arlin...

In my experience, a huge number of people spend the most they can on housing. So the local price level is set by the local income distribution. Their observation lines up perfectly with my experiences.

This also suggests two solutions that are bound to be unpopular:

* To make housing prices more reasonable, give everyone a pay cut. * Trying to set a "living wage" is futile since boosting income will feed right through to the price of housing.

Why doesn't it feed through to the price of food? Of vehicles? Of energy?

It only feeds through to the price of certain classes of goods: housing, healthcare, education.

Those are also "markets" that are artificially supply-constrained, through zoning, the AMA, and accreditation.

To be clear, I'm not saying that we should get rid of zoning, the AMA, and accreditation—but we should be much more careful to avoid use of those tools to curb supply.

Food, vehicles, and energy all have elastic supply. Higher prices induces more supply. This is not the case with land.

> This is not the case with land.

Not with that attitude!

Kidding aside, most people looking for housing aren’t buying land, they’re buying housing — which absolutely does not have elastic supply by policy, not by natural law.

Well, they are buying land because housing exists on land. As discussed elsewhere in the thread, if you make the housing upon that land more elastic (e.g. by loosening zoning restrictions), that elasticity pretty much immediately gets baked into the price of land itself.

This is so significant an effect that there is a highly lucrative business in simply buying low-density zoned land and going through the entitlements to turn it into a high-density zone. This does not just generate a free lunch for a developer to build more units on the same plot of land at the same price, it makes the land instantly more expensive.

> there is a highly lucrative business in simply buying low-density zoned land and going through the entitlements to turn it into a high-density zone

Sure, but this is only a lucrative business because despite the land getting more expensive, the housing units are less expensive—otherwise who in their right mind would pay as much for one unit in a duplex/triplex/etc. as they'd have paid for a single-family home in the same location?

Huh? Not sure I'm following.

The $/sqft of housing tends to go up as density increases... for the same reason as the article is suggesting: incomes are higher, so people can eat higher prices.

> The $/sqft of housing tends to go up as density increases

This is only true generally, not within a specific neighborhood, and it's because of correlations between demand and density.

If you look at a neighborhood with mixed SFH and condos, the condo $/sqft is lower than the SFH $/sqft. (To be clear: that's $/sqft of housing space not of land).

Having a diversity of density enables home pricing at different points. Looking only at SFH (as this article does) is missing the forest for the trees, IMO.

The most common reason the simple income level of a region changes is that increasing housing costs push lower income people out, meaning the simple income level is only measuring those who remain.

Except that the order of events goes the other way

> This emphasis on single-family homes in their data sources affects the generalizability of their conclusions about the impact of supply constraints across different types of housing markets, especially in dense urban areas where multi-family units and rentals are more prevalent.

But that's what people are typically complaining the most about, so fair enough that they focus on it.

> They also only go as far back as 1980. The difference between supply constraints between 1980 and 2025 is very small compared to the difference between 1965 and 1980. Take Los Angeles as an example [1]. The zoned capacity of many metro areas was dramatically reduced by the mid 1970s.

That' supports their point though, if the supply constraints differences have been small between 1980 and 2025, but the house price increase has been large, then supply constrains can't really explain house price increase? Or am I misunderstanding your point?

From the abstract:

> These results challenge the prevailing view of local housing and labor markets and suggest that easing housing supply constraints may not yield the anticipated improvements in housing affordability.

If their finding is that increases in incomes leads to increases in demand which then increases prices, that’s not surprising. But their claim is that reducing artificial constraints (onerous land use regulation, discretionary entitlement and permitting, etc) would not have any impact on the supply curve. That’s highly suspect.

To make a plainly true statement which sounds similar to the paper title, "Increasing Incomes Coupled With Supply Constraints Explain House Price and Quantity Growth Across U.S. Cities." Spot the difference.

No, it just means that removing supply constraints doesn't increase supply (enough) relative to demand.

> rental markets

Specifically because the paper is about house price, not rental price. For most people, the issue of achievable secure home ownership is different to rental affordability.

> multi-family housing units

Not really the kind of place that most people want to buy to live in for the remainder of their lives (unless starved of options).

> Not really the kind of place that most people want to buy to live in for the remainder of their lives (unless starved of options).

This is such a true, yet sad, reflection of American society.

> yet sad

Doesn't everyone want to touch grass or have decent access to fresh air and sunlight? I guess if we could hypothetically build really cheap apartments deep underground, it would be sad if people didn't want to live there?

>>Not really the kind of place that most people want to buy to live in for the remainder of their lives

That is purely subjective. I would rather live in a condo in Manhattan than a single family home in Long Island.

> condo in Manhattan

I can see how this relates to housing affordability.

Would you rather live in the projects than a mansion in Bel Air?

would you rather live in poverty or be wealthy enough to afford one of the most exclusive neighborhoods in Los Angeles? lol

A better comparison might be: would you rather live in a 4,000 sqft mcmansion in Santa Clarita or a modest 1200 sqft 3 bed 2 bath condo in Santa Monica?

> would you rather live in poverty or be wealthy enough to afford one of the most exclusive neighborhoods in Los Angeles?

What's that rhetorical question even relate to? Will increasing housing supply somehow make everyone more wealthy? The OP article claims not, and that's because that stock is going to rent-seeking investors, not buyers.

> A better comparison might be: would you rather live in a 4,000 sqft mcmansion in Santa Clarita or a modest 1200 sqft 3 bed 2 bath condo in Santa Monica?

Long Island vs condo in Manhattan wasn't really on even footing either.

I feel like you are trying to draw a false equivalence in both directions to create a loaded question. Obviously the parent is comparing housing of approximately similar value, with different densities and local amenities. My answer is neither: I don't want to live in and maintain a massive mansion nor have to drive 20+ minutes to do literally anything in Bal Air. I'm also not interested in living in apartments which are often not representative of the advantages of urban living because they are frequently built away from transit and business districts.

home ownership is directly tied to rental affordability, as the rental market is always going to be the alternative. Even if people aren't perfectly rational agents, everyone has their own subjective present value function or heuristic to compare the cost of owning vs renting. They may be separate forms of tenure, but they do in fact compete with one another on price/value. If the price of alternatives to ownership were to fall, the price homebuyers are willing to pay would also fall.

> [multifamily housing units are] not really the kind of place that most people want to buy to live in

this is a descriptive norm - observed or perceived behaviors, preferences, and trends among a group of people who, typically, don't really have a choice to buy anything other than a detached house. Family-sized condos are actually highly sought after in dense urban areas where a detached house is an overt luxury, while in suburbs and rural areas they're a rare choice simply because it's illegal to build them.

People respond to incentives. I would rather live in a SFH for the same price, but I live in San Francisco, where that's absurdly expensive. When people talk about the proposed Sunset Tower, claiming "who would ever want to live there" my response is always, "me." If my needs are met by the units, and units are at a discount to the surrounding SFH's, I'd live there in a tower in a heartbeat.

> I'd live there in a tower in a heartbeat.

I used to think this. Then I lived in an apartment for many years, and then I left. There's a big contingent of owner-occupiers in apartment buildings who don't stick around. It's just not a healthy way to live long term. I'm sure there are anecdotes from people who have stayed 5+ years full-time in an average apartment, and enjoyed it, and didn't yearn to be able to walk outside without being greeted by a (sometimes broken) elevator, or get a decent cross breeze of fresh air, or have access to sun all day long, but I'd wager they are the exception to the rule.

Again, I'd be happy to.

Yeah, like I was. Apartments are liminal spaces. Most people with an option leave after they realize this after some years. Even if you're one of the exceptions, you couldn't be sure of that until you've lived that lifestyle long enough.

There has just never been much reason to believe that supply constraints were the primary driver of housing price increases. If they were people would have moved, or somewhere would have ended up being a lot better.

It used to be that housing costs tracked incomes. If you had a medium to high salary you had decent housing. Since the 90s with urbanisation and increased wealth not only do more people want to live in the same places but some have a lot more to invest. So you now need high wealth to have decent housing.

What many really want is housing below market rate so they either don't have to work thier entire lives or can also become wealthy, and preferably both. Which is understandable but not realistic.

Anyone who doesn't believe this should note that this has already been discussed on HN for at least 10 years and still hasn't been solved anywhere I know of globally. But instead still roughly tracks local wealth (and income). And will likely continue to do so.

Because that is what the housing market does. Allocates valuable assets to those who pay the most. Nowhere on the tin does it also say that it promotes social mobility or equality. Maybe it should, but it certainly won't as long as there is the idea that it already does.

That said, is there some effect of supply constraints? Sure. But ultimately it would increase urbanisation, making the situation worse. Affordable housing is already available on the market. Just in places with lesser jobs and living conditions. Which again it is understandable that many don't want to live in. But it isn't a market issue.

> If they were people would have moved, or somewhere would have ended up being a lot better.

sorry, I am not going to bother reading the rest of your comment before writing this reply because reading this part stopped me immediately.

Gentrification and displacement has been a growing issue for decades. Especially in California, people who grow up here can't afford to stay here and end up moving from high cost coastal areas to exurbs in the central valley or inland empire or just leave the state entirely for places like arizona, nevada, texas, or beyond. These are the places that have been growing most over the past couple of decades. Population in the high-cost areas may be increasing too (or at least staying the same) but that's because higher-income people who can afford it are willing and able to move there.

Wealthier people moving to an area is an increase in demand which will make prices increase. The market has then done exactly what it is supposed to.

Probably better to say "expected to" rather than "supposed to". The problem is that income growth is not evenly distributed across the income curve, but instead increases up the curve. So the net effect is that fewer and fewer high income entities own a greater and greater proportion of the housing, and lower income levels are increasingly forced to rent, or---at the extreme lower levels--go without housing. As a matter of public policy, this is not what we want to happen, though I'd agree it is what we should expect given current policies.

An australian study focused on our cities determined that up to 70% of a houses price is due to supply side issues. Largely zoning and land release.

The 2011 Australian Reserve bank study, the 2017 AHURI report, or the . . . ?

Reserve bank from memory, but 2018.

https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03....

Zoning affect for Sydney is listed at 73%

Cheers for that, I do like a source .. in this case it's telling just how many reports over the past decade and half at least say much the same thing!

What gets me is that, ABC reported on this report at the time, however whenever they do one of their "Housing Market" expose pieces its never brought up, focusing instead on some foreign expert who says the supply is fine.

So you get this completely bizarre reporting that jumps from one side to the other depending on the latest person speaking to them.

Depends on the nature of the piece, the amount of free time to expand, and contextual relevance.

ABC Australia, over a long period of time, tends to be balanced and to prefer presenting stories with more domain contect than just a single 'nugget' of isolated current event.

That said, they've taken quite a hit on funding in the past decade (and more) and have suffered bouts of unaligned management (seeking to rip down and diminish public broadcasting as a goal).

That aside, the nature of current nugget reoporting is it's a fact (at some point in time) that a report with a particular take on housing was just released, at another time it's a fact that senior political figures and government policy advisors are touting some 'expert' who has a contrary position.

That puts the onus on the viewer to thread together their own big picture and open Media Watch to frame what's going on.

In an ideal Australia the ABC would be better funded and there would be several hours more a week of good investigative journalism across a fange of subjects.

I dont feel like its intentional bias, but theres an implicit bias when your organisation is largely responsible for training all the new journalists in the country.

Like I dont expect some young journo writing a longer docupiece on the housing market to have researched it to the depth I would like.

But, I expect ABC as an institution to have an institutional memory longer than 12 months.

>Because that is what the housing market does. Allocates valuable assets to those who pay the most. Nowhere on the tin does it also say that it promotes social mobility or equality. Maybe it should, but it certainly won't as long as there is the idea that it already does.

You've hit on the hard reality that neither political side in the US has been willing to squarely face. The housing crisis is not the result of housing policies (though as you say there is probably some marginal effect there). It is the entirely predictable result of unregulated capitalism. In an unregulated capitalist system (defined as a system without any regulation on the accumulation of wealth), income growth accelerates with increasing wealth, and all assets are increasingly owned by a smaller and smaller fraction of the population.

That's why economics is the dismal science - it is impossible to isolate the variables.

No it is why malicious research designed to mislead is useless. This research was done with the goal of reaching a particular conclusion, clearly. You can do that with any subject.

There are some really interesting supply issues here at the level of multifamily tenant.

Now imagine you're a landlord with 500 units and they've all got the same appliances and fixtures. To keep everything in repair for 40 years or so, you'll need a consistent supply chain of all the parts that are ever going to break and be replaced: toilet flush mechanisms, handles, switches, motors in fans, grilles and plates, the shelves in the fridge or range. You name it.

And rental tenants can be especially hard on fixtures we don't own. Every time I clean something I manage to also break something, I guess. It's embarrassing.

When I moved in, I felt like I had thoroughly inspected, and the landlord graciously replaced+upgraded nearly every AC outlet and everything was like-new. But long, long afterwards I noticed that pieces and racks were missing from both the range and fridge, and prevented me from maximizing their usage. But landlord is unable to replace stuff like that for everyone.

When a few things broke around here, I decided to DIY and rocked up to some hardware-supply websites and my local store. Come to find out, these items are special MFH brands, and ordinary mortals cannot obtain them at any price, or they're simply "always sold out" on the open market. And just think about all that's been discontinued or deprecated in 40+ years and landlords trying to conserve the costs of ripping out and replacing HUNDREDS of instances of those because they've become unmaintainable. Now think about landlords who install Amazon Ring or some cloud-based crap with planned obsolescence.

SFH owners can replace appliances and fixtures at a whim, at least more readily than a landlord could, and the costs are all pushed directly to the consumer in SFH cases, so a homeowner should be as savvy in order to map out their long-term maintainability.

And I realized that it would be a disservice to landlords if tenants could indeed DIY, because we'd stop reporting damage or breakage to the office, and self-repair can be horribly detrimental, and landlords have a right to know what's going on with their fixtures and appliances. So I was rather relieved to find out that I simply couldn't replace parts at my own expense.

People generally seem to struggle with the fact that it's the land, not the house that's on top of it, that's valuable in desirable metro areas, but this reality suggests something really quite lucky, which is that eliminating land-use restrictions probably won't tank single-family housing prices, even as it lowers rents.

Incumbents get richer, because looser zoning rules mean the land is more valuable. Renters and those who otherwise couldn't afford to be incumbents get cheaper rent. It's a fortuitous win-win.

yeah but one of the reasons why land value for single family homes is even higher is due to the zoning constraints which cause what I like to call "land value spillover" effects. Land value in suburbs an hour from a city center is higher than it naturally would be because zoning constraints closer to the city center cause housing demand to spread out across a larger geographic area. To give an example in the bay area, the cities of Livermore and Concord primarily exist in the form and population they do today because more homes could not be built closer to the core of the bay area, not to mention places like Antioch, Brentwood, and Tracy.

The American/western aristocracy has nearly perfectly entrenched their power with housing policy.

Housing is the major wealth store for the middle and lower class. Most in the middle and lower class will spend major portions of their income on this for many years of their life.

If supply goes up, then the middle and lower class loses significant amounts of their wealth immediately since buyers have more options. If supply goes down or fails to keep up, then housing becomes increasingly unaffordable and the wealth of people who already own goes up.

What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable.

So because housing policy discussion takes place under these conditions, it's nearly impossible to have a reality based discussion because almost everybody loses except societies richest.

"Housing can either be an investment or affordable."

Almost everyone in any position of power or with institutional reputation has an extremely vested interest in both keeping the broken status quo and convincing people that absolutely anything other then basic economic theory of supply and demand is chiefly responsible for housing prices.

Housing might be the major wealth store for the middle class (although I doubt the lower class is collectively storing much wealth in housing), but its the rich who own most of the land and collect rent from most of the lower class and some of the middle class. The rich may not care so long as they collect checks, but I think they stand to lose the most in absolute dollars if more housing is built that they don't own.

IMO, its the middle class holding up the show because they are actually owning homes, and even though they may never actually sell their home they cling to an ever rising hypothetical valuation.

> I doubt the lower class is collectively storing much wealth in housing

Doesn't directly answer your point regarding wealth, but FWIW 47% of people in the bottom quintile own their home. https://www.minneapolisfed.org/article/2024/homeownership-am... It's actually near a 35 year peak.

47% is still substantially lower than housing owned by the rich. On top of that, the housing owned by the lower class tends to be lower value. They probably “own” their house through big mortgages, which is just another form of rent paid to the rich.

The value of their home for the lower quartile, and probably the bottom 3 quartiles will be >100% of their net worth.

> 47% is still substantially lower than housing owned by the rich.

Yes, which is 80+%. Though it's only slightly less than the homeownership rates for the middle quintiles.

> They probably “own” their house through big mortgages, which is just another form of rent paid to the rich.

That article also mentions that home equity constitutes 38% of total assets--the largest chunk--for homeowners in the bottom quintile. Which AFAICT (in a quick search) is greater than the top quintile but less than the middle quintiles, though it's unclear if those other numbers are for just homeowners in those quintiles, or overall averages.

Unless I’m missing something, that’s quintiles of absolute wealth. I’d be curious how the data shakes out for the lowest quintile calculated relative to costs of living.

I've been thinking about this for a long time and am going to try to explain it as best I can.

> "Housing can either be an investment or affordable."

This an important point although I'd describe it slightly differently

> Housing can either be a speculation backed by NIMBY or affordable.

In general parlance, an investment is something you buy that makes you money. I think this terminology is overly broad. In economics, capital is something that helps you produce something else, e.g. tools and locations to produce. The proper price of capital is tied to the returns on investment over time. Usually when economists talk of investment, they are talking of capital purchases.

Housing (e.g. a house, apartment, condo etc) is an asset, but it doesn't really do the thing that most capital does because -- much like food -- past the basics to live it is a lifestyle consumption good. Housing is consumed as you live in a place, the wear and tear that occurs. We produce more as we repair housing or build new ones. But the housing doesn't really provide a return, unless you sell it to others through renting.

When people are told to "invest" in a house, they are being encouraged to purchase _and speculate_ on their own consumption good. This speculation is based on the assumption the price will go up, not that you will earn a stream of payments because it improves your ability to produce. The only way for this asset to grow in value is for the supply to be artificially constricted.

So the fact that people have been sold an investment lie and tie up so much of their wealth in it leads to exactly the political results you have pointed out.

> sold an investment lie

But it's not a lie if the majority of people do it.

Part of the "invest in your future through buying a house" is a notion of investing into your own safety, as contrasted to renting. Rents may go up unsustainably, but your house is still yours. Nobody can evict you from your house for not paying rent. A house is a relatively liquid asset, so if something really demanding happens, you can move and downsize, unlocking some of the wealth invested into the house. If you rent, you can also move to a cheaper place, but it won't free up a lump sum.

So the idea of "investing" is not purely speculatory.

It is speculative for the simple reason that the land value may not increase over the long term.

I live in Washington, D.C., which could very well lose a substantial portion of its population permanently. I suspect we will be underwater on our mortgage at some point in the next few years, and would be surprised if in the next ten we experienced any increase in wealth attributable to buying rather than renting.

> Housing is consumed as you live in a place, the wear and tear that occurs.

the building is consumed. But housing is more than just the building - the location is also part of said "housing". Location doesn't get "consumed". And in fact, it is the location that appreciates (while the building itself does depreciate over time).

The investment is not in the building (tho you do pay for it - minus the depreciated portion i suppose, if you're a savvy buyer). It is in the location.

I mean the problem with this argument is this: nobody in the affected areas who owns property is actually middle or lower class.

Homeowners in areas where housing is totally unaffordable area either extremely wealthy, by definition, because of their property ownership, or they're wealthy enough to pay a mortgage on an absurdly expensive property.

Where housing-as-good-investment is successful is really only in areas where shortages exist. You're not going to harm the middle class folks in Tracy by fixing the housing crisis in San Francisco.

>extremely wealthy, by definition, because of their property ownership

That's not true today and probably has never been true

Homes today in SF are worth about $1.5M. That's a non-trivial net worth when you actually look at American net worth by percentile.

I agree it's non-trivial wealth. But it is not a passive asset. Unlike most forms of wealth a) you pay taxes on it and b) it requires constant upkeep as nature is trying to destroy your wealth.

$1.5 m would classify you as extremely wealthy 100 years ago but today it would require an order of magnitude more to be in that class.

OK, assume some old lady currently owns a house if SF that would cost $1M to buy. She bought it, say, 50 years ago, say, for $50k. It's an impressive 20x ROI, no doubt.

But does it make this old lady wealthy, if she is not selling her house and moving to Arkansas, where $1M would go much farther than in SF? May it be that she's struggling with her day-to-day expenses in SF?

Wouldn’t the argument then be that it shouldn’t matter to her if her house goes down a bit in value since it wasn’t liquid wealth anyways?

So it’s a win-win in a way - either you’re rich enough to pay the mortgage on an expensive property in which case lowering property values in expensive locations is a bit redistributive or it won’t affect you really in which case who cares?

Net worth calculators[^1] would put this woman at the 88th percentile of wealth in the US. Yes, I think that counts as wealthy.

I obviously think it's mostly absurd if you think a woman who bought 50 years ago in SF has a house worth only 50K. The vast majority of houses in SF that would have cost 50K, 50 years ago. The average home in 1976 was $65K,[^2] and the median home price last year in SF was $1.4M, at effectively the 90th percentile of American net worth. If you don't think top 10% of wealth in America counts as wealthy, then I don't know what to tell you.

[^1]: https://dqydj.com/net-worth-percentile-calculator/

[^2]: https://imgur.com/1976-article-on-housing-prices-sf-bay-area...

> that would be devastating in the short term to the middle class

Well, the thing there is, that wealth doesn't really exist for most people. Housing "wealth" in the US is basically imaginary because you can't use it without moving somewhere else, and everywhere else is equally expensive!

> you can't use it

you can't "consume" the wealth. But you can use it by leverage into loans, which can be invested elsewhere to make more money.

And if you owned more than 1 property, rental income is an additional vector.

The wealth isn't imaginary. It's just illiquid.

HELOCs are a thing.

Exactly, it is an artifact of the definition of wealth. If a family needs a house to live whether that goes up or down is irrelevant for them.

It will be useful wealth once they die or they are forced to sell and move out to the countryside in their old age. Available income or what can be liquidated without affecting once life is actual rich peoples wealth.

Anyone who owns a house can sell it, move into a rental, and reinvest the proceeds in the stock market. They’ll be better diversified and can expose themselves to a wider spectrum of risk/reward profiles.

If Americans are clinging to their house because they perceive it as a “store of wealth,” they are not thinking clearly about the full spectrum of their financial options.

You're just trading one kind of risk for another. When you own real estate you have a lot more control over your cost of living.

That said, I think it would be fair to distinguish proper ownership from paying a 30 year mortgage. There's really not much difference in economic terms between renting and 3 decades of structured payments once you factor in insurance, fees, etc.

If you own real estate outright and it's homestead in a place like Texas, your total monthly burn rate could easily be <$1000. Why kill yourself with delusions of grandeur in the market? It's significantly easier to control your own consumption habits if you want to wind up with a net gain.

life is so easy. just plug numbers into a spreadsheet so the math will make rational decisions for you.

The only reason it would be devastating is because of mortgages. People don't want to liquidate their homes, they just want somewhere to live, so shifting house prices would be totally inconsequential for a homeowner. The market price of your house would be lower, but then so would the ones you want to buy. Makes no difference.

This is because houses don't really lose or gain much value. The worst that can happen is the building falls apart.

Houses aren't worth a number in a made up money system. Their worth is real, tangible: shelter, warmth, comfort etc.

Why can't more people see the banks are the cause of this? They can print out money for houses at their leisure. It's not like it's a conspiracy or anything, there's tons of information out there about how 2008 happened including major Hollywood films. They do this openly. Of course it looks like house values are going up more than they should, you're measuring value in numbers that can just be made larger by the banking sector.

>What's best for society is if everyone who's wealth is tied up in property takes a hit to their wealth so that housing becomes affordable and loses it's status as primary wealth store, but that would be devastating in the short term to the middle class and therefore completely politically untenable.

This is true if the "hit" on wealth is linearly distributed. But since income growth is not linearly distributed (it goes up with wealth), it's reasonable that the tax (or whatever form it takes) should also be progressive, perhaps to the point where it excludes properties under $1M, for instance, thus sparing the bulk of the middle class.

If you only do something about homes priced higher than $1M it won't solve the problem that no one can afford a starter home any more.

It's not about the individual homes, it's about the aggregate holdings. If people with large asset portfolios (and corresponding large incomes) stop buying homes because they have an incremental carrying cost to them due to taxes, the prices will drop for everyone. The problem we have now is that big PE firms are buying up single-family homes because they have the massive incomes to out-compete everyone else in the market. They then turn around and lease those homes to increase their income even more.

Same thing with people’s retirement accounts. If everyone’s savings were just in the bank getting 1% interest no one except the wealthy would care if the stock market eats shit. Instead we can’t stop the insanity of individuals with 100s of billions of dollars due to the entire worlds retirement savings fueling insane market prices.

Independent retirement would be impossible with 1% returns. With the market's historic rate of return (around 6% after inflation), an investment doubles every ~12 years. A dollar saved at 30 years old is worth ~8 dollars by 65. In a scenario where 1% returns were the norm, a dollar invested at 30 would only be worth $1.40 at 65!

Also, since you wouldn't get much income from investments while retired, you'd have to save way more in that scenario to be able to retire. Sounds like a miserable alternative.

Scanning the paper, I don't see an answer to the first question I have if I assume their basic premise (that house price growth correlates to income growth): is the actual profit on home construction constant (or even shrinking)? One would assume it would be, if their data also controlled for confounding factors like regulatory limits, economic stagnation, etc.

In other words, it is my position that the burden of proof should rest on people who claim that the laws of supply and demand fail to explain what the obstacle is to equilibrium in the market they're studying: why if I increase supply does price not come down? My instinct is that it's just more expensive to build homes on the same profit margin than it was over 40 years ago, when their data sampling begins. I don't believe that the real estate industry suddenly had a collective awakening to greed.

Maybe investors can stay solvent longer than you can stay homeless, or stay with 1 hour commute, or new builds coming up quick enough.

Good answer

Perhaps this time will be special, given so much government protection (i.e., market manipulation to maintain house prices).

But investors at the current scale includes vast numbers of individuals' personal wealth and retirement accounts. I'd expect them to jump out well before they personally reach insolvency if fear ever overtakes greed.

Real estate is very illiquid - and ‘valuations are high, but the market is grinding to a half because demand is dying due to increased borrowing costs’ is exactly when it is nearly impossible to get out.

Once things ‘snap’ and it starts to shift, well… then it’s too late.

It's the land price. Rising land prices are the problem, and land is in completely fixed supply. You cannot induce more supply with rising prices. Land is the dominating factor, ergo local variations in housing elasticity don't really matter. Clearly there is some inelastic thing that is eating all the increased local income without inducing more supply: it's the land.

Edit: To the people saying "you can build more on each piece of land!" sure you can. And that should definitely mitigate price increases, but that's exactly what this paper says actually isn't predictive of prices, clearly because cost is dominantly driven by something that isn't affected by this elasticity. The value of higher density development gets immediately baked into the land prices, which then does not induce more supply of land.

Land prices have been rising because of easily available funds.

Land prices have been rising mostly because of productivity gains. Land is completely free. There is no inherent cost to it. All cost is derived from its productive power, and productive power rises as technology improves and as people congregate in greater density.

You could outlaw loans altogether and land would still not be anywhere close to free.

with enough price you can raise supply of anything.

“Supply” in economics is the function mapping market clearing price to quantity supplied. Even if all supply curves slope upward, that's not increasing supply with price, it is increasing quantity supplied with price.

or in dubai you just make more land. most of the earth is covered in water.

Land is fixed, but land-per-dwelling is not if you build more densely

The same land is more valuable if regulations permit higher density development.

if you permit more density on a small amount of land, the value of that land will go up. there's only a few places to put the new units, so the good land is scarce, and the price goes up

if you do it over a whole city, i'm not sure it still holds. not as much, anyway, since the developers have more choices on where to build

I'm not sure that's an experiment we'd see unfold due to NIMBYism. (Not commenting on whether that's an appropriate reaction, just that it's inevitable.) So I wonder if within realistic constraints it's still a fairly safe assumption?

the city i'm in has done it up to 4 units. it's pretty recent (less than a year, i think), so i don't expect to see much effect yet

NIMBYs did indeed get involved: you can build up to 4 units in basically any residential zone except for the "rich people" part of town

more cities seem to be doing this sort of thing. hopefully we'll have more/better papers on it in the near future. (and hopefully it works)

But trying to suppress land prices by limiting its uses just pushes those price increases nearby.

The most disastrous idea in urban planning is that prices can be kept low by limiting use, and trying to preserve "affordability" for a narrow slice of the middle class. It has failed entirely.

No one in this thread is proposing that

I'm not aware of anywhere that does this? Limitations on use are popular with residents wanting to maintain the character/density of their area.

But the study looked at detached SFH, not multifamily

land is in fixed supply, but the amount of land needed per housing unit can be reduced by easing regulatory limits on density

Lots of people can live in a single unit of land, unless local zoning rules actively forbid that.

Tokyo occupies about twice as much land as Los Angeles, but has four times as many people.

Too many American cities forbid even relatively modest density such as duplexes or small apartment buildings (with, say, 6 apartments per building).

Demanding that people in metropolitan regions build exclusively single family homes on large lots is insanely uneconomic, and, arguably, a failure of democracy at a local level.

You also don't even have to urbanize all that much to get higher density.

Nassau County in New York is one of the birthplaces of postwar suburbia and has a population density higher than Los Angeles County, ranking at 22nd in the country. (4,705 people per square mile vs 2,420.)

To be fair, LA County includes mountains (Angeles National Forest among others) and a desert and a whole lot of nothing on the other side of those mountains. Nassau County is almost all developable land.

I bet if you compared like to like, the density won't be too far off.

To add to your edit:

Lots of land is, literally, dirt cheap.

There's externalities in having a home that aren't just the land itself, but also the infrastructure per person. The infrastructure costs are why very few people are buying up land in e.g. California City[0] and popping a cheap concrete[1] or steel[2] box (depending on your preference of 3D printing or prefab/shipping container houses) in the desert for less than many people here earn per month.

Did you want a road with that house? Running water? Electricity? Internet? A police force?

Yes, these things are all doable. But they also add to the value proposition of a property ("it's in a good area"), driving up demand, meaning people can charge more for the land, and if you're going to spend a lot more on the land anyway then you might as well make the structure of the home itself a bit nicer, and it all blows up rapidly.

Police in particular are currently getting more expensive thanks to Baumol's cost disease, because policing isn't automated: https://en.wikipedia.org/wiki/Baumol_effect

I'm not sure how costs of sewage etc. change with increased population density. Pipes have to get wider per person, but low-density also means they're longer.

[0] https://www.landwatch.com/kern-county-california-recreationa...

[1] https://web.archive.org/web/20180926121023/https://www.busin...

[2] https://www.alibaba.com/showroom/prefab-container-house.html

> Did you want a road with that house? Running water? Electricity? Internet? A police force?

School systems are a huge factor in this for many folks as well.

IIRC where suburbs get the short end of the stick is lifecycle replacement. The primary costs for replacing pipes is in labor hours, not really pipe size, and it takes longer to replace more miles of pipe.

> I'm not sure how costs of sewage etc. change with increased population density. Pipes have to get wider per person, but low-density also means they're longer.

Probably accurate to say that in general, the great majority of the cost of infrastructure is in labor, not materials. It doesn't matter if pipes are a little wider or longer; the labor of digging up dirt and installing pipes, and doing that over time as things need maintenance, would far exceed.

Respectfully, why would data be controlled for "regulatory limits" and "economic stagnation"? Regulation is a constant factor, historically, not something that would be controlled for. You could have something like a "regulatory constant" but then you would need one, historically, to make it meaningful. It would also likely have to be local. None of that will exist. How exactly do you define "economic stagnation" and how would one control for it, assuming for one second that would be desirable to do so?

There is no "law of supply and demand" in the real market, only in textbooks. There is only the factor of supply and demand. Therefore, raw supply and demand is not an assumed default explanation for pricing. No one is obligated to explain why supply doesn't seem to explain price. Though, anyone is welcome to pitch as to why it might for a particular circumstance.

Other variables that are sometimes interlinked: international cash buyers, institutional cash buyers, global dollar and therefore asset and commodity value in USD (inflation), skilled labor costs and availability, interest rates, the white and blue collar unemployment rates, changing lending criteria, the cost of gasoline, regional population fluctuations, the bond market, etc.

Regulation is not a constant factor.

Regulation is not a constant factor. It varies from place to place, and has generally increased over time.

You're misusing the word "factor".

Regulation is always a factor in the United States. Whether it is a significant or insignificant factor is the question. Regulation is historically in flux, and local, which is why it can't be controlled for. And why would it be, besides?

Perhaps I misapplied the word "constant". What I meant to say is that theoretically there could be a varying formal measurement, but that this is impractical for the reasons stated.

> why would data be controlled for "regulatory limits" and "economic stagnation"

because they significantly impact housing markets but aren't the primary variables being studied

> Regulation is a constant factor

Wow

How can regulation be "controlled for"?

"Constant" was misused as a formal term, as admitted. Regulation is still always a varying factor and can't be controlled for. My other points stand.

> There is no "law of supply and demand" in the real market, only in textbooks.

Louder for the people in the back.

If sellers are not in a particular rush to part with a given good, for whatever reason, there is no reason for an over-supply to lead to lower prices. They will simply hold stock until such time as it sells, confident that it will. Does that always pay off? Not necessarily but with housing both in the selling and renting markets, it does so often that I don't think any particular holder of real estate is too worried about it. You can sit on vacant property to your heart's content and somewhere down the line, someone, or some company, will likely meet or exceed what you're looking to get out of it.

Real estate also has the handy benefit in it's basically guaranteed to hold value, and it's unexpected if it doesn't increase in value year over year.

> If sellers are not in a particular rush to part with a given good, for whatever reason, there is no reason for an over-supply to lead to lower prices.

This just says that supply isn't very elastic at that point. It's hardly the only market where supply or demand isn't extremely elastic. Understanding that supply and demand might not be straight lines of unit slope is an econ 101 concept.

> Real estate also has the handy benefit in it's basically guaranteed to hold value, and it's unexpected if it doesn't increase in value year over year.

And the unfortunate cost called property tax which puts a drag on any earnings and compounds losses.

It's an asset class like any other. My house did a real 2x after California's low property taxes over the past 20 years, plus there's my owner's imputed rent which is maybe worth another 0.5x for a total return of 2.5x. It's also had tax deferral on the earnings and the values are a little less volatile than the stock market. OTOH my equities did more like 8x over this time.

In Ireland as well as property tax we also have a dereliction charge for sites/properties, it's been on the books since 1990, but recently being leveraged (clumsily) to punish land hoarding in urban areas. It's currently 7% p.a. of what somebody declares the market value of the land is, and the land can also be subject to a CPO unless remedied. The LPT local property tax is a fraction of 1% p.a. typically 0.1% (subject to regional and valuation variables).

Here in California, we tend to have total property tax rates of ~1.5%, which includes improvements like buildings. For various reasons, this is lower than the rest of the country which is more like 2-2.5%. But also, the assessed values of buildings tends to be artificially low in most places. These low assessed values discourage real estate changing hands, because the new owner would often have to pay more.

There's a lot of economists who think we should have a higher tax rate, but only on the true market value of the land, to promote efficient usage of real property.

>>If sellers are not in a particular rush to part with a given good, for whatever reason, there is no reason for an over-supply to lead to lower prices.

Well but then there is no oversupply, is there? Like if I have an apple and you want to buy an apple, the supply of apples is zero UNLESS I decide to sell. In the meantime I could have 10 thousand apples and the supply is still zero until I want to sell. Houses that are built and not available for sale are not part of the supply.

> If sellers are not in a particular rush to part with a given good, for whatever reason, there is no reason for an over-supply to lead to lower prices.

This issue is compounded because sellers have to them become buyers. People don't sell their house and then drive themselves into the ocean. For most people a house is where they live. If they sell it they need to buy a new one.

Their motivation for selling is then a function of the house's potential sale value, their new house's cost, and financing rates for them and their potential buyers. If they currently have a very low fixed rate on their house then a new house at a higher rate isn't attractive depending on their current house's potential sale value.

This has the effect of constraining supply and demand.

That's like saying "there are no perfect spheres in the real world, ergo Newton's Laws are bunk."

I am not a simpleton. I am aware that perfectly elastic supply and demand curves pushing to static equilibrium is not how the world works in practice. But if economics as a study of resources and its markets is going to be a rigorous field, it has to start from some general principles and then explain how paradoxes are consistent in a general framework of limited resources and unlimited wants. Otherwise it's not a serious discipline, just ideologues playing with SPSS on data sources of quality we can only guess at.

If there building more houses does not lead to an easing of prices on houses, then we deserve an explanation and a rigorous confirmation, not speculation.

> why if I increase supply does price not come down?

Over what window?

There's clearly already a pent up demand for housing due to it currently being unaffordable. There's also clearly already a demand for speculative investment real estate, some of which is also pent up due to rising prices and constrained supply.

If the investors are still going to be in the market at the current price, and they snap up all available supply, then the price for housing is not going to come down immediately. It will only come down if you increase the supply to more than the demand of the investors. Only then will the price come down, and then people who just need a place to live may engage with the market.

The prices coming down isn't a simple on/off switch, especially in a market as complex as real estate.

Are investors buying and keeping places vacant? There has always been talk of that in places like Vancouver, but I have not heard of that in the US. All the conspiracy theories about vacancies are about the for-rent new buildings, which doesn't make sense either.

100% agreed about there not being an on/off switch for pricing, real estate pricing sticks high, and it takes a shock to make people reevaluate what they thought there property was worth. The very very minor increases in supply when there is massive pent up demand will not alleviate prices much, even if it staves off price increases.

Absolutely they are! We're not talking complete vacancy, but 10% is the bottom of what I see for new buildings in my midwest city. These are built less than 10 years ago, and several have 25+% even after all that time. It seems that they're willing to let vacancies happen instead of lower rent rates.

Anecdotal obviously, but the closest one to me has been consistently over 50% empty due to bad construction and design, with no interest in fixing it to fill in the leaking units. Another 90 unit one has had trouble renting at the "luxury apartment" rates they were built to get because they looked landlord special day 1. They haven't lowered rents, only left units vacant.

> It seems that they're willing to let vacancies happen instead of lower rent rates

Anecdotally (as well), no small-time landlord I know wants vacancies over accepting lower rents. Almost all of them, however, would prefer a vacancy over getting a problem tenant who will be late in rent, not pay at all, or trash the place. This effect is especially strong in places with strong tenant protection laws.

Professional management companies of big apartments might be different.

In some cases. Real estate is not something you can do hands off management of. Historic attempts to outsource have tended to fail because it is really easy for management companies to say something needs more work than it really does and drain all the profits. As such if you know a property in a different city is going to go up the smart things to do is buy it and leave it empty while paying taxes - this is cheaper than fixing the roof, risking bad tenants and all the other things that a long term investment requires. This really only works if you hold for only a couple years though, otherwise the taxes/interest will eat your profit.

Note that the above limitations also limit how much can be invested this way. Most property won't go up by enough to be worth the investment costs.

> why if I increase supply does price not come down?

We're making more and more luxury cars, why is the price not coming down?

From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.

I know a number of builders in my neighborhood. There's a number of compounding issues: labor costs are higher, which means the customer wants to maximize resale value by amortizing lot costs. This dovetails (in Texas) with carried property tax rates; so, lots in city boundaries increase in price faster than you'd think just sitting around. Second, the builders tend to buy material on futures, which means you lock in price + volatility. There's been a buttload of volatility over the last 12 years, adding to the cost of materials. Inflation has hit building materials pretty hard (wood, concrete, steel).

Last, and this is really hard to convince some people: the amount of rebuilding due to natural disasters has skyrocketed. Due to the way insurance & federal relief works, that work is far preferable to labor than spec work. This has put a huge distortion in the new build market.

As a country the, US and everywhere else too, should focus on Disaster Resistant builds. It should be in the building code.

High wind resistant, fire resistant. Landscaping too.

> should focus on Disaster Resistant builds

They absolutely do. Look up all the building code changes post Hurricane Andrew in the 90s. Those changes spread through the whole southeast and have made wind almost a non-factor. The problem is and always will be flooding. My house is built above the '100 year flood' line to fit code which helps. The problem is either older houses or houses built in areas that didn't historically flood enough for people to consider it a risk.

> Those changes spread through the whole southeast and have made wind almost a non-factor

This is great, but ugh, I live along the Gulf Coast and for the life of me I don't understand why more people don't build with concrete (block or poured) walls, instead of stick-framed! Sure, you can build wood to withstand wind up to code, but you can't make it termite-proof, of which this region has an abundance.

Some taller apartments I've seen are built with steel frames on the first few floors, then concrete above - is termite resistance the reason?

Probably would take an engineer to answer this question. It's entirely possible that building the first few floors with wood would be more expensive than steel due to the additional lumber needed for strength.

> We're making more and more luxury cars, why is the price not coming down?

Because more people are buying them. If you make more and more of something and you can still sell all of them without lowering the price, it means there is still more demand for that thing.

We’ve under-built housing for almost 2 decades. The long term demographic trend is that people are moving out of rural areas and into urban areas like Omaha, so the fact that there would be more demand for than supply for housing in Omaha is entirely expected.

> From looking around Omaha, I see they are primarily increasing the supply of high-end homes. It follows that for a given lot size, it's the way to get the biggest profit.

What you say is true, but also not a problem.

When I was college I lived in an apartment in Chicago with 3 roommates. Our apartment had a servant's quarters. The dining room (which we also used as a bedroom) had a metal tube with a bell that connected to the servant's quarters. Obviously, at one time this was a luxury apartment, but my share of the rent was only around $500. It became affordable housing. Today's affordable housing is yesterday's luxury apartment.

Not sure the details of Omaha, but where I live in Los Angeles, insane building codes make it incredibly difficult to profitably develop affordable housing. The very nice apartments I lived in when I lived in Tokyo would all have been illegal in Los Angeles.

> Not sure the details of Omaha, but where I live in Los Angeles, insane building codes make it incredibly difficult to profitably develop affordable housing. The very nice apartments I lived in when I lived in Tokyo would all have been illegal in Los Angeles.

That's not what affordable housing is. You probably didn't live in affordable housing in Tokyo (edit: of course I could be wrong, but it's not my first guess). Yes, your housing was affordable. But affordable housing in US cities is subsidized and price capped, with income restrictions.

Well it wasn’t affordable housing in that sense, but it was affordable in the more general sense: my rent in Tokyo was around 15% the median Tokyo salary. Good luck finding that in California.

Any new housing brings down prices or stops them from growing up as much.

https://news.ycombinator.com/item?id=37524331

I understand you're making a brief comment outlining a position, but personally, I don't see how you can be satisfied with that explanation.

Say I have two opportunities, one pays $200/hour and one pays $100/hour. But I can only do the higher-paying one for 10 hours a week. If I have more capacity and I want to have more than $100k in annual income, I will work the less profitable job, even if it doesn't provide the maximum profit.

Similarly, in the market in general, if there's demand for housing at a lower profit margin, and there's spare capacity to build it, it should happen. People don't just take the highest profit margin opportunities and toss the rest in the rubbish. So I think there has to be a deeper issue, for example there are costs that make the profit margin so low (or even negative) that the opportunity doesn't attract sufficient labor to build the supply.

> We're making more and more luxury cars, why is the price not coming down?

I don’t think this is true, especially per capita:

https://www.statista.com/statistics/204208/north-america-veh...

Also, “luxury” car is relative. An entry level car today will have many features from a luxury car from 20 years ago. Also, “luxury” brands will intentionally not make too many cars to maintain the brand’s exclusivity. Otherwise, they would not be able to profit from price discrimination:

https://en.wikipedia.org/wiki/Price_discrimination

So price per car feature and per mile has certainly come down, a lot. But simultaneously, people’s expectations have gone up.

> We're making more and more luxury cars, why is the price not coming down?

Because supply and demand are carefully watched. Manufactures are not just making more and more luxury cars, they carefully study the market and adjust supply so that their price makes sense. Remember all the materials, labor, engineering, management and other overhead sets a floor to price of a car, they carefully watch the numbers to make them work. They might be making more cars, but they are not making infinitely more.

it's worth noting that the opposite, not making any higher-end homes, doesn't actually work to increase affordability either.

we actually saw this when new cars became unavailable during the COVID supply chain crunch and then used car prices skyrocketed. the real estate equivalent would be literal tenements in New York renting at $4-5k a bedroom.

Luxury cars are much cheaper than they were. Any new car today would have been a luxury car a couple of decades ago.

Yes, this. Also, hate to use this argument but this simply doesn't match my lived experience. My rent and income have been going up for the last 10 years and yes that means I'm paying more and more for housing. However, my city rubber-stamped a glut of housing in one neighborhood and as my income went up, I was able to negotiate my rent down.

This phenomenon is a direct contradiction to the thesis of this paper. It is true, the people who people the glut of housing are currently freaking out because their margins are threatened. That's probably a good thing..upto a point [1].

The solution seems simple: rubber-stamp, nay, encourage developers into building gluts of housing so they demolish their own margins into dropping the price of housing.

[1] https://oaklandside.org/2025/02/14/oakland-downtown-apartmen...

As somebody who has been involved politically with trying to increase supply (unsuccessfull), so that more people could experience what you are, I would note that Tori experience does not technically deny that supply is a big component of pricing.

It just says that there has to be something more too.

However, NIMBYs will use this paper inappropriately to argue against policies that enable your type of price drops.

Can you help me understand your argument. It seems to hinge on the idea the existence of a counter-example proves it wrong? I could see how this would work for a logical argument or a proof, but I'm finding it difficult to see how it fits into proving ultimately a statistical finding incorrect. I generally see statistics as being able to tease apart situations where there are counter-examples and we're looking at things like proportions between categories and such.

Yea which is why I started with “hate to use this argument”. Definitely anecdotal but the kernel of truth is that income and rent going up could be a correlation with a different causation and as many have pointed out in this thread the paper inadequately controls for this.

This is especially dangerous now as papers can be used as hard truths in a misinfo driven information culture to see policy.

Markets depend on both supply and demand, and there’s been a massive decline in the number of adults living together.

So the underlying explanation is likely that your personal salary has basically zero impact on the housing market, once you make enough to cover rent you end up paying the market rate. What matters in terms of short term trends is the marginal increase or decrease in people’s willingness to have roommates, live with their parents, etc.

When times are good and more people are gainfully employed the demand suddenly shoots up, in a downturn people suddenly move in with others become homeless etc. By comparison adding 2% housing units just doesn’t have nearly the impact it seems like it should.

The market also depends on your wants. One house is not always equivalent to another. Location matters of course. However layout, color and other features matters (some of them are trivial to change some not).

Adam Smith observed that when people got more money they tended to spend it on better housing. That observation is mostly true today.

People do get better housing, but the share of income spent on housing drops as wealth/incomes rise at the individual level.

There’s just diminishing returns on the value of spending more on housing vs other things like going on interesting vacations.

Income determines house prices because there is not enough supply.

Without enough supply, what stock is available gets bid up to the maximum people can pay (largely decided by banks).

This is like a basic cornerstone of economics!

This would be true were private equity not buying up housing stock. That being the case income is now to some extent detached from housing prices.

[1] https://www.washingtontimes.com/news/2024/mar/15/in-shift-44...

private equity is no different than any other buyer in a diverse market of buyers here. it sounds bad but they are just bidding like any other buyer

This is of course true, and the extreme aversion to private equity buying houses versus any other investor such as a person buying a second house to rent out, has puzzled me.

Those small time landlords have been the worst landlords I have ever had. Give me a large corporate landlord which knows that laws exist and at least tries to follow them over the greedy, ignorant, and desperate small-time landlord any day.

As someone who has lived in both, I can't agree. The small time landlords have differed between incredibly kind and deeply unreasonable, but they've all charged under market and responded to issues with their properties in a timely way. I've hit brick walls even attempting to contact owners / get building management to respond with institutional ownership. Both your experience and mine however are anecdotal and while persuasive to us individually, don't evidence the issue one way or another.

This story (as I said in a reply to the parent comment) is bunk, but institutional buyers do have a significant advantage over regular people in the form of access to cash. You have to get a real estate agent, find a bank that will lend to you, get your financial info together, probably have an in-person meeting, hope you get approved for a mortgage, and finally close the sale. Some junior trader at Blackstone can just wire the full cash price of the home and have the paperwork signed the same day.

They're not constrained by income as an ordinary purchaser would be. So they're not at all like an ordinary buyer. Further, if private equity buys to rent at scale they can fundamentally alter the availability and pricing of housing in a market. These firms effectively collude to raise home prices.

Investors and Housing Affordability FEDERAL RESERVE BANK OF ST. LOUIS (2020) https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-04...

Relationship between rents in NYC and ownership concentration https://www.cesifo.org/DocDL/cesifo1_wp8864.pdf

Consolidation of rental market bt private investment firms https://journals.sagepub.com/doi/10.1177/0308518X221135612

The Impact of Institutional Investors on Homeownership and Neighborhood Access https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4554831

Algorithmic collusion in the housing market https://apnews.com/article/algorithm-corporate-rent-housing-...

Washington Times is not a reliable source, and that 44% claim has been thoroughly debunked: https://www.housingwire.com/articles/no-wall-street-investor...

I'm so tired of people parroting this argument as if removing PE would solve the housing crisis. PE bought something like ~15% of new homes in 2024 (using the metric "flipped" is just a dumb way to get a headline), which turned around mean 85% of new homes were purchased by regular people.

But even that doesn't matter. Because PE is just investors, and guess what, the regular people buying the other 85% are investors too.

I live in an area where there is almost zero PE owned homes, and guess what, home prices are still exploding. There are still bidding wars and still crunchy moms chaining themselves to dilapidated warehouses to stop new builds from going up.

Comparing individual investors to managed funds isn't useful. The amounts involved, methodologies employed for return and potential for collusion aren't comparable. I can't speak to your market, but here in Ireland private equity (or vulture funds as they're known) have purchased 46% of new homes since 2017 [1], which has enormously heated up the housing market.

The fact that the housing crisis is global evidences the impact of private equity - especially purchase to rent and purchase to hold. Regardless of the demographics of a given country we have simultaneous house price explosions transnationally, which are detached from wage increases.

[1] https://www.businesspost.ie/news/revealed-how-many-apartment...

The useful distinction is between speculators and homeowners. The distinction between private equity and individual speculators is not so useful. The latter also collude and vote in their investment interest.

Personally I think what has been happening globally is that members of governments have been learning collectively how to manipulate the housing market. It seems like a win-win situation that makes (almost) everyone happy. Except of course for renters. They will push on whatever levers they have until it breaks again.

These companies literally say in their SEC filings that "this is profitable only because municipalities artificially restrict supply; allowing more housing to be built would be a material threat to our business":

“We operate in markets with strong demand drivers, high barriers to entry, and high rent growth potential, primarily in the Western United States, Florida, and the Southeast United States.” [0] (emphasis mine)

"The continuing development of apartment buildings and condominium units in many of our target markets increases the supply of housing and exacerbates competition for tenants." [1]

You have the power to wallop the private equity housing buyup strategy by building more houses! Building fewer in order to spite them is literally giving them exactly what they want.

[0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001687229/a154763...

[1]: https://www.sec.gov/Archives/edgar/data/1562401/000119312513...

Income. Incomes determine the repayments people can afford, and interest rates (together with term and regulator requirements) determine how much can borrowed that can be paid back with those repayments.

Yes, interest rates and serviceability are key.

A related theory that I find intriguing is that the benefits of productivity gains have largely been claimed by the financial industry. As productivity improves, more credit is made available, people take on more debt to purchase a home because if they don't someone else whose can also service a larger debt will. This ultimately just drives up the price for everyone, leaving people no better off than they were before. The winners are those collecting the loan repayments.

It's a positional good, in effect there can never be "enough" supply. Short of a socialist/communist system, people will always compete for the best, using whatever resources they can bring to bear.

For the Best? Yeah, that's still in competition now among places for the 1%...

For the median and low end? There's enough when people have a _real_ choice of moving to a unit house or apartment a mile away and leaving a bad option UN-SOLD on the market.

Sufficient means there's slack in the market, so the free market works.

Land Value Tax creates what would otherwise be a market pressure dynamic to sell. Since real estate isn't a normal (nor decidedly functional) marketplace - because you can't simply make new land in any realistic quantity - it comes as close as it can to creating a situation that increases utilization and decreases inefficient use of land.

The incentives under an LVT system run in the opposite direction of what they do now.

Yes, that's broadly a good thing which tilts the playing field in favour of locating productive people close to their work.

Whether it's possible to set it at a level strong enough to produce the right "nudge" without creating a bunch of unintended consequences, harder to say. Probably worth trying in a few city-regions though to see what happens.

I don't know about this. If I were the median family and supply was sufficient that I had 4 bedrooms, a garden, storage, EV parking and a workshop space, biking distance from my workplace, I think I'd invest the rest of my resources into enjoying those things rather than spending them on bidding for an even bigger and better home.

Workplaces tend to agglomerate, for all sorts of reasons.

Biking distance is, what, five miles? Ten?

Economics & geometry mean it's challenging to provide enough of this that the median family can afford it. It's quite practical to do at the scale of a small city (250k population ish), but such places tend to be relatively poor unless they have some premium offering, a top university or a high-margin specialist industry.

Big business seems to prefer bigger cities (they want a large talent pool, and peoples' willingness to relocate can be limited), and at that point for the average citizen, you have a choice between higher-density apartment living with biking distance, or the family home but a longer commute.

The relocation thing is a bit of a vicious cycle tbh, high property prices make it harder to move, but also make people more invested in what they've bought, which in turn makes them less keen to relocate, which forces companies to locate where talent is, which pushes prices in those areas up further.

There are a lot of different types of workplaces, from office towers to corner stores to shipping ports to neighbourhood restaurants to nail salons to farms to industrial parks. I think with office towers being the only possible exception, the rest could easily have all of their workers live within biking distance. The office towers can be located walking distance from a metro stop.

The key is just to avoid restrictive zoning that prevents people from opening a barber shop or a corner store in their residential neighbourhood.

That and having a dynamic housing market; flexibility in other services e.g. schools, so that people can move where work is, and move somewhere else when they're not working; and building mixed-use neighbourhoods that have schools, doctors, sports facilities and so on.

Not sure how the US handles that, but in my country (UK) there are various factors that mean people don't move as much as common sense might suggest. High sales tax on houses, very variable quality of schools meaning the good ones are oversubscribed and if you move your kids may end up at a worse school some distance away, and so on.

Sure but the objective characteristics of the housing you're competing for, at whatever level of resources you can bring to bear, can be dramatically better or worse depending on supply.

Studio apartments are not positional goods, and yet...

Nice studio apartments a short & cheap travel time from well-paying professional work might be.

It can, at the same time, be true that there is manipulation and exploitation going on at the other end of the market.

>This is like a basic cornerstone of economics!

You can reduce demand by limiting speculative investors and that doesn't involve increasing supply.

Speculative investors aren't removing the house from the market, they're renting it out. Houses produce Housing. Sure, some people specifically want to buy Houses, but all of us need Housing.

(I do completely agree we should get speculation out of the housing market - housing as a memecoin, buying because line-go-up is not healthy)

Some of them are renting them out, yes. But I still think it should push the price up because people with zero houses will be competing with people with > 1 house, which increases demand.

Increasing supply will burn speculators out too.

It should also be noted that housing is super local. Building a bunch of new supply in the mid-west isn't going to lower the prices along the southeast coast. And for a less extreme case, adding a new house across town from me isn't likely to impact my house's price at all.

What would impact pricing is if people left an area (look at the 1 euro houses in Italy in towns where everyone has left). The mass migration to the US coasts and south doesn't seem like it's stopping anytime soon which will continue to put pressure on the local housing supplies.

I think that premise assumes that residents never move from areas with lower housing supply to areas with higher housing supply. A behavior rooted in economic gradients.

Migration in response to price differentials, voting with your feet, spatial arbitrage, spatial equilibrium, geographic mobility of labor, the Tiebout model...the phenomenon goes by many names.

This paper was discussed in another forum, and people raised that point.

However, it was also pointed out that this paper isn't really about supply, it's about supply regulation and supply constraints:

"... We also use the measures of the Wharton Residential Land Use Regulatory Index (WRLURI) by Gyourko et al. (2008), generated at the MSA-level by Saiz (2010), which capture variation in the regulatory environment across MSAs. We multiply this index by minus one so that increases in the value indicate a less restrictive regulatory environment and so, ostensibly, a more elastic housing supply function."

You could eliminate housing supply regulations and still have poor housing supply for other reasons.

what you're missing is that the demand curve for housing is basically a vertical line. most people will never buy/rent more or less than one unit of housing, and they will pay literally anything to keep it from being less. therefore even if there is a surplus of supply there isn't a competitive market.

As somebody who lived in Northern California in the communities which first started spiking in the early 2000's, I've always had a pet theory from the time.

Housing Appraisers realized they could tack on $10k per house when appraising, and they realized that nobody would stop them. Realtors loved that because they got more commission, buyers realized that houses were going up fast so they'd better get in while they could, appraisers got called back more in a tight market and everybody made money. There were *no* controls on the appraising.

Ding ding ding!

Still remember how when I bought my house, there was a clause for 'if the house appraises under X, buyer will pay up to Y out of pocket to match the difference' (This was to help make the offer 'stronger' according to realtor.)

Lo and behold, my house magically appraised exactly for X, despite it likely being more like X-5,000 based on realities and other sales in the area...

Yes, appraisers make their best effort to make the sale happen - because that is what their payers (banks) want. All they need is plausible valuation.

At least in my state there is no incentive for appraisers to do this. 99% of appraisals get assigned to random appraisers. There is no such thing as “repeat business”, at least within the realm of your typical home sale where the buyer is financing through a bank.

In California, at least at the time, Realtors called the Appraisers they knew could be a little generous with the numbers to make the clients happy. Speed-dial. Inflated numbers were easy to make plausible, and as time went on, the cycle became self fulfilling.

Appraisers knew this, they got lots of easy business for an afternoon's worth of work, and grew their businesses. Realtors would shrug and say "That's what it appraised at." Banks were happy. Sellers were happy. Lots of money. There was no natural regulation or push-back stopping any of this.

Source: friend made lots of money doing this at the time. They probably made out better than the Realtors.

> Appraisers they knew could be a little generous with the numbers to make the clients happy

This can only work if only very few appraisers in the area are overvaluing. But if that works, why wouldn't all of them get in on the game? And if most of them do, it falls apart because the actual sale prices will be out of line with the appraisals. So, it doesn't really work outside of edge cases here and there.

Yea I believe that. In my state (Georgia) the randomization rules only came about after the '08 crash. I come from a family of appraisers, oddly enough, so I have an unusual amount of insight into the industry for a simple software engineer. Prior to the new rules my family's company had a set of clients (banks) that they would get business from, and they had to reach out and do marketing/sales/shmoozing to get new clients, like any other service business.

After the new rules, banks just bid for an appraisal into a black box and it gets fulfilled ~randomly. The family rolodex became pretty useless. So the playing field was leveled, and it's certainly a fairer process with better overall results for homeowners, but it also kind of neutered the whole appraisal industry since there's not really a good way to compete anymore.

Kind of going on a tangent here, but the appraisal industry is one of those "silver haired" industries that is not able to replace it's older workers who are retiring. It's unclear what the future holds for appraisals, but it seems inevitable that there will be some sort of pivotal change in the industry in the next decade or so.

There are definitely laws and lender requirements that should make appraiser selection somewhat random and their findings somewhat neutral, but based on my house buying experience I don’t believe for a second that they’re effective. We made a bunch of offers and somehow the appraisal was always right at the offer price or ~5-7k above. I’m convinced that the appraisers somehow have knowledge they shouldn’t and covert/indirect mechanisms exist to motivate them to play ball to make deals go through.

Besides small sample size giving me a skewed sample, the other explanation I can think of for this is that appraisal is a fairly exact science and realtors have mastered pricing based on it. Considering the volatility of my market, lack of comparable sales, and the IQ of the realtors I’ve met that seems laughable.

Appraisers work for the banks. Not for the buyer. Not for the seller.

> somehow the appraisal was always right at the offer price or ~5-7k above.

Yes, this is pretty normal. Contrary to popular belief, appraisers don't have any sort of special data or processes that allow them to determine the exact value of a house in any given market (because such a value does not exist). An appraiser is working for the bank and simply serves as a risk mitigation officer. Their job is not to answer "what is this house worth?", it's to answer "is the deal you're lending money on within reasonable bounds?". So when the appraisal value comes in at or around the sale price - it's just a simple "Yes". And when it comes in somewhere else, it's a "No".

There is generally zero incentive for an appraiser to inflate prices (today, this was not always true in the past).

The housing market is vast and complex, without question. And still, the reason that prices go up is overwhelmingly the simple fact that buyers are willing and able to pay those prices.

I mean this is true, but I think its more realistically like the appraiser doesn't want to create a situation where it tanks a sale if they can avoid it. When I bought my house in 2022 there was a bidding war (like every house sale in Seattle), I paid 150k over asking price which was relatively speaking pretty reasonable as the other houses I bid on went for 250-500 over.

That said it was on the very high side of valuation. My agent told me if the first appraisal wasn't enough to cover the purchase price, we would just get another appraisal. The first appraisal went fine, compared to other properties it was within range of reasonable so they approved it and the mortgage went through without issue.

Unless the houses were sold monthly adding $10k would be below the rate of inflation and have no impact.

Residential zoning laws in most California cities (and frankly, across the country) do no favors either. They're tuned tightly to encourage home values to go up not to stabilize the cost of housing and maximize housing accessibility.

This strictness is the backbone of what allows everything else to happen. There's no market dynamic - because cities (or more specifically, city residents) don't seemingly actually want a functional real estate market for a variety of reasons - therefore there is no way for enterprising developer to come in and build and sell at a price target they look to set.

Instead, it all has to go through this machinery as you describe. It has always been ripe for exploitation as a result.

> There's no market dynamic

Yeah there is. You could choose to move to a different market. And within a city, there's no market dynamic because of the laws of geometry.

Laws of geometry have nothing to do with it when zoning laws and other regulatory hurdles are the real barriers. Real estate is an in incredibly artificial market. It has none of the characteristics of a regular marketplace

Taxes are suppose to keep this from going out of control. but the only way to appeal a tax appraisal increase (here in Washington) is to use OTHER home values in the area that are similar, but less.

Mortgage appraisals are far higher than the local tax appraisals which seem to run 20-25% lower than say Zillow says. Local tax appraisals are also typically only updated once every 10 years or so (depending on the jurisdiction).

Besides, I think these days the appraisers don't actually do appraisals, they just look at Zillow.

The people that do appraisals for property tax assessment reasons may be the most disliked people in municipality. My opinion is that it makes no sense for people to be doing it anymore. It should be strictly algorithmic with very few input variables.

No income no job loans.

That's _why_ the appraisers could do this.

The banks got greedy, realized their mistake, and then promptly blew up the market on purpose. The secondary effects were not the drivers of the crisis. This is one of the most documented and unpunished crimes of the century.

The best part: it may well not have been illegal. The economy is a constant cycle of upswings caused by new forms of crime, followed by a crash and then new laws. They then set out to research new forms of crime.

Nit - it’s not a crime until it’s illegal.

> it may well not have been illegal.

There was lots of legal activity that added to the size of the crisis. You'd be naive to believe that everything else was perfectly above board.

> economy is a constant cycle of upswings caused by new forms of crime

"The economy" as a concept is not. The current US economy certainly does seem to be dominated by criminal activity and has been for 30 years or so now. The connection of the Internet and financial markets were not a strictly great idea.

> followed by a crash and then new laws.

Laws also get repealed. Like Glass-Steagall was.

> They then set out to research new forms of crime.

I posit that they don't. They enjoy a monopolized economy in an incredibly deregulated market. They take whatever they can take until they get caught. Our justice department happily negotiates a settlement and sweeps the whole thing under the rug.

This isn't just a clever scheme. This is nearly complete and total government and business corruption.

why does this sound like what the credit agencies were doing during the subprime crisis?

Appraisers don’t set prices, though. In my purchases and sales, they’ve only been involved after an offer is accepted and the lender wants to be sure that their collateral is worth what it needs to be. Even if some people are using appraisers to set their asking price, that doesn’t mean buyers will offer it.

The network effect of the prices going up seems to permit the appraisers to add their bumps up as well. I don't think it's as influenced by appraisers as some think, and it might vary by region a bit. If prices in a region are rising (for a number of factors) I don't think many appraisers are going to round down in their judgements.

Sure. There’s no objective value of a house, so they have to go off of recent sales of similar properties. If prices go up, appraisals go up. But I don’t see how the reverse would be true, as suggested above.

Appraisals also act as a gate for prices due to lender requirements. A bit round about, but I can see how looser appraisals can enable inflated prices. Imagining the opposite extreme is interesting: What if appraisals never returned with higher prices than the last sale of that house? Some markets would see increases from people paying the difference out of pocket, but I’d guess the rate of price increase would be much lower. (plus other effects, of course).

I mean, granted, but there's models, right? Surely some combination of the assessments made by financial firms and government is objective, right?

The value of a property is whatever it can sell for. Models and assessments attempt to figure out that number without actually performing a transaction. An accurate model will account for the same factors a buyer will use to decide what to offer, but ultimately it’s down to what people will pay. If that number goes up 2x, there’s no model that can tell you that increase is somehow incorrect, or that the true value is lower.

I kind of wonder if there could be some kind of antagonistic pricing checks, by finding parties opposed to inaccuracies.

For example, actuaries have to be accurate about the costs of using a vehicle. If their estimate is too low, the insurance company will lose money. If they are too high, they will lose business to competitors.

But probably insurance companies are not the opposed party, because they will sell more insurance, and losses may be lower than inflated costs.

On a different note, california prop 13 has made people keep their house longer or forever.

Longer yes. Forever no.

Also you don't need a proposition in your constitution to affect the same outcome. Where I live they almost never do reassessments, so we effectively have the same result.

The great thing about having states is that we can experiment with lots of different models of how to run society. If you don't like your particular, society then you can move to a different one.

As to forever, I kind of wonder what you could do with a trust.

and I suspect that you could rent a house with prop-13 taxes making more profit compared to renting houses that have recently changed hands.

(don't actually know the details of this)

I've explained this before but the players involved don't really care. The bank just wants to make sure they aren't on the hook for a worthless shack. If the appraisal comes back inflated by 10-20% that's fine. The goal is to prevent loaning $1.4m against a house worth $700k.

It’s surprising that they took measurements at 2000 and 2020 and did not mention the Great Recession at all, which severely reduced ability of households to get a mortgage and disrupted both demand and supply. I don’t think their attempt to control for the “kinked” supply curve by dropping the bottom 25% of metros by income growth is sufficient to eliminate metros that were devastated by the Great Recession.

Also, I am not sure whether comparing to median value of constraint index (e.g. Wharton residential land use regulation index) is a particularly good way to categorizing metros into constrained and unconstrained, since it’s hard to know which specific constraints of the “regulatory hydra” are important for future development (https://twitter.com/TheJakeSchmidt/status/157220787234744729...). One metro may need to reduce minimum lot sizes to allow the next increment of development, whereas another metro may need to allow lot mergers and relax density limits instead.

So I think this paper is basically concluding that land use constraints are harder to measure than income growth.

There are many many many flaws with the correlative analysis of this paper, and the flaw you have identified is an absolutely key flaw.

Here's a great Odd Lots podcast on that specific issue: https://www.bloomberg.com/news/audio/2025-03-13/odd-lots-is-...

It's also interesting to note that the guest identifies lack of supply as the other key thing to fix, but finds that the idea that YIMBY policies could actually be put in place too politically infeasible to consider.

Yes, Kevin Erdmann’s writings were what I was thinking of when I said that lending has been restricted since the Great Recession. He does identify “Closed Access” supply restrictions as the original sin that the Fed misinterpreted as a speculative bubble. I highly recommend his blog and books.

I always felt like this was kind of obvious. People love to say housing supply will lower prices, and it's probably slightly true, but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money. In the US the rich have comically more money than the poor--100s or 1000s of times as much, comparing the surplus that a wealthy tech employee has to put towards a house fund compared to a person living paycheck to paycheck. And then the rich will then buy vacation homes, pied-a-terres, etc, with their huge excess. Who would put money into building for people who have no money when those people are out there?

Rent on the other hand is likely more supply/demand based because it is actually possible to have empty units due to overbuilding if the local economy shifts. But even still they are motivated to hold units empty and keep the price high to wait for a rich person who can afford it to come along. (Not to mention algorithmically colluding so as to not actually compete on price.)

I cannot imagine how housing could ever become more affordable for the poor unless the income disparity lowers, short of some sort of price-fixing governmental action.

> short of some sort of price-fixing governmental action. Well rent control has a long, well documented history of bad outcomes. Doesn't exactly make me eager to let the government set all the prices.

I think a sufficiently high land value tax would either discourage excess housing speculation by the rich, or raise enough revenue to support wealth redistribution schemes that erode what you identify as being the cause of the issue.

Really? https://i.imgur.com/BMsPrKY.png

Seems to correlate pretty well to me. Per [1] and [2], YoY home prices are decreasing in most regions with high % change in homes built ("New housing units authorized per 1k existing (2021)"), eg: Austin, Jacksonville, Houston, Phoenix, Nashville, Phoenix, Raleigh.

[1] https://constructioncoverage.com/research/cities-investing-m...

[2] https://www.zillow.com/home-values/10221/austin-tx/#/

It seems more correct to say that supppy/demand drives a ~second order effect. But the first order term has to do with how much money people have (well and there's the interplay with where those people want to live). That is what distinguishes low vs high cost of living areas, after all. It's also what differentiates prices today from prices twenty years ago. And gentrification is not driven by supply/demand per se but by the hand-in-hand growth of desirability and income.

> the first order term has to do with how much money people have (well and there's the interplay with where those people want to live).

That is the demand curve in a supply-demand model.

Sure, but is a lot more complicated than that when you factor in people and companies changing markets, building happening at different price points, etc.

But "people and companies changing markets" is encoded in the slope of the demand curve, and "building happening at different price points" is encoded in the slope of the supply curve, right?

The 95th percentile household income in the Bay Area is $250k. That corresponds to a house around $1.2 million: well below the median. Your relative position in a housing market that's outpacing inflation is mostly based on when you got in, not your relative income.

True. But it's only really interesting to think about what people are presently buying houses for (and what makes them want to move) when thinking about pricing effects.

My point is I don't think people buying houses at current prices are doing it with wage income, even from very high-income jobs.

I mean... tech people are. Even wage workers can get into the millions when stock grants are included.

You can look up what tech people make, and what houses on the Peninsula cost. There is very little overlap.

> but it's fairly clear that house prices go up in places that people have money, and they go up proportional to the money

Yes, because there's not enough housing, so housing prices end up being set by the upper averages of whatever people can theoretically pay.

> Who would put money into building for people who have no money when those people are out there?

The builders who are still looking for work after there's actually enough housing to match demand by the wealthy.

Yes, if that state was reached, we would see supply go up and prices drop. In the HCOL areas I'm aware that state seems ever further away, seeing as how they're still building luxury stuff everywhere.

It seems "ever further away" because most cities in the US are literally decades behind on building enough housing. It's going to take drastic anti-NIMBY overhauls to allow enough to be built to actually catch up.

Gary Stevenson (UK economist and author of the Trading Game) has a good explanation for this. Both his book and YouTube videos.

In short, everyone (governments and ordinary people) are insolvent and in debt to ultra-rich people (especially since Lehman and Covid stimulus programs) and the only way to return asset ownership to governments and ordinary people is to tax the ultra-rich like Western Governments did in the 1950s and 1960s so that ordinary people and governments can actually afford to own things again without extraordinary debt. Tax wealth, not wages is the basic idea.

When you have 700 million dollars earning 5%, the only thing to do with all of that passive income is to buy assets. That's why house prices are so high.

https://www.theguardian.com/books/2024/feb/22/the-trading-ga...

Fits with my experience. Its mainly the bank's willingness to loan money that drives house sales. Home buyers are some of the best protected groups, so its no wonder that its a speculative market driven mainly by available funds and not supply and demand.

Or perhaps another way of stating it - available funds largely determine demand.

I don't see how this holds. Why would more houses not get built if the banks were so willing to lend higher and higher amounts?

Seems more to me like, because there is a shortage, the marginal price gets bid up to the maximum people can possibly pay (which is decided by the banks).

And keeping in mind dollars are a limitless, renewable resource.

Same here. I hope we get some good comments from those who believe it is all about creating more affordable housing. I’m interested in reading their counter argument or reading if this changes their thinking.

(Availability of and access to) Debt is definitely a driving factor. It grants access to a larger group of people and if supply can't keep up (for a variety of reasons), it'd drive it up prices in the short to medium term.

In the postwar era, any time you saw a country ease mortgage lending rules, home prices would inevitably rise, which would inevitably be made worse by further lessening of standards to "expand affordability". This was the TL;DR of Canadian housing prices (compounded by high immigration, lack of trades people, and high resource costs due to at the time demand from China).

Why would anybody pay any more with that extra money from the bank, unless there's a supply shortage?

There is no leverage for sellers to demand excess new money unless there's a shortage.

Supply constraints can't fully account for the varied growth in house prices and quantities across US cities. Economic dynamics are more complex.

But "can't fully account" does not imply "aren't a major factor".

I would look at the paper in more detail, but it is not available to me.

Changes in fashion and lifestyle can shift demand towards types of housing that are more difficult to fulfil, supply-wise.

Essentially if the young and upwardly mobile want suburban sprawl, it's easy to build more of it until the price comes down. If they demand city-center condos, that's a little trickier.

Increasing rental taxes will actually lower housing purchase prices in capacity constrained markets. In such markets, landlords are already demanding the maximum amount their renters can bare. By increasing taxes, the total rent paid by the renters doesn’t increase, but the amount going to the landlords decrease - driving down the price of housing stock. Politicians should be advocating for raising rental taxes, instead they’ve been captured by the rent seeking landlords who fund their campaigns.

works in the short term. Long run, it constrains supply of rental housing.

The policy could just be for rental taxes on SFH. I don’t see a reason society should encourage rentals in the SFH market.

I'm not all the way through the paper, but two questions I have from the jump:

The core finding of the paper is that income growth predicts housing price growth reliable regardless of how elastic each local housing market is (say, Austin vs. SFBA). It also uses the "work-from-home" shock during the pandemic as an example of the same kind of measurement.

I don't understand the mechanism the authors are suggesting. The WFH shock occurred over a span of 1-2 dozen months. Housing starts are measured over years and years. Regardless of relative differences in elasticity between markets, all housing markets have bounded elasticity as a result of how long it takes to site and construct houses. In a desirable landlocked community, it can take forever just to find current residents willing to sell and thus open up land for denser development (not something this report appears to study).

I'm also confused at how they're looking at permitting. It appears like they're using it as a metric of housing growth between regions. But permitting rates also define much of the supply constraint within a region. Highly elastic housing markets issue lots of permits. If everyone's issuing comparable numbers of permits, aren't the just observing that (for whatever reason) different regions are just converging on similar constraints and elasticity?

Probably needs to be taken with a large grain of salt and might be exaggerated but I recently heard a claim (https://www.youtube.com/watch?v=iKdtyDnGM-o) that the FHA program basically prevents a large number of foreclosures from happening as the government effectively keeps paying for loans where borrowers are already in default, and without the program many homes would be on the market again suppressing prices. If my understanding is correct the home owners get the interest payments made by the government tacked onto their mortgage so once they would go into default they would be faced with a home that is not worth enough to pay off the mortgage due to previously inflated market prices and all the added interest payments. Not sure if we have a new subprime crisis in the making here, it seems unhealthy in any case. But then again, never believe stuff influencers tell you on Youtube, so I take it with a healthy dose of skepticism.

> without the program many homes would be on the market again suppressing prices.

At the same time, though, the people who lost those homes will be on the market looking for a different place to live, increasing demand.

This is not my field of expertise, but on the surface it appears to me that this kind of thing is a wash. A housing unit is made available, increasing supply, at the same time as a new demand is created for a housing unit, decreasing supply.

> people who lost those homes will be on the market looking for a different place to live

At a lower price point obviously. There's still a net movement to lower prices.

Foreclosing on a house probably means you are not going to buy another one for a while

Subsidies do raise the demand curve for whatever's being subsidized.

The article points out the correlation between rising income and rising house prices. I suspect the real cause involves both incomes and credit availability/price. Incomes are just a proximate cause - as debt serviceability improves, people borrow close to their limit, which increases. The limit increases when income increases, but also as interest rates fall.

I can't say I understand this paper / I'm not very good at reading these kinds of papers.

I will say that in my area the municipality has had to set development rules for various price ranges for houses ... otherwise all we would seem to get are developers who want to sell luxury houses. Obviously there is some demand for those luxury houses, but the incentives to build "starter houses" or even affordable apartments just did not seem to be there unless encouraged / required by government.

Once required we had a lot of WAY more affordable and seemingly appropriate housing being built. Still subject market forces, but at least there were choices now.

It seems to me the margins on luxury / larger homes makes building luxury homes far more desirable than more affordable homes, even with demand for more affordable options.

> all we would seem to get are developers who want to sell luxury houses

This is how it is in my part of the US. Not so much houses as large luxury apartment buildings aimed at the wealthy (and being built with taxpayer subsidies). They are doing nothing to address the very real housing shortage.

AFAICT, in my metro and others, pretty much all the cheap housing is luxury housing from ~100 years ago. Cheap housing built 100 years ago has been torn down and replaced, but the good stuff built 100 years ago is still standing and being used.

The problem is that we weren't building luxury apartments 50 years ago, it was all single family housing. So there aren't any luxury apartments that can degrade into cheap housing. Building luxury apartments & condos now will help the cheap housing situation in 50 years time.

This is the second biggest piece of economics misinformation, behind people who believe their net income will go down if they get a raise into the next tax bracket.

Just like cars, all new housing is luxury. No one working minimum wage can afford the cheapest new car on the lot. But those new cars get bought by people who sell their used cars.

Yes, I understand this argument and it makes some logical sense. The issue is that when it comes to housing, it doesn't seem to be happening, at least not on the time scale of a couple of decades. Affordable housing is not increasing, and that's where the need actually is.

Yes, because of severe supply constraints in the previous decades, there are not enough old units to go around and get cheaper. Rather they refurbish and rebrand as luxury as well. As its usually illegal to build new ones, there is no competition.

What's considered a "luxury" apartment in Bay Area is considered normal in many other parts of the country. I've heard it's mostly a scheme to avoid certain regulations but I can't find anything from a quick lookup. Regardless, while searching for an apartment recently, the term "luxury" was completely meaningless. I found luxury apartments that were cheaper and/or had less amenities/features than "affordable" ones. The biggest factor seems (often slight) differences in location rather than differences in the quality of the apartment itself

I'm not in the bay area, and I'm defining "luxury" by price point, not amenities or features. I should have used the term "luxury priced".

"Developers are only building luxury houses!" is a symptom of supply being forcibly prevented from meeting demand. An unrestricted market on housing will build houses up and down the price spectrum. Now introduce an arbitrary cap on the number of houses which can be built. Which houses are the ones that get built? Obviously it will be the ones at the top of the spectrum: they are the most profitable, so that demand gets met first until it is either fulfilled or developers can't build anymore.

Consider, if a car company was only allowed to build 100 cars per year, of course they would build only million-dollar hypercars. In order to profitably meet demand at the bottom end of the market, they need to be allowed to supply in large quantities.

Isn't housing inherently limited by space, city's ability to plan / permit, and setup / install services?

Even housing builders seem limited in their ability to build.

I'm not sure an "unrestricted" market is a realistic or even desirable concept here.

>An unrestricted market on housing will build houses up and down the price spectrum.

I don't know, it would seem land costs would make up a higher proportion of the total cost of small low-cost individual houses, and if that's true then you'll need to buy a lot more land and start running into people who won't sell or quote ridiculous land prices, which makes those builds unfeasible.

My guess would be they'd still go for bulk, high density builds for low cost housing. The biggest issue there is that those are almost always apartment rentals which don't build wealth, which leads to less buying power further along in life, and that hurts demand for medium individual homes.

But to be clear homes only build wealth because they go up in price over time right? And this is due to the limited supply of housing in particular relative to our population. Previously, I had always assumed if mortgage payments and rent were comparable, then you'd come out ahead buying. But you need a down payment, and you need to borrow money to finance the home. So the real comparison is rent + no borrowed money + investing your down payment instead. Every calculator I use to do that, its very difficult to end up with more wealth buying than renting. UNLESS the home price goes up significantly after you purchase.

What they are showing is that if wage growth is stagnant across all levels, people can’t afford to pay more for a home. So prices don’t rise or at least not nearly as much. This is a recipe for keeping us all poor as a means to control housing costs.

On the other hand, if wages rise, but supply expands, home prices remain relatively decoupled from wage growth. This is the situation we want, but which zoning prevents.

The old Alfred Twu cartoon captures the current dynamic of rising wages and rising home prices very well:

https://www.instagram.com/cbinsights/p/B7v07LRFBqI/

The rivers of ink and all the gymnastics we do to avoid saying the obvious: Houses/Real Estate has become the main asset where most people store/keep their wealth.

It has been this way for quite a few time, the banks like it, the boomers love it and the local governments can't live without it.

The chickens are coming home to roost on this one, and I'm talking about society in general not just a"correction in the housing market" at this point that is more or less meaningless when looking into the big picture.

>our findings imply that constrained housing supply is relatively unimportant in explaining differences in rising house prices

I guess it's something worth investigating, but is anyone really under the impression that this is a simple supply and demand system? We have algorithmic pricing all over the housing markets, and there is an artificial floor on prices. (Check out the realpage actions for a glimpse into this stuff.)

Homes are not a homogeneous commodity. New homes cannot be perfect substitutes due to locations, amenities, access to jobs (commute time), etc. Also, government spending on infrastructure will be capitalized into the neighborhood's land (location) value. You cannot 'undo' this capitalization simply by building more homes.

The housing market has been heavily manipulated for a long time. Why would anyone be so naive as to think supply constraints would model it?

What determines housing prices? The seller and to a much lesser extent the buyer.

How does the seller set the price? To what they feel is market price.

You can flood the market with new houses all you want but if the construction company isn't selling at a lower price than existing houses in the area, and they won't be, that's not going to push prices down. Because it's not a traditional commodity. Beyond that, it's pretty much an open secret at this point that new construction is a lower quality house at a premium.

Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years.

The big difference between houses and a traditional commodity is that holding one even when you want to sell can still be a net positive. You can continue to live there, you can rent it out. It just doesn't have the same motivation to sell as a traditional commodity.

> Only a minority of people are in such a rush to sell that they are going to sell their house at a loss or even a perceived potential loss vs expected market price. Many people are willing to just sit and wait for the right buyer even if it takes years.

The people wealthy enough to do this are a small enough group that this cannot have such an outsized effect across the whole market. People typically have to sell their home to afford the one they're moving into, so they can't just sit on it until they get the price they want.

> Many people are willing to just sit and wait for the right buyer even if it takes years.

I think that's only a large minority. IIUC, a majority of sellers are motivated sellers, people that are selling because life circumstances are forcing them to move and sell.

But even if only a small portion of sellers were motivated sellers, "prices are set at the margin". In other words, if most people aren't selling because the price is too low, the people who are selling are the ones that are setting the price.

We have heard that housing shortage in Sweden will be solved by the market. The housing prices have increased by 300% in 25 years, yet we are building even fewer housing units today than back then.

This is what I've been saying for years. The valuable part is the desirable land, which can't be built like a house. Also the rent and value are pretty disconnected.

It's obviously not all supply and demand because school zones are a zero-sum part of house prices. Only the richest people can afford to pay the good school zone premium. If too many houses get built there, the schools shrink their zones so you can't increase housing supply to get out of that. You also can't increase the supply of good schools because that's mostly determined by the relative income of the parents, which can't be increased, by definition because it's relative.

Ah, Henry George was right once again.

Land Value Tax solves this.

https://en.wikipedia.org/wiki/Georgism

https://en.wikipedia.org/wiki/Land_value_tax

LVT encourages sprawl. States that have high property taxes implement some of tenants of LVT already and it hasn't solved anything.

1. Property tax is not land value tax, and "high property tax" does not behave at all like a quasi-land value tax even if land value is a component of the property tax.

2. No, it specifically makes sprawl very expensive relative to density, and economic decisions are largely made on a comparative basis. LVT makes it free to increase the density/productivity of your existing lot, while taking ownership of another lot (more area) introduces a huge new tax burden that you have to put to very productive use very quickly.

It's way, way cheaper to increase density than sprawl under LVT.

>Property tax is not land value tax

A lot of property tax is land value tax, especially in rural areas where there are little to no improvements.

>No, it specifically makes sprawl very expensive relative to density

Not at all, it contributes to sprawl. Cheaper land is farther out of the city centers, so it lessens the cost of purchasing real estate farther and farther out.

You know why housing is so expensive? It's because building a house is so expensive. If it wasn't people would be building houses left and right in the many thousands of empty lots scattered throughout the country.

Which is particularly interesting, because the quality of the buildings themselves have taken a steep nosedive since the 1940s. Something like 98% of all new builds are complete teardown crapshacks. It makes you wonder where the money is going if the materials are dogshit and the labor is incompetent.

"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."

- Milton Friedman

One need look no further than the correlation between M2 growth and house prices to see this in action.

For the Keynesians and MMTers in the room, downvote me if you must, but please read this before you do: https://www.econovis.net/post/house-price-vs-money-supply-in...

People buy houses by taking loans with high interest. Next year, the house they own increase in valuation equal to the amount they paid interest.

House owner is happy - their asset has increased in value. Bank is happy. They got the money. City is happy. They got their taxes for the higher valuation of the house.

After sometime, The middle-class becomes lower class and moves to rent. The lower class becomes homeless as they cannot afford the rent.

The cycle repeats.

houses are assets, and the fed prints money.

when you print money the dollar loses value and assets are worth more dollars.

this is pretty basic. our government is intentionally inflating the currency at 4% a year.

houses prices will always go up then.

It's behind a paywall, I think. Do they talk about money laundering? https://alessa.com/blog/real-estate-money-laundering-red-fla... https://trustforlondon.org.uk/research/faulty-towers-underst... https://www.thedailyupside.com/economics/international-econo...

You might see this text and a download button below the email form.

> all visitors to the NBER website are eligible for 3 free downloads each year. You have used 0 of 3.

Given the text, I assume some people may not get the download button.

Can you access the direct URL of the PDF? https://www.nber.org/system/files/working_papers/w33576/w335...

This paper suffers greatly from US-centrism. There are too few examples of proper Austin-like YIMBY cities in the US for proper statistic analysis.

A more world-wide search would quickly find counter-examples of low-wage high-price cities like Vancouver, BC.

Or Hong Kong, Singapore, any major Indian metro, etc.

"Austin-like YIMBY cities" is that a typo? Surely you meant NIMBY?

Nah they mean YIMBY :)

Austin did a great job with opening supply.

https://www.reddit.com/r/yimby/comments/1cxbnq3/yimby_has_ba...

https://therealdeal.com/texas/austin/2024/05/20/austin-forge...

I went to school in Austin back in 2009 and surprisingly, rents for my same college apartment only grew a few % a year since then! Crazy

This is a paper meant to explain what is happening in US cities and will obviously be US-centric.

That'd be nice if it was possible. However it runs into the standard social science problem -- you can't run experiments, so you have to rely on natural experiments. If the natural experiment doesn't exist, you don't have any data and you can't draw conclusions.

This is why research papers are not for the lay person, they are for the people who have the level of training to understand the nuances and make accommodations for it.

It’s a bit unfortunate that the democratization of knowledge, means that everyone is expected to read an NBER paper.

I think twice when I come across one, since it means a very large amount of time and calories are going to go into understanding it.

I think the point that the person you are responding to was trying to make is different - there is no way to actually test any of this, so it could just be all bullshit and no one could really tell.

To which my counterpoint was that it’s not fair to expect people without the training to look at it and realize it’s not bullshit, and to realize they tested and proved the point they made in the paper.

The conversation becomes something about what people can talk about, but not the math in the paper, or the supporting documentation or familiarity with the literature.

They can’t test or prove the point they made in the paper.

The entire field is nearly impossible to distinguish from bullshit - fundamentally.

Why do journalists and economists never understand that it is the supply and demand of CREDIT which they need focus on.

For the same reason alcoholics can never understand the reason they tend to drink is as much because of the hangover, as it is whatever they did to start drinking.

Feel free to explain to explain to these economists what they did wrong in their paper

This is a paper from NBER

Households with two PMC-type spouses earning PMC-type salaries with generational wealth, set prices in US cities. Preference for cash buyers, as well as buyers that waive inspection (they can afford to), often get precedence in bidding, making the value of cash over credit higher.

what is PMC?

"Professional Managerial Class".

I'm VERY glad to see some evidence that rebukes the reddit/liberal hive-mind belief that we can fix the housing crisis by just "doing housing first policies" or "build more" or "kill all NIMBYs".

In general, most similar platitudes that appear like easy explanations for social problems are at best extraordinarily incomplete and are often dead wrong.

> platitudes

> reddit/liberal hive-mind

Do you hear yourself?

Both can be true at the same time, and are:

Housing costs in the US are much more complicated than consumer supply and demand measurements indicate

The US housing supply is embarrassingly ancient, overpriced (especially considering condition), and deficient in volume (especially given quality).

You don't really have an argument when $1500 gets renters baseboard heating in a 40+ year old building in a secondary city.

As I understand it the "liberal hive mind" believes the exact opposite - that some bogeyman, typically either corporations or foreign investors, prevent functional supply and demand dynamics. Therefore they don't support a free market, typically more right-leaning, solution of deregulation and relaxed zoning restrictions.

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