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Comment by lr4444lr | Hacker News Reader

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.

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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.

> 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.

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.

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