What happens when housing prices go down?
clmarohn.substack.com
clmarohn.substack.com
> What happens when prices actually start to fall? Because that’s not just a hypothetical. It’s already happening in places like Phoenix, Atlanta, Miami, Dallas...
Then two paragraphs later
> In The Atlantic, Rogé Karma recently pointed out that housing prices are rising fastest in the very cities once seen as escapes from high-cost coasts, places like Phoenix and Dallas...
So which is it?
There is truth to the fact that the way the housing market is intertwined with the financial markets creates some risk, but those risks are manageable - a nationwide downturn in housing prices is exactly the kind of scenario addressed by the Fed's stress tests for banks.
The article is full of bizarre logic. An increase in housing supply leads to a fall in prices, which leads to a fall in supply? No, in fact the conclusion contradicts the premise. The author is making the classic econ 101 mistake of confusing the supply curve (which is supply as a function of price) and quantity supplied.
And finally the author explains his own solution which is... an increase in supply! But only the kind of supply he approves of ("small scale, incremental development"). Left unexplained is why this type of supply, if carried out on sufficient scale, wouldn't have the negative financial effects he worries about.
This seems to be just another good demonstration of Michał Kalecki's famous aphorism about how "Economics is the science of confusing Stocks with Flows".
3. Financ[ing] entry-level housing locally by using the city’s position to unlock favorable financing without incurring unprotected financial risk.
while performing the patented Obi Wan Jedi Hand Wave I would think.
Yes, the cost of money (interest) was cheaper a few years ago. But the cost of money has gone up, primarily because central banks are also managing inflation by making borrowing more expensive.
This is why Trump is so angry about high interest rates and has threatened to fire powell again and again over it.
But yeah, getting the economy unaddicted to ZIRP is a good side-effect that the US will get if they manage to keep it all the way through the withdraw phase.
No, the point of high interest rates is to slow inflation; its part of the Fed’s thermostatic response to changes in the employment and inflation landscape.
It’s not an swift radical ideological change from the same Fed board with largely the same members that also implemented low rates not long ago. Its changed external conditions leading to the same kind of response the Fed tends to make to the same kind of condition changes historically.
It hasn't so far, though yes it should and eventually will imho.
People I know tend to get ass in deep with debt will little room for error, and doubling interest on a mortgage would certainly push many over the edge of "affordability"
I expect home prices to go down long term if interest rates remain as they are. However home prices are a lagging indicator and so it will take years for the interest rate changes to cause that change. (and over those years other things will happen meaning we will never be able to figure out how much change is because of rates and how much because of other factors)
Obviously, this feedback isn't entirely effective because buyers can simply opt out or delay a purchase but it does have substantial effect.
Thus, increasing interest does not have the full impact as predicted by assuming that purchase price is fixed.
Today’s interest easily shave off about $100k+ in what people can afford.
People won’t sell because they can’t afford to move anywhere unless they take their equity out of state to a lower cost of living.
People not selling means lower inventory. Only desperate people will buy now because they have no choice (relocation etc.)
Raising interest rates is the easiest way to fuck things up. We’re in this for the next 5-6 years.
> Price Drops Don’t Lead to Supply. They Kill It.
No one believes price drops cause an increase in supply. They believe an increase in supply causes price drops.
> If “build more” was going to bring prices down and stabilize the system, we wouldn’t be seeing these mixed signals.
People believe that increasing supply will lower prices, not "stabilize the system". The current system is plenty stable, and thats the problem.
I think arguments like the one in the article have over-learned the lesson of 2008. Yes the financial crash in 2008 wiped out so many home builders that capacity to create supply was lowered. But that's not the sort of event that is caused by high supply.
And cost has to do with intensity of effort. In the case of construction, if there is less construction going on, then there is ("all other things being equal") more personnel available: so less delays and less hourly cost. If there is less construction going on, there is also less pressure on materials suppliers, so less expensive lumber, concrete, etc. So that it's easier to make a profit. So that it might make sense to build lower value housing. While when construction is booming, there is extra less incentive to build lower value housing.
Of course, if land availability is artificially constrained, then there is never much reason to build lower value housing. The profit is elsewhere.
Investors & developers are motivated by profit, lower prices reduces (expectation of future) profit, so less housing will be built.
Right?
Yes, article is too wordy and lacks focus. Typical for us progressives.
OC prescribes "bottom-up" something something. I haven't read Housing Trap, so can't comment.
My prescription would be for policy makers to work with investors & developers, figure out how to make profits more stable and predictable, figure out how to institute those reforms.
I'd also consider restructuring the housing industry. eg IIRC in Germany, developers are often also landowners. So they have longer horizons for considering profitability. Seems like an obvious reform, especially considering climate crisis. Like design & build wrt total lifetime cost of ownership, so adopting passivhaus and activhaus innovations is a no brainer. (Just trying to say when landowner is also developer, they can capture more profit by incorporating better tech.)
Small, local development gets built and becomes profitable based on demand of the local housing market, but almost all housing today is built by large developers. These large developers are responding to the demand not for housing, but for the mortgage itself. Thanks to nationalized mortgage securitization the buyers the market cares about are those buying these securities: banks, pension funds, insurance companies, etc. When prices fall these securities become less attractive financial products, which decreases the demand for large development.
Chuck advocates for local building, which can ignore this macro-level demand and instead respond to the actual local demand for shelter.
I'd argue building more supply just makes the problem worse, since the builders almost always try to extract as much money from the potential buyers. With the internet and everyone reporting salaries most sellers price houses to extract as much money as possible included possibly expected "crypto" or other hidden sources of income.
The reality being we likely won't see a dip in home prices until the population holding homes ages out, saying there's a "housing crisis" is just spreading fear uncertainty and doubt to trick buys into unsatisfactory houses.
You're not taking a loss though; any payment above that month's interest goes to principle. If you sell, usually you take that money and kill the rest of the principle and and end the mortgage.
YMMV outside the US, of course.
Strong Towns, Not Just Bikes, and all those content creators are fulfilling the “hobby” of city planning (ie, watching hours of city planning YouTube videos, but never actually organizing at a local level)
This is a really great video about one man’s experience with trying to improve his community, getting involved in local government, and his criticism that the city planning YouTubers always gloss over what this actually looks like - they just point out what we’re doing wrong.
https://youtu.be/bUs0ecnbOdo?si=8dVweyWfvIF5ddg-
So I think that’s why the logic doesn’t make sense. It’s not meant to be actionable. It’s meant to be easily digestible so that people participating in the hobby can feel enlightened.
Strong Towns gives actionable proposals all the time, and their main purpose is local organizations to actually do local change. To accuse them of being a content creation scheme that does no organizing tells me that you have not looked into this at all and are making immediate assumptions based on the aesthetics of their content.
* https://welcomingneighbors.us/
I happily read and share a lot of Strong Towns content - they do put out a lot of good stuff despite the occasional dud. But in terms of learning how to show up and get things done, I think that's not their strongest spot.
Admittedly my experience might be colored by the fact that they don’t seem to have much of a presence in my home town of Boston - it’s more other groups like the Cyclist Union showing up at meetings carrying forward things like bike lane advocacy, etc.
As for NJB, he's abrasive and I don't agree with everything he says or how he says it, but he does talk a lot about his past advocacy work with the local government on Toronto. He encourages action, but I don't understand what he's supposed to do here, make videos for specific local advocacy of every large city in the world?
1. https://www.strongtowns.org/local
Escaping the Housing Trap: The Strong Town Response to the Housing Crisis.
Of course organizing is important, but so is awareness, and that's certainly what NJB is all about (I'm less familiar with Strong Towns). And organizing is especially unimportant to NJB, because he already lives in a country where this stuff is better organized than he'd ever been able to come up with. He's just spreading the good word and showing the contrast with North America. And he's very effective at that.
The witty snarky videos about organizing are better made by people who know more about organizing. If you think they're not emphasizing the thing you think is most necessary, why aren't you out there doing that?
That's econ 101. Or even common sense 101. If something is a worse deal because prices just dropped then people are less likely to start making it. Hence the supply stops rising and even drops because some people overshot in their business plans and now they stop making it because they just found out it's bo longer as profitable as they expected.
Aren't you the one that just sees the one side of how supply curve works and forgot to check back with how the real world works?
It can easily be both statements are true. And a quick look at Zillow's data on Phoenix shows a huge run up in prices from 2015, but a leveling and interesting looking drop happening over the past year. The article certainly could have described this with a bit more elegance than it did.
The logic of the article is that people want more housing up to the point in which existing owners become terrified at the prospect of losing their equity and demand action. The logic is bizarre because the behavior its trying to describe is bizarre. Economy's are extremely complicated feedback loops and housing is part of the economy.
> The Phoenix housing market exploded briefly during the pandemic, when demand skyrocketed amid a housing supply shortage. Remote workers relocating to the relatively cheaper city brought up home prices and values. Between February 2020 and February 2025, home prices were up 53 percent in Phoenix and 56 percent statewide in Arizona, according to Zillow. During the same five years, prices grew by 45 percent nationally.
> But the city has been experiencing a price correction in recent years, as demand slowed significantly with return-to-office orders and buying properties in the city became unaffordable for many—especially locals. "There's a mass sell-off occurring, as pandemic investors and snowbirds sell out,"
Did you know that prices can vary over time? They can go up first, and down later. That's what the article is referring to.
> An increase in housing supply leads to a fall in prices, which leads to a fall in supply?
You mean basic free market reacting to a disruption and looking for a new balance? High prices make supply go up, high supply leads to more competition and lower prices. This is basic economics, man.
But then the author says we should also increase the supply… without addressing the underlying point that increasing supply creates financial instability
But seriously, real estate busts used to be booms for artists, hipsters, entrepreneurs getting started with cheap real estate. The current mall bust is also turning out to be an opportunity of sorts. And Tokyo has long shown what creativity can do with surplus real estate and capacity. Not great for investors, sure, but it can be a net win for society.
> When prices actually go down, builders get nervous, lenders get cautious, financing dries up, and projects disappear.
No, it depends on the causes that drove the prices down. Some of those will get builders nervous, while others will make them giddy.
> New construction has collapsed not because of a lack of land, permits, or even demand but because the financial risk has become unmanageable. High interest rates, shrinking margins, labor shortages, volatile materials costs… none of these are softened by falling home prices.
They are: if you can build a house in 1 day instead of 1 year waiting for some permit, your costs of capital goes down, so it can offset some of the other costs going up. If your permit doesn't force you to limit the size/number of units, you can spread your fixed costs over more units, raising your margins, which directly softens ... shrinking margins
One of the reasons there's so much gentrification is that it's much easier for builders to take a falling down house and replace 99.99% of it than to get approvals for completely new construction.
* If prices keep going up, then home ownership remains a luxury of the wealthy and an exploitation of the poor. Asset holders will be thrilled with returns, but the majority struggling to get or stay on the proverbial property ladder will grow increasingly angry at sky-high rents and prices with stagnant wages
* On the other hand, if prices come down then the broader economic engine will grow ornery and stagnate. Large home builders will cut back on builds, purchases, and labor, in an effort to push margins back up. Existing asset owners will be angry at losing (illusory/on-paper-only) money, and cut back on spending, purchases, or renovations until they see their valuations rise again. Only a small subset of prepared buyers will be able to take advantage of these lower prices before investors snatch most of them up and raise prices again anyway.
Housing is not a standalone crisis, but a symptom of a larger dysfunctional economic engine that simply does not work for the majority. Higher prices on core necessities should be met with a mixture of rising wages and price controls to reflect broader economic growth or support, but neither happens because of monied interests: if wages rise, companies will outsource and the problem perpetuates, while price controls prevent asset holders from maximizing their return on investment, a sin equivalent to murder in the eyes of the propertied class.
And so we have a group who benefits from nothing changing (asset holders, mega-builders, financiers), and a group that benefits from an all new engine design built for modern problems (the working classes, smaller employers, and - increasingly - insurance companies), fighting for the next century of housing policy.
I’m hoping the latter wins, despite the pain it would cause the former. Housing is a necessity first, and an asset class last.
Old rentals stay rentals, new construction is for people.
Still, tax policy alone won’t solve such a complex issue. We need deregulation in matters of zoning, and increased regulation in terms of rent-setting (both amounts and lengths). We also need higher-density housing near transit stops, regulations on sales of existing homes with fossil fuel heat (gas and oil) that promote their proactive replacement prior to sale, stripping HOAs of authority to police familial genetics or relationships in household makeup (to promote more shared housing in existing developments), and so much more.
It’s a complex crisis that requires a complex solution.
Rented houses are still housing people. The problem isn't renting, the problem isn't loans, the problem is there's not enough houses where people want them.
* Low-density housing that’s rented instead of sold drives up rent for the tenant and property values for neighbors, resulting in increased costs for everyone but the landlord (who offsets costs by raising rent)
* Investors are predominantly buying affordable homes, not luxury ones. Cheaper prices (even when paying cash to outbuy other bidders) means higher margins.
* Construction has fundamentally changed as a result. No longer are structures being built for sustainable operations, but simply to exploit valuation growth before being shoved off to the next buyer. The goal from everyone involved is maximum margin/profit, not quality and sustainable shelter.
* There’s a glut of “luxury” apartments in higher-density units that sit vacant as a result of gaming the local marketplace for higher rent instead of maximum occupancy.
We have enough houses at present. Really, we do! The problem is that because we treat them as assets and not shelter, the goal is maximum revenue, profit, and/or valuation instead of maximum utilization.
Hence, housing crisis.
It's not the renting that drives up prices, it's the lack of supply in an area. The renting was always possible, it's a symptom that shows that people want access to the neighborhood but can't afford to purchase.
> * Investors are predominantly buying affordable homes, not luxury ones. Cheaper prices (even when paying cash to outbuy other bidders) means higher margins.
I have not seen evidence of investors buying affordable homes for renting them out. Cheaper prices don't mean higher margins, unless the sale price is higher.
> * Construction has fundamentally changed as a result. No longer are structures being built for sustainable operations, but simply to exploit valuation growth before being shoved off to the next buyer. The goal from everyone involved is maximum margin/profit, not quality and sustainable shelter.
This is not a change, construction was never for sustainable operations, it was always about profit. There's not some magical time in the past when builders and developers didn't care first and foremost about profit.
> * There’s a glut of “luxury” apartments in higher-density units that sit vacant as a result of gaming the local marketplace for higher rent instead of maximum occupancy.
I'm not sure where that's true, except in the places where prices are falling like in Austin. I know that in my severely undersupplied town, the "luxury" apartments that are only slightly higher in price than in other areas are filling up faster than was expected when the financial model was put forward at the time of designing the building. And this was a model built before interest rates got jacked up by the fed! Yet local people complain that they are vacant and not getting rented out and are vacant when they are not in fact vacant.
I see evidence of false complaints of vacancy all around the country too. One group in LA that spends a lot of their time trying to stop apartments had to retract their vacancy report:
https://laist.com/news/does-la-actually-have-more-vacant-uni...
Nobody has ever tried to maximize occupancy rather than profit. Maximizing occupancy is not a good metric to even optimize, we need vacancies so that there's room for people to move around. An area with less than 5% vacancy is severely undersupplied and severely restricts where people can live.
The housing crisis is all about regulatory restraints that small-holders of land use to create the crisis. It's artificial crisis, not from landlords maintaining 5% vacancy rather than 3% vacancy, but from landowners, especially homeowners stopping their local governments from legalizing housing.
If we have, why doesn't the market do its thing and bring back prices to a level affordable to the majority of citizens?
I wouldn't be. I bought my house to live in it, not as a financial vehicle. I would be thrilled if prices came down and others in my generation could afford a house because I had the dumb luck of purchasing one in 2018 before the shit hit the fan. I couldn't even afford my own house now.
I assume that 50% markdown wouldn't be a 50% loss on your assets or retirement.
There's a more selfish reason for wanting prices to not rise. I have kids. In a few years, they will be adults. If prices keep rising, how will they launch their own lives? I'll get asked to buy another house again.
Way too many people got sold on the idea you could just flip a property every other year and move on/up... that kind of growth/inflation has never been sustainable in any industry ever for more than a couple years.
The closest, recent example I can think of is the cost of junk food. I no longer have it much at all, but even for calorie free soda options, the pricing seems to have more than doubled the past few years. More so than most food in general. They've maximized their profit margins and I don't think they'll be able to sustain it. People are cutting back on spending as a result.
I think the amount of mortgage defaults are as much about credit use in general as it is about the housing market. I've been unemployed 11 of the past 24 months, and currently working for about 60% of what I used to make. During that unpaid time, I built up a lot of credit card debt. Right now, it's not my mortgage that's killing me, it's the credit cart interest combined with a job that doesn't quite cover it all. I was working two jobs for a while and just couldn't keep it up. A LOT of people are in a similar boat.
Right now, I could sell my house, and just about start and 0 debt all over... but then I'm paying 2x as much for rent and not getting ahead without moving... and even with remote work, places try to pay "market" for where you live. The options are kind of crappy.
The house more than doubled in value in that time. Great right?
Well the kids grew up, and we sold it and bought a smaller place.
Just the tax (GST on a new build) and the realtors commission amounted to two years worth of my gross pay.
We sold our old place that had a $400,000 balance on the mortgage for $1.7 million, bought the new place for $1.2 million and now have a 175,000 mortgage.
Just the costs of the transaction are greater than what my parents paid for the last home they bought.
These sky high prices are not good for the middle class. I would be much better off if my mortgage payments for all those years were small enough to allow for retirement saving. I'm basically fucked if I want to live indoors in my town after I can't work anymore.
I spent $50,000 replacing the pipes and removing asbestos 1 year after I bought the house. While I don’t expect the down payment and regular mortgage payments to grow and value, it’s very painful when there’s an unexpected repair that requires additional capital that isn’t recaptured in the home value growth.
It’s like driving a new car off the dealership parking lot and immediately getting your doors dinged. I’d feel a lot less about it if the car went up in value…
A rather small part of the economy relies on high long term returns on housing. You can build homes and sell them for rather small margins and that's good business. Many types of businesses happily run on profit margins that are single digit percentages.
> Only a small subset of prepared buyers will be able to take advantage of these lower prices before investors snatch most of them up and raise prices again anyway.
In 2024 87% of homes in the US were bought by people who intended to live in them or use them as a second home. If you only want to count primary homes the number is still close to 80%.
> but a symptom of a larger dysfunctional economic engine that simply does not work for the majority.
Factually the majority of US families live in homes they own, about [65% of US families own their homes])https://fred.stlouisfed.org/series/RSAHORUSQ156S) that is not only a majority but nearly 2/3.
> A rather small part of the economy relies on high long term returns on housing.
Directly, yes, but don’t forget the wider array of businesses dependent upon this minority to survive: hardware stores, contractors, many tradespersons, mortgage companies, real estate agents, brokers, closers, lawyers, and more, all of whom get paid/earn less if housing prices come down in the short term (until theoretical volume makes up for the drop of individual transaction values).
It’s a wider web that shores up a market valued at ~$50tn. That’s hardly a minority.
> In 2024 87% of homes in the US were bought by people who intended to live in them or use them as a second home. If you only want to count primary homes the number is still close to 80%.
Taking those numbers at face value means a full 13% to 20% aren’t purchasing a home to live in them, which is problematic in a housing crisis. The fact you included second homes paints an even more distressing picture, because to have a second home means you not only have a primary home, but also the excess capital for a secondary domicile in the middle of a housing crisis.
Furthermore, those numbers - if true - are almost certainly national figures. Local ones can vary substantially, and the statistics show that affordable housing is predominantly being bought by investors for rent, not homebuyers to build equity.
> Factually the majority of US families live in homes they own, about [65% of US families own their homes])
That’s a grossly misleading statistic on its face, because it ignores demographic data to make the case that somehow a full third of the country simply doesn’t want to own a home. It does so by hiding the average age of homebuyers (which only goes up, indicating only those on the property ladder already are buying homes in large enough numbers to drive the average upward), the types of homes being bought (what about mobile homes/trailers? Or people who live entirely on the road in RVs? Why is it “ownership” if they’re still paying a mortgage to someone? Etc, etc), and regional or local policies that affect these demographics. FRED data is awesome, don’t get me wrong, but that figure is like pulling the U-1 for unemployment and saying everything is rosy.
Don’t come in here to blindly spout numbers without a competing or complimenting narrative of your own.
> Directly, yes, but don’t forget the wider array of businesses dependent upon this minority to survive: hardware stores, contractors, many tradespersons, mortgage companies, real estate agents, brokers, closers, lawyers, and more, all of whom get paid/earn less if housing prices come down in the short term (until theoretical volume makes up for the drop of individual transaction values).
These parties mainly reply on home construction, renovation, or just home sales. None of those things require housing as an investment to have returns near equities. Home builders will build homes even at lower levels of price growth, as they did in earlier decades. In fact we'd see more construction but for regulation. Really only lenders and agents/brokers are taking a big hit if home prices drop. Builders would probably net out just fine because home prices and land value are so closely linked.
> It’s a wider web that shores up a market valued at ~$50tn. That’s hardly a minority.
You're mistakenly quoting the total asset value of all US housing, the US has a GDP of $30tn. Home building accounted for ~$0.8tn last year. Home building, sales, and associated industries account for about 15% of GDP. Higher supply and therefor lower prices could easily net out to a similar amount while freeing up more money for other uses by consumers. The economy isn't zero-sum and high housing costs are drags on productivity in other areas. This is pretty well established.
> Taking those numbers at face value means a full 13% to 20% aren’t purchasing a home to live in them, which is problematic in a housing crisis.
You should take those numbers at face value because they come from FRED, and you can verify them. Most of the 13% who are investors are buy a single building to then rent out. Some people prefer to rent rather than buy, and some prefer to rent a house rather than an apartment. The solution to a housing crisis remains more supply.
> Local ones can vary substantially,
No one argued otherwise, but it's useful that have a macro figure as a benchmark. It also may surprise you to learn the Texas has about the 5th highest share of institutional purchasers[1] while seeing prices fall in Austin, Dallas, San Antonio, and Houston all at once. So the data doesn't align with your expectations.
> it ignores demographic data to make the case that somehow a full third of the country simply doesn’t want to own a home.
I said no such thing. It's just roughly the norm for many years[2] and has never fallen below 62% or gone above 69%[3] for as long as stats have been kept. It's a useful stat for framing the discussion. IMHO we should be more concerned about the rent burden for the other ~30% and should build more to alleviate that problem.
>Don’t come in here to blindly spout numbers without a competing or complimenting narrative of your own.
Here's the competing narrative, you're spouting populist crap about a subject where you had literally 0 grasp of the actual fact, so I gave you some of them as a start.
[1] https://www.axios.com/local/dallas/2025/02/12/investors-stil...
[2] https://fred.stlouisfed.org/series/USHOWN
[3] https://en.wikipedia.org/wiki/Homeownership_in_the_United_St...
Uh, my dude, real estate is the #1 sector in the Los Angeles and San Francisco economies...
Anyone under fifty in the US who has tried to buy a home since 2019 knows first-hand what the situation is right now, at least in their area. Those of us who have been “in the game” longer see these same patterns repeating elsewhere, suggesting the issue isn’t local regulations so much as a fundamentally systemic problem with how housing is treated in America.
Flooding the market with new construction (at any price level, though ideally at all sizes and quality of housing) will do more to sustainably lower prices while leaving a functioning market.
While price controls might keep the supply affordable to a larger share of the population, that doesn't help the fact that there isn't enough supply, so instead of money, other mechanisms influence who gets to buy the goods. This could be: Who is most willing to invest an unhealthy amount of time and energy, who is eligible to maybe acquire state funding, or simply who is the lucky one. Is any of this better than letting money decide? I tend to think no and think it would be better to have a functioning market with reasonable prices.
I'm using those six quoted terms to have a meaning the same as what Google returns as the first definition for five and the second for one (which I think is obvious to all readers from context):
"functioning market" - A functioning market, in economic terms, is a system where buyers and sellers can freely interact to exchange goods and services, with prices determined by the forces of supply and demand, and where information is readily available. A well-functioning market is characterized by competition, efficient resource allocation, and the absence of significant barriers to entry and exit.
"sustainably" - 1. in a way that can be maintained at a certain rate or level.
"flooding" - 2. arrive in overwhelming amounts or quantities. I posit that no one was confused and thought I meant "1. the covering or submerging of normally dry land with a large amount of water."
"ideally" - 1. preferably; in an ideal world.
"quality" - 1. the standard of something as measured against other things of a similar kind; the degree of excellence of something.
"scarcity" - 1. the state of being scarce or in short supply; shortage.
Great point. Healthcare, debt, and housing affordability are interlinked issues that stem from one root: a financialized economy that benefits a tiny minority of rent-seekers at the expense of productive activity and the public at large.
Three potential outcomes of this trajectory:
1. Permanent extreme inequality enforced by a "post-liberal" surveillance state.
2. A moderating force, an FDR-like reformer, who represses capital for its own good.
3. Political instability and violence a la Luigi Mangione or worse.
Yet this is not really a problem of financialized economy, the roots are elsewhere:
a. lots of NIMBYs, mostly curmudgeonly old people who want to block any change around them and, being in pension, have a lot of time to throw at thwarting anything. My personal experience is that they aren't really looking for money or profit, they just Simply Hate Anything New, Period,
b. the ease of weaponizing environmental and planning regulations against any building project, by the means of lawsuits,
c. local mayors have de facto (though not de iure) influence on the permitting process and they don't want to lose this tool of power over their constituents. It is an efficient way how to bash your enemies and reward your friends.
From what I know about the US, at least a. and b. apply in many places, too.
High rates of migration upset this equilibrium. In the past it would normally cause wars and genocide because of that. I'm not convinced the current world is any different but a number of other people seem to be.
Everyone* wants to go see Taylor Swift. She comes to a stadium and the sell out is instant, the aftermarket is bloody and ruthless. The stadium has 90,000 seats, 2,000 floor spots, and they are gone before you can reload the ticket page.
Taylor Swift is the embodiment of "good jobs". The stadium is the local housing market. Those VIP booths side stage with room to move around? The mega mansions. The lower tier seats? Upper-middle class. Nose bleeds? Upper lower class/bottom middle class.
Now solve the problem of the true value of these seats being so expensive. You can add more seats (this stadium happens to be extremely modular) but the experience for everyone becomes worse in a multitude of ways. You can add seats above the nosebleed, but it doesn't really do much to affect the closer seats.
So how do you solve this? How do you handle people who want to sell their ticket? Is it even possible to give people who can hardly afford nosebleed a shot at mid tier seats?
*Yes, I know you have no interest in seeing Taylor Swift.
your analogy requires the assumption that the stadium is already "at capacity" for the maximum comfortable number of seats
99% of American municipalities are nowhere even close to this capacity.
Companies want top talent for their workforce. They naturally will set up shop where they have easiest access to this talent (hence why you get industry hubs in different locales). The companies move to the spots for workers, and the works move to those spots for the jobs.
There's an alternative world where SF and San Jose look like Singapore or Hong Kong, and policy is one of the big differences
If you want great live music you can find that in a 1 in 10 bars around the country. (less if you want original music instead of covers). Likewise if you want to watch a dancer, though perhaps a different venue. If you want anyone sexy you can see sex better at a local strip joint. If you want to sleep with someone you can pick someone up in any bar (you probably couldn't sleep with Tayler Swift even if she was the type looking for a one night stand). However the shared experience of being a Tayler Swift fan is not something you can find if you stick to the local scenes. That national/international shared experience can only belong to a few people at any one time and no amount of schools, talent shows, scouting... can change that.
It seems to me that we already have multiple Taylor Swifts so having even more shouldn't be a problem. For many people, the school system is the reason why they own the house they do.
In my experience, many of the schools self-report having pretty bad math/reading comprehension amongst their students. I'm not picking a house based on it being "the best" or the one "I hear about the most". I picked it based on it actually having good outcomes. If other districts had that too I would've considered theirs.
Not everyone can live in San Francisco, but there exist other equivalent "nice places" of which there are too few.
Likewise if you need a famous musician there isn't room for everyone to know 10,000 different musicians. However if you can accept any musician there are 10,000 great ones to choose from.
We actually ban nice places to live with walkability in the vast majority of the country. Our urban planning in the US been entirely focused on keeping out mixed uses, keeping out dense housing, the things that enable public transport to function at all.
Land and climate are much easier to manage if we were to simple legalize density and mixed uses. We are reaping decades of bad planning for car-centric lives, without planning ahead for future generations and their ability to find a home.
Absolutely. And in fact there are lots of places that could support such things. In the US we call them "small towns" and "rural areas" and "the rust belt."
Areas where a lack of good jobs (as manufacturing left and farming became much less human intensive) drove folks to where decent jobs are (were?) more available.
Which drove up the costs of housing and, well, pretty much everything else, in those places.
However, with the technological changes we've seen over the past eighty years or so (Interstate highways, compute/semiconductor industries, ubiquitous networking, etc., etc., etc.), revitalizing those areas that have been left behind could boost both local economies as well as broader ones.
However, ALEC[0] and its corporate backers have sabotaged efforts to do so in pursuit of destroying competition and maximizing rent seeking. a lack of infrastructure maintenance is part and parcel of that -- as a lack of economic activity reduces the amount of tax revenue available for necessary infrastructure repairs and investments.
If companies could get symmetric, multi-gb internet, decent office space with decent road and rail connectivity to/from regional hubs in small towns and rural areas, more people would move in, prompting more housing development, more local businesses, more tax revenue, better infrastructure, etc., etc., etc.
This type of investment could have instant positive economic effects in poorer areas, and longer term (coupled with more housing), reduce the insane housing prices you see in NYC (median apartment rent in Manhattan is ~$4500[1]), SF, Boston, etc.
Unfortunately, statehouses appear to be fully captured by big corporations wanting to maintain their rents by stamping out any competition, the economies of those states be damned.
Sadly, the above can't happen unless the folks in those areas stop voting (in municipal/state elections) for the folks who are supporting policies designed to maintain the penury endured in those places.
There are so many good reasons to reinvigorate these areas, but we keep electing folks that won't bite the hand that holds their leash.
[1] https://www.brickunderground.com/rent/nyc-manhattan-brooklyn...
Edit: Added the missing links.
Or taking a smaller venue and expanding that?
There's a ton of affordable housing outside the top ten cities.
For the most expensive places I'd advise young people to consider going there temporarily to get your career started, but don't stay unless you are making serious money -- enough to offset real estate costs. E.g. for the Bay Area I'd say if you're not making over $350k/year by age 30 you should leave.
To keep your analogy... well, analogous, this is also a stadium where you have to buy tickets in groups of at minimum four seats, with generous buffer zones of at least two seats between each group, specifically to cater to a handful of extremely vocal Swifties who couldn't bear to sit next to a stranger in their life. We could easily double the capacity of the stadium without impacting anyone's experience.
Is anyone arguing that price drops "lead to" (i.e. happen before) increases in supply? It seems to me that it's the other way around: supply increases "lead to" price drops. This is what supply advocates hope to see in HCOL cities with expensive housing.
The author is concerned that builders will stop building when prices fall, but that's rational. Suppliers should respond to changes in prices.
Other policy goals are possible. For example, instead of "affordable housing", your goal might be to help the home building and financing industries never experience a down year.
The biggest political issue is that Americans have been led to believe their homes are assets which appreciate in value. The abundance mindset threatens the net worth of many such people, but they are not the landed gentry of a democratic society. And the people who have nothing and can barely afford rent outnumber them and should vote for their interests.
my sense is they, too, want to buy free-standing homes with nice amenities that are not really necessary (not rent an apartment or buy a condo) and that appreciates in value.
Exactly this. Once you've built enough new housing and so the price has dropped to the point where it's not economical to build anymore, you're done. It's mission accomplished. The goal was achieved.
But the whole point is that you have to actually build all that housing to get there. Which is what we want. The author seems to be deeply confused about basic economic principles.
Affordable housing used to include a room where you share a bathroom and kitchen with the entire hallway. Affordable housing used to include tiny shacks. Air conditioning used to be something not even the rich had.
Build smaller, worse, and cheaper until they can.
It really depends on how much you reduce costs. If you reduce costs enough, you can have increasing supply even in the face of falling prices. This argument sounds like one made by a hedge fund protecting its real estate investments.
The reality is that the housing market in the US (and most countries) is heavily distorted by government NIMBY regulations. Because of this, it's reasonable to expect that there is actually a lot of room to reduce the $/sqft if the market can build housing in general. Current costs are inflated by being forced into specifically prescribed solutions designed to grow the wealth of developers and landowners.
Stable firms, not out over their skis, can afford to entice buyers while still making a profit. Just like in a startup, the cost of money and the degree of leverage sets the [minimum] speed limit on the runway.
They can't be rationed with.
Social housing is the only thing that will really work.
It’s amazing how little history people seem to remember or know. I think people might be open to trying again if you could address what went wrong last time (extreme crime and poverty traps)
Yes, of course there were a lot of grim council housing estates (particularly tower blocks) that had to be knocked down but the causes were often a lot more complex than the concept of social housing being fundamentally flawed.
It's amazing how little history people who think they know history actually know
Yourself included.
cf. Mitchell-Lama housing[0]. It was enormously successful in creating housing (both rentals and sales) for significant numbers of people. In fact, such housing is still (70 years later) doing so.
We could use a whole lot more of that!
[0] https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_...
Please do better.
I personally know dozens of people who grew up in Mitchell-Lama housing. Tens to hundreds of thousands of people still do.
But because other implementations are less successful (which is debatable, especially as you've provided zero examples), we should scrap successful ones?
Or am I missing your point? Please do elucidate.
Edit: It occurs to me that you're likely ignorant (especially given your response) of Mitchell-Lama programs. As such, I encourage you to educate yourself and to advocate for similar programs, as they create stable housing and promote community for many people -- and unless you live in a large urban area, it provides that for more folks than live in your entire county.
You go ahead and keep moving the goalposts, friend. You can do that all by yourself. kthxbai!
Good hard working people are being priced out of my neighborhood. Social housing could be a huge step in stopping that process.
people wonder why these projects get shot down so often. there's no accountability for the people that move into the units and then people just pretend junkies and dealers dont end up in these units. a lot of these affordable housing projects have "housing first" units baked into their plans which is a type of unit that houses active junkies and refuses to kick them out for any reason. thats the type of stuff people are afraid of. nobody wants to live around drug dealers and tweakers especially if they have kids.
I am not against cities building, but where I live in California the excessive zoning, permitting and delays are at the core of the problem.
When developers/investors fail, they do take down projects with them. See: Oak Knoll/Lehman Brothers.
But yeah, I don't believe the state of California is going to do any better.
Land and government costs are well.. decided by the government, some by regulation (where can you build, what can you build there) some by direct taxation.
Material + labor costs depend on the labour and material markets directly.
Everything else is just excuses not to build more housing, that would bring prices down.
Yes, the financial markets and investors may suffer, but that their problem. Sadly, (at least over here in a small EU country) the government is focused on them.... the solution both banks and parts of our government see is based on getting easier credit and not bringing the prices down... but the problem is not in "It's hard for young people to get loans", but that the apartment that was 120k eur 20 years ago is now 450k eur, and that young people don't need a 70k loan anymore but a 350k loan (with a higher deposit).
The sky is not falling. Let's keep moving towards what will benefit everyone and not get distracted by the totally predictable reactionary market signals.
And what is that?
So, what is it? OR perhaps you are actually saying that things are (largely) working well, so there's no major course adjustment necessary.
The stated goal is "build more housing so everyone can have a place to live", but the current incentives are "bundle these materials and labour under guise of another product so you can sell it for a profit".
Of course developers walk away when prices drop -- their objective is to make money, not housing. The fact that they build homes people live in is purely incidental.
Whether or not a homebuilder builds homes depends on whether or not there's enough demand at a price point that's profitable. And markets aren't entirely localized, people will move for affordable housing if there's also enough jobs.
So lots of things affect whether or not homes get built: cost of building supplies, cost of land, cost of labour, growth rate of the municipality, demand for the specific unit type, zoning laws (which affect a bunch of the above), etc...
Remember, a house can cost as little as $100k to build, but nowadays costs $500k-$1M+. Price of land is a huge determining factor, cost to hook up utilities (if a new neighborhood, the builder often pays for it), interest rates (the homebuilder incurs a bunch of expenses before homes are sold and whole projects are financed, then it also affects the price buyers will pay), insurance, regulatory costs (the whole permitting process is $$$) etc...
DFW was seen as a pretty affordable place a while ago. In 2015 could get a 2,200sqft 4-bedroom house with a larger lot and a pool for $250k pretty easily. By 2020 that price was $320k, still decently affordable, still seen as a pretty cheap place to buy a home. By 2022 the valuations had exploded. Houses down the street of similar quality were selling days after listing at $550-600k. This then leveled off, settling around $550k. Houses around that price were still seeming to move pretty quickly.
Now I have neighbors cutting prices. A neighbor trying to sell has had their house on the market for months. They've already cut about $70k from their original listing price. Three more houses nearby have also entered the market and have been around for a few weeks. Compared to just a couple of years ago where the average house was on the market for maybe a couple of weeks.
The 'sharpest rises' are from a long-term trend of a decade [2]:
> Over the past decade, the median home price has increased by 134 percent in Phoenix, 133 percent in Miami, 129 percent in Atlanta, and 99 percent in Dallas. (Over that same stretch, prices in New York, San Francisco, and Los Angeles have increased by about 75 percent, 76 percent, and 97 percent, respectively).
Here's my pictorial illustration of the curve because I like drawing silly plots in txt
|
| ____
| ___/ \ } Jan-April 2025
| ___/
| ___/
|_/____________________
| | |
2015.....2020.....2025
[2]https://www.theatlantic.com/economy/archive/2025/06/zoning-s...
To thine own self be true!
https://fred.stlouisfed.org/series/CSUSHPINSA
Here is another interesting chart:
https://fred.stlouisfed.org/graph/?id=CSUSHPINSA,SFXRNSA,LXX...,
Which place seems more expensive since 2000? Can you see the big drop in 2025?
I think the story of Atlanta and Dallas is a story of cheap housing being available for a long time until it started to get used up. In Atlanta, it's not just exurban development, a lot of in-city neighborhoods had some growing ability. But the mixture of people relocating to Atlanta and the constraints of a car-based city with difficult zoning have basically stopped new supply. Small single-family houses get replaced with larger single-family houses and the missing middle is harder to find.
Reality demonstrates the well known - the people who celebrate house prices going down don't have a loud voice in political circles and are ignored. Almost by definition they're going to be representatives of the world which doesn't have vast amounts of money and influence.
> Price Drops Don’t Lead to Supply. They Kill It.
And I love this one, it is the inverse of "nobody goes there any more, it is too crowded". If the price is low that means there is more supply than the market thinks it needs and more people who want a house are finding a house to live in. That may well cause less new builds, but more builds probably aren't necessary if the price is dropping. More people are being homed. At some point prices drop low enough that new builds should cease altogether.
I strongly suspect that 1) higher housing prices make builders more likely to build (or at least to max out their ability to build), and low prices (at least below some threshold) cause them to be more hesitant to do so, 2) high prices make people less willing to buy, and low prices make them more willing (or at least able).
So far, so much "working like a traditional commodity". Where do you see it working differently?
But a big problem is that people try to view housing as not a commodity. They think that people don't move, don't change housing, don't need different things at different stages of their life.
If instead we actually view housing as the commodity it actually is, we would realize that the reason old cars are cheap is because we build new cars that are more expensive. That day old bread is only cheap because new bread was made today. Houses fall apart, the housing itself is actually going down in value every day. The land is the only part that rises in value, because we restrict its use so much.
New housing is nicer and more expensive than old housing, yet for some reason we are saying those with the least ability to pay should only be allowed to buy new housing. There are a ton of aging people in gigantic old houses that would like to downsize into something newer and smaller so that they don't have to walk as they age, yet that sort of non-car-dependent community is largely banned.
It's changing though. I'm seeing more people, even homeowners joining this chorus. Insane housing prices make everything expensive, and people are sick of everything being expensive. Even homeowners.
I agree that builders leaving is good. It means the prices have come down and demand / supply is getting better
Not really, it just means that the builders can make more profit elsewhere.
People still pour money into them every 10-15 years. But have to invest their money in other assets.
They bought their NY house by selling the Ohio one. Price was roughly equal, maybe a little higher. Now the NY one is double what the OH one is worth, and I couldn't afford to buy my own house today. Conversely, I could pay cash to buy the house I grew up in, despite the lot being 4 times the size of mine.
There's definitely haves and have nots real-estate wise in different parts of the country.
If the issue is ownership versus renting (which is very important), building new will lead to more overcapacity in the system at large, won’t it? That won’t serve new owners well (or existing ones).
It’s a difficult problem without painless solutions.
And further in terms of inventory. What does it suggest to you in high demand cities when we see e.g. in socal virtually all available space already built to the limits of the zoned capacity? No real room to add inventory based on zoning laws, job growth continues to happen, and prices are rising. Do you believe this is a sufficient amount of inventory, todays zoned capacity with no avenue to meaningfully add housing inventory?
This is why the situation is fundamentally different in socal than anywhere else such as texas. Dallas metro region has farms on all sides to continue to digest to create regional inventory without making large changes to zoned capacity. Socal has mountains and the pacific ocean.
I think this is putting the cart before the horse. The entire reason that building/lending/etc should exist, it's raison d'être, is to make housing more affordable. If that is achieved - mission accomplished? I don't care about these parties otherwise.
When you have unlimited access to capital and at a lower rate than the average family, you "might as well" buy it up. If it goes sideways you are "too big to fail" and will be bailed out by the Federal Reserve...at the cost of the tax payer of course.
At least we aren't in a situation like 2009 where people walk away from mortgages without making a single payment because they expected to be able to flip within weeks and had no cash at all.
Clearly it is correct to short, but short positions expire - they are definitionally short term.
That said, the behavior is pretty expected: the current operators are operating on in inflated land value cost because the market has become distorted due to lack of supply. Altering the market by injecting supply will drive down land value and cause operators with money stuck at the current equilibrium to lose money or fail. But it poses no issue to operation or new entrants at the new market equilibrium. If it operates like a market should operators should be happy to begin providing houses on land at the new equilibrium as soon as it's reached. However fear of not knowing when it's been reached will mean that it does to take time settle.
A very succinct way of describing the actual relationship. New homeowners are not "buying a house". This is a misconception. They are agreeing to pay _double_ the home's present value for the next 30 years and then get it.
New homeowners, who take out a mortgage, are:
a) buying a home (they get it immediately, not 30 years later; their name is on the title, they can make changes to it, they can sell it, etc.)
b) borrowing money because they don't have the cash to buy outright (or prefer to borrow because it is cheaper than liquidating another asset that is increasing in value)
c) the loan is secured by the property (the lender saw a large sum of cash flowing out and there's a risk the borrower will default)
Without renters there would be no housing Ponzi scheme, so gotta keep the renters renting.
If by "housing Ponzi scheme" you mean house prices increasing then this isn't necessarily true.
Even in a world where private renting was illegal and people were forced to choose between home ownership and homelessness, house prices could increase over time because of restricted supply, increased populated and wage growth.
Saying "we're going to build affordable housing" is putting the cart before the horse: it is the building that causes the affordable, not the affordable that causes the building!
So to understand this we look to the supply-side. Basically, scarcity causes the investment mindset. This is very very complex and interlocks with much broader structural changes to the economy that have taken place since houses were considered affordable, structural changes that are much larger even than housing.
Used to be, you worked for a company for 10+ years. A company would move into a town (by building a big factory, say), and work with the town to build housing for its employees. Think the Kodak plant in Rochester, for example. In the 20s and 30s, Kodak's employees were having trouble finding places to live. So, they formed the Kodak Employees Realty Corporation and built a couple thousand houses for their employees in Rochester. There are many examples of this in cities all across America.
Nobody would think to do this any more, because the economy has changed structurally. There are less people involved in building stuff and generally we have all decided that changing our physical environment is simply a thing that we don't do any more. Our entire economy has moved to one that's based on physical things (building things, producing things, moving things, in the physical world), to one that is based on information. You can move bits around and make profit without ever needing to touch the physical world *.
We created financial capital to accomplish the actual important thing, moving atoms around in the real world. Now, financial capital has in some sense "taken over" -- moving bits is no longer a thing that you do to make moving atoms around easier, but a goal in and of itself. Financial capital has taken the head of the table, pushing out physical capital. In essence what has happened is that the United States has gone from being a complete organism (lots of muscle, a little bit of brain to move that muscle around) to being a subset of a much larger organism (all brain). That we're "all brain" is why we can't move atoms here; our inability to move atoms here causes scarcity in housing; scarcity in housing causes investment mindset in housing; housing appreciates.
Causality of all of this, I think, is far more complex than some simple economic explanation. It's deeply cultural and involves the reorganization of the entire global economy. This is why you're never going to lose money on your house.
* this, of course, is _not actually true_, but rather a geographic illusion. The physical world is touched more than ever, its just that the changes to the physical world (which are often horrific) happen in other places besides the USA. Southeast Asia, China, Africa etc.
But to complete the analogy, it seems like the goal should be for residential values in terms of build price per some typical target like ~1500sqft/3br (regardless of form) to remain relatively constant adjusted for inflation and relative to % of median wage while allowing land value to adjust density to match. This allows people to gain from selling to convert from low density to high density, but keeps affordability relatively constant. This likely means that some kind of alteration in tax or sale regime to promote transition to higher density and not just transition to higher value should be present in the market. (IE in places where 1acre is going for ~$1million, it should make more sense for someone to buy and convert to multiple units than for someone to just buy.) This would lead to expensive areas starting to convert to higher density leaving lower value areas to the main option for single family inflows. (Of course this will have loopholes - obviously it incentivizes the "rich enclaves using a COOP" type of model if the tax pressure were assessed at sale - so it need to be thought through more clearly.)
Edit: That said, I do think there's something to your organism analogy. For example, all of what I wrote above given, it explains why it'll still be impossible to find a good plumber and that does interact with the price of building.
Unfortunately it doesn't work that way and never will, not just because of NIMBY but because of the reasons I outlined above.
Where have we seen anything close to 'build more'? Regulations in many major cities have prevented building more for decades and I haven't seen any loosening of these regulations (they were only increased during the Biden administration).
"Prices are softening. Delinquencies are rising. Builders are walking. And instead of asking what this reveals about the fragility of our system, we’re preparing to paper over it—again—with liquidity, leverage, and euphemisms. "
This is the plan from the potential future mayor of New York: Builders and investors will flee as a result of price controls and home value will plummet.
Detroit is a good example of what happens in the long term when investors and businesses flee the city. I lived there for 20+ years and it still has never really recovered.
https://www.boston.com/news/politics/2025/02/11/cambridge-el...
The idea that we’ve started building enough to bring prices down is a non-starter.
Then if they had to wait for each plot and future house sale to occur before pricing the sale they couldn't get economies of scale.
Effectively your scheme turns every house into a more complicated bespoke futures contract with more parties involved.
There maybe benefits to that but it doesn’t seem like a system designed to get more houses built.
Otherwise houses won't get built and the prices of existing houses will go even higher.
Most people that had their house built decades ago don't realize the requirements for things like runoff control in modern subdivisions. In the past your water was someone else's problem, which as populations grew lead to some people getting screwed when flood waters reached new heights because of all the new impermeable land. Water impounding and runoff control are very hard to build by an individual unless they have a large chunk of land (which acts as the sink). Any dense new SFH typically ends up in a MUD that provides all the utilities and water controls and this is insanely expensive unless distributed across a large number of units.
If we want to control housing prices it won't be by building more SFH. It will be by building more dense style housing.
A buddy of mine works for a large grocer down here (HEB). The way HEB builds is that they get a build contract and a bunch of lawyers, and the GC has to demonstrate that they have enough assets that HEB can go after to make them (HEB) whole. If the GC goes over estimate, then that's on the GC, not on HEB. HEB gets a building or they take the money back.
As an individual, you can "act like HEB" by going with a major builder. Down here that'd be Pulte or someone like that; alternately, there's a lot of high quality factory-built custom homes. I'm trying to convince my wife that we should build a metal building on post-and-beam with a crawl space. We can build a minimum viable house for 25¢/$ compared to a custom, and the quality is straight-up an order-of-magnitude better. The rest of the house can be finished out using off-the-shelf components.
Disclaimer: I don't live in a major city, I live just outside a minor one. It's all condos.
Let's be honest: it's a good example of what happens when some guys with a lot of money find a cheaper place to make something.
Same with St. Louis, Baltimore, Chicago, Cleveland, Buffalo, Camden, Gary, and so on.
I experienced this first hand when I worked for a Korean company that supplied parts to Hyundai and Kia.
They sent line workers from Detroit to train people in Alabama.
My coworkers in Alabama just could not believe the Detroit folks when they talked about how much money they earned.
We were being paid half as much in Alabama. And our area of Alabama had a much higher cost of living compared to Detroit and its suburbs.
So the company makes more money by moving their operations to the south where they exploit their workers without interference from the government.
Because that’s the explanation for why offshoring to countries with fewer regulations is a good thing. Yeah it’s tough at the beginning, but it theoretically gives the workers leverage over the company because there aren’t any cheaper sources of labor. It’s supposed to give the cheapest labor the option to grow a pro-labor movement.
But at the same time, the company adopts a lot of union practices. For example, they pay based on tenure and not performance. So it doesn't matter how productive you are. You could be the single most productive individual on your line, but the guy who has been there longer is going to get paid more. Even though that guy is likely rather less productive than you.
But these companies pay so poorly that the only people applying for these jobs are people straight out of jail/prison.
When I ran the CNC line, there were ~350 people on the floor between the two 12 hour shifts. Of those ~350, there were only two of us that had never been to state or federal prison.
So the company knows that they have these employees right where they want them. The employees are too afraid to organize or even speak out.
I have to wonder what kind of kickbacks they get for employing those people, or whether they have a work program based in whole or part on slave labor (quite common in a number of places, slavery isn't illegal for those who have been incarcerated).
Markets can't compete with slave labor, which explains why monopoly and other socialist practices take hold. Corruption has a long arm.
I mean, that's a lot of people.
Also, the company doesn't pay people less all around. They pay workers less. The c-suite still makes more, and shareholders, who never did any work for the company whatsoever, get paid more. Car manufacturers haven't substantially lowered prices in years; so there are people paying more to get a car made by people making less.
https://cdn.auckland.ac.nz/assets/business/about/our-researc...
Developers have a hell of a time building in these areas even once they get zoning variances, because abutters will show up and complain about every single detail and try to make the property as small and unprofitable as possible. You start off with a 12 unit building with no parking and you end up with a 6 unit building with 12 parking spots in a garage that no one uses.
There's one instance in my neighborhood where the city and developer have been meeting with residents over the course of a year to try and come to an agreement on what should be built. There's just a derelict single-family house on the lot.
Housing prices are high everywhere, not just major cities.
Interestingly, in my state we have a lot of land for building houses if you drive to nearby cities. Some people uproot themselves and move 30-45 minutes away so they can have a much bigger, nicer, newer house. Most often when they start a family.
If you’re willing to move an hour away you can even get these big new houses for very affordable prices.
Many people don’t want that, though. They want to live in the city. So these big new houses remain cheap, while housing in the city remains expensive.
It seems like an easy solution would be to start knocking down houses in the city and building tall, dense buildings. Except that is happening, and the same people don’t want those either. Even condo complexes are having a hard time selling units.
What people here continue to want is the one thing that cannot be scaled: Full houses of their own that are in the city. No amount of demolishing buildings and building density will fix that, because it’s not what they want.
I was completely wrong in guessing that COVID and remote work would help housing prices by allowing people to move anywhere. Most of the people I knew who relocated due to remote work took the opportunity to move toward cities where their friends lived, not to cheaper areas.
I think we must continue to build, though. Eventually new cities and interesting locations will be bootstrapped. I think housing prices in popular areas will remain stubbornly high, though.
?
Because instead of purchasing a house, you're just purchasing the right to continue being a renter. Meaning that the only reason to buy is that you expect an even bigger sucker to buy it from you later. And with rapidly declining population and widespread poverty among the young generation, there aren't that many bigger suckers around anymore.
Bringing prices down is usually a losing idea with existing asset holders. Even a financially strapped homeowner does not want the price of her/his home to go down. Politically, this is a complete non-starter. Also, appreciating home values serve as a very strong way to attract talent to a city.
> "Prices are softening. Delinquencies are rising. Builders are walking.
What do you expect. Why would a homeowner send 1-2 paychecks a month to pay interest into an investment that is losing value? Why would a builder start making an asset that will be worth less than when they started building?
Can't the asset holder - the homeowner in this case - get rid of the asset which stopped performing? Why such a strange financial behavior? If the houses are financials - why not to deal with them as such?
Also - the mortgage lender may not allow a sale at a lower than loan value price. The result is foreclosure, and even more loss in value.
This makes little sense. In a democracy, it will be hard to get people to vote against their own best interest.
Why? Builders are supposed to be doing the paid work, why would they walk out of it?
Most of the time, most builders buy a piece of land, build a house on it, and then find a buyer (or at least while they're in the process of building the house). If they're having trouble selling houses, then they're left with a bunch of houses on their hands, on which they're having to pay the interest. They don't want to be in that position.
Then where are the builders which do what they're asked to? Is the problem with the banks which don't do this operation? Then it looks like a financial opportunity.
You're effectively saying "this business model doesn't work". This doesn't mean there are no other business models which work in this case. Where they are?
These are independent companies. Who do you think is supposed to be asking them to do something? When a customer asks, they do it. What more do you want?
> This doesn't mean there are no other business models which work in this case. Where they are?
They made less money than this model over the last decade or two. So they are nonexistent, not in the sense that they are impossible, but in the sense that nobody uses them.
Could companies start using them? Sure. But probably, first some homebuilders who use the current model have to go bankrupt. (A side benefit is that some already-built homes would go on the market at bankruptcy sale prices.)
I think it's not necessary. The different model homebuilders should pick up the orders, that's it.
It's not like you think it should be, and the path from here to there is less smooth than you seem to think it is.
Good. They should lose because they abused government policies through NIMBYism to inflate their assets prices. Happy to see them lose
What planet do people live on? Go to any neighborhood in NYC and you are going to see tons of construction.
idk about NYC specifics ofc. but thats how it work in my country. they build new houses, new ppl come in. still nothing available generally, and everything about 2x price over 10 years while income doesnt rise to compensate.
there is a lot of constructions of homes here too. but for the wrong reasons and with the wrong intensity.
It's considerably easier to build in Canadian cities than most American cities. Not easy, but easier.
Over the past ten years Canadian cities have seen incredible growth, due to high immigration levels. Toronto is the fastest growing city in North America. Vancouver isn't far behind.
Yet Vancouver has seen flat housing prices over the last 10 years. [1] (Though flat at a very high level). Toronto housing prices are down 5% in the last 12 months.
1: https://realestatecoalharbour.com/blog/vancouver-house-price...
2: https://www.nesto.ca/home-buying/toronto-housing-market-outl...
Wouldn't that be more apt to be Langford? https://www12.statcan.gc.ca/census-recensement/2021/as-sa/98...
East Gwillimbury, the fastest growing municipality in Canada, is within Toronto CMA. Perhaps that is what you were thinking of? But Toronto CMA is not a city, neither legally nor colloquially. Its mostly rural area. Growth in the City of Toronto is relatively slow.
I don't understand the details but I'm told the origin of this is that regulations have rendered apartments of any size unprofitable to build (anyone with more insight here?). Pretty much the only housing Ireland gets are sprawling suburban housing estates. I'm reminded of this graphic, 100 houses Vs 100 apartments [1].
* By 2½ bedrooms I mean two bedrooms plus a very small "box room" barely big enough for a single bed and a small wardrobe. Frequently used as either a storage room or small home office.
[1] https://i.pinimg.com/originals/78/f5/94/78f594ebb9216e50e396...
Government bails homeowners out and prices go back up.
Banks are another story, we'll bail them out all day but tax payers and homeowners are left holding the bag.
Sure, maybe you are PRIMARILY bailing out banks.
But you are also bailing out everyone with a mortgage and enough brain cells to refinance and cut their by-far-largest monthly expense by 30-50%.
The "bailout" for consumers is that they lower interest to 0%. That's what we did in 2007. If people can refinance their homes from 7% to ~2% then they save a fortune and it spurs buyers back into the market and current homeowners to move around and shuffle inventory.
Of course the Parent comment is also correct because banks get bailed out by low interest rates, but the government also bailed out several banks directly. Corporate bailouts are always a debatable topic. In one way we should let bad businesses fail, they failed because of the risks and choices they made and bailing them out is just inviting those mistakes to happen again. But on the flip side, consumers do need banks (as much as we refuse or hate to admit it). Yes banks make money off of us, but we as consumers also need banks. Which is why bailouts get approved.
We have seen this movie before. I'm not sure why everyone is debating the ending. We watched and lived the ending. It wasn't pretty in the middle there, but the market eventually recovered. Here we are getting ready to rewind and watch the movie again.
We need banking services like accounts and transactions but there’s no good reason that couldn’t be operated as a public utility.
Even if the government today were to wield that power safely its simply too much risk to load that gun and hand it to all future administrations.
In those situations the governments step in with the intent of bailing out the banks. That bailout does happen to help individuals with debt, but the timing and messaging will always make clear that the government was only willing to step in once a banking crisis was a high risk. Borrows often hurt for months or years before the banks show cracks, the government is almost never doing anything about it when only the borrowers are hurting.
To add examples to my vague use of "always" above, I'd point to the housing crisis and student debt in the US.
Individual borrowers were falling behind on mortgages for a year or two prior to the bailouts. Only after banks recognized the train wreck coming due to the MBS bets and did their best to secure their own positions did the government step in.
Student debt in the US has been a growing problem my entire adult life. Not only is it a type of debt that can't be discharged, lending practices have created a vicious feedback loop with universities continuing to raise tuition and lenders happily writing the notes and expecting the government to deal with it. The Biden administration actually did put in the effort to help borrowers, but banks weren't in trouble and ultimately there just isn't political will to do anything about it until banks (and politicians' investments) are at risk.
Only supply.
Housing has its own economics in which supply is the only solution ever put forward.
Not a single politician or economist ever says that most dreaded and awful word “demand”.
Property developers, politicians, economists, demographers, real estate agents, landlords all agree that supply supply supply will …….. errrr it will…… ummmmmm more supply will definitely……. something.
Be it having roommates, elderly parents living in, staying with ones parents longer, communes. None of them popular long term I think. Hence: supply
People in cities and colleges have done that for decades. Not just "roommate" in the Friends sense where you have 2 people living in a 2 bed flat, but roommate as in sharing the same room - indeed 20 years ago I knew of some places where there where 5 people sleeping on 3 single mattresses in a single attic in London, with nuclear-dub style bunk sharing.
Demand for what people want (a place to call their own without having to live with strangers) is far in excess of the supply, and has been for at least the 25 years I've been an adult.
The rich don’t need to cram more people in, everyone else does. True?
Some may argue that the rich help in the supply by building new houses, but that makes them even richer. If it doesn't, they don't bother (a point from this article).
You can want a house, but if you can't pay the market price then there's no demand from you at that price point. So maybe you make a lower offer or look elsewhere.
Demand is simple. We're watching what low demand is like right now.
Inventory has been low (people like their locked in low interest rates), but it has been inching steadily up as people move, die, change or lose jobs, etc. The minute the supply significantly outstrips demand, the pricing will collapse.
Demand will stay low until the economy and housing market improves.
Especially when the current political pressure is to increase demand. The populace are complaining that, because of high prices, they can't afford to be a part of the demand.
Or are you saying the only reason houses are expensive is because people refuse to live in cars in high enough numbers?
What do you mean by demand?
The UK takes in about 700k people a year net, and builds about 30k houses a year (which is probably about enough to cope with "natural" population growth.
Supply and demand. Dwellings get smaller (or subdivided) because people will pay more and get less. Landlords appear to solve the problem (and make a profit from the fact) that young people can't raise the capital to buy a full house themselves any more.
It's not the only factor - the jump to two-income households also raised prices massively and transferred a load of wealth to existing home owners back when that happened - but I'd say it's by far the largest factor today.
In the past a typical housing unit would be husband, wife, two kids. A 3 bed house. Divorce rates are higher now (better to be divorced than in an unhappy marriage - so that's good), so you instead you have divorced husband and one or two bedrooms for shared custody of kids, and divorced wife and one or two bedrooms for shared custody of kids
Thus what used to be demand for a single 3 bed house is now demand for two 3 bed houses, with no change in requirements
You are also right about cities, and not just any specific city. If you were born in London and get a job in Cambridge because you want to work for Astra Zenneca for example, that's a good thing. Having workforce mobility is a good thing, just because you are the son of a farmer doesn't mean you should be destined to be a farmer. You've also got people meeting and marrying people from outside their immediate geographic area, at least one of them will have to move.
There's then the social appeal of cities in general -- if you're the "only gay in the village" that's a miserable life. If you live in a city there's far more choice.
"living with parents" is on the increase, despite any "stigma".
> The number of families in England and Wales with adult children living with their parents rose 13.6% between the 2011 Census and Census 2021 to nearly 3.8 million.
https://www.ons.gov.uk/peoplepopulationandcommunity/populati...
Adults living with parents is not a good thing, and in the west it never has been. Adults should be independent, and learn to fly the nest and build their own lives.
Then you've got massive external immigration. As well as people moving from country and older mining towns, you have massive inward migration (in the UK this has reached an increase of about 1% population increase per year). This is a good thing for the economy (more workers, more productivity, more taxes), but comes with other issues - including more demand for housing.
This pressure group says there is too much airbnb
https://www.actiononemptyhomes.org/facts-and-figures
They say that over 97.5% of homes in London are in primary residential use, i.e not airbnb, not second home, not empty all year except for some wealthy oligarch coming for a couple of weeks.
The numbers might be slightly off as people are not reporting their use of airbnb, but
https://www.selfcatering.co.uk/reports/uk-airbnb-stats/
Claims just 50,000 airbnb homes in London, which is just 1.3% of the housing stock in London (and that 50k number includes those which are primary residential use but the current occupant moves out for a week if they get someone)
All the various government schemes in the UK and Australia (I have no idea about other countries) that are aimed at helping primarily young people to buy homes - low deposit schemes, part ownership schemes, tax discounts etc etc, they all masquerade as helping but they stoke demand and add to price inflation.
But, politically, we want to increase demand (by offering lower prices).
In the UK 8.5 million people in England are facing some form of unmet housing need. That's more than 10% of the population.
https://www.housing.org.uk/globalassets/files/people-in-hous...
> More than 1.9 million households are hosting a ‘concealed’ household – for example, adult children still living with their parents.
Even when it costs nothing, there's always a limit to demand. Just look at say a hotel breakfast. I could have 50 sausages, 20 cups of coffee, etc. I don't, despite it being costless.
It's not, though. That's the whole political contention. That demand is, because of high prices, not at the levels the population want to see.
Demand is defined as having desire and willingness to pay for a good or service. High prices maintains the desire in most cases, but chases off the willingness. That's the whole point of having prices!
> Even when it costs nothing, there's always a limit to demand.
Now you're describing a (technical) shortage: A situation where an external mechanism prevents price from rising. In a functioning market, buyers will pay more to stave off demand. But if price is forced to remain lower than people have the willingness to pay (free, in your example) then there is no control mechanism to see people back away from demand.
But that's not a problem in the housing market. If you have the desire and willingness to buy a home, you will have absolutely no trouble finding a home to buy. Price is doing its job.
The problem is for those who only have desire. They are not part of the demand, but that doesn't mean they don't want their desires filled. Hence the political push to see an increase in demand. i.e. Enabling those with only desire to also find willingness by finding a way to lower prices (which means addressing supply).
Now sure, if you offer $50m for a 1 bed house someone will sell you one, at the expense of the person only offering $40m. That doesn't mean there is no unmet demand.
Right, it doesn't tell us much of anything, but there does need to be some external mechanism that is getting in the way from transaction completion in order for demand to be unmet. A shortage is one example of such a mechanism, but there clearly isn't a shortage[1] in the housing market. Prices have risen just fine. There is probably some unmet demand in the fact that builders simply can't build fast enough — where people have the money in hand to buy and have a seller theoretically willing to sell, but can't do so because the place is not yet finished — however, there isn't a lot of evidence to suggest that is a big problem and it is definitely not the problem being discussed.
"I really want to buy a house but I cannot afford it" is not unmet demand. That is what we call dreaming. As before, demand is comprised of desire _and willingness_.
[1] Speaking in terms of a "shortage" in the technical sense. I recognize that, colloquially, it has become popular to use "shortage" to mean "The price is higher than I like", but that definition, while certainly appealing to emotion, is nonsensical when you really think about it. Literally everything is in "shortage" by that definition, making it a useless term (as useless as demand = everyone who wishes to have something). The technical definitions are actually useful, though.
I just did a rightmove search for rental in London and checked the first 8 adverts, every single one was added today except for one which isn't available until september.
Your definition of shortage seems very different to mine so there's no point in continuing.
I anticipate that 98% of available jets are used. And I certainly can't afford one. Does that mean there is a shortage of jets? What isn't there a shortage of?
> Your definition of shortage seems very different to mine so there's no point in continuing.
What, then, was the point of continuing earlier? We have been discussing the technical definition since the onset.
I respect your freedom to make up definitions on the spot as you see fit, but there is nothing that can be discussed about such definitions. Clearly you saw value in discussing what surrounds the technical definition earlier, as demonstrated by multiple replies. Why the change of tune now?
> What isn't there a shortage of?
Things which supply can increase to meet that demand.
How so? I acknowledged it and even agreed that there is probably some unmet demand in houses not being able to built fast enough. But, with time, they are being built:
> [What isn't there a shortage of?] Things which supply can increase to meet that demand.
Housing supply is increasing. We build new houses every day. Now you're contradicting yourself. The folly of trying to make up your own definition on the spot. The formal definition already carefully considered these issues. Why stray from it?
But, as before, there is nothing to suggest that the unmet demand is a big problem. Having to wait a year or two for the house you want to be built, while perhaps a little frustrating, isn't the issue under discussion.
The issue we're talking about is those who are unable to join the demand group because prices are too high. That's not unmet demand. They are not demand in the first place. They can't afford to be. Demand requires desire _and willingness_. Desire alone is not demand. Desire alone is simply dreaming.
The whole concept of demand wouldn't make any sense if you counted anyone who wished to have something. The entire fundamental basis of supply and demand is that higher prices stimulates an increase in supply and a reduction in demand. The reduction in demand happens because willingness starts to disappear as the price runs higher. In other words, people start tapping out when they can no longer afford something, thus a decrease in demand.
As discussed earlier, the political will is to see an increase in demand as we have a collective dream to allow more people with only desire to join the demand group — ultimately by lowering prices such that their willingness is gained in those lower prices. We don't talk about a reduction in demand in those political contexts because that runs entirely contrary to what is trying to be achieved. High prices already reduced demand. That's the exact opposite of what the people want to see.
No matter how nice a place people live, they always want it to be nicer. They want better schools, nicer parks, clean streets, quality infrastructure. They want to attract nice businesses and cultural institutions.
The problem is that doing this necessarily increases demand, and increases prices. Unless you are an owner, doing this risks pricing yourself out of your own home. So what can you do to keep rent down? Well, increase supply to match the increase in demand.
Now you have a new problem. Increased density puts pressure on the infrastructure and makes it a less-nice place to live. That park sure was a lot nicer when it was half as crowded. Those new restaurants sure were a lot nicer when you could actually get a reservation.
It’s a very difficult dance to keep all these things balanced. Ultimately everyone wants to make the place they live nicer, no matter how nice it is already. You can never try to manage this problem from the demand side unless you find a set of crazy people who love living in a sty.
I'm trying to make sense of your argument. No matter how nice a vehicle people have, they always want to have a nicer one. But we don't see normal cars costing 50-80 years of your life to purchase.
A public park, a street, a school, these also depreciate, but most of them can not be thrown out and replaced like a car. They require constant maintenance. They also have nearly unlimited capacity for upgrades. The school gym can get new equipment. The street can be repaved. The park can get new landscaping. Wherever you live, the public amenities can always be improved. There is always demand from the residents to make those improvements.
Nobody ever tells their town to uglify the neighborhood. They always ask to beautify it. That means they are always asking to increase demand, and therefore to increase housing prices.
> Nobody ever tells their town to uglify the neighborhood.
Young people move out of towns until they are more or less ghost towns. During this entire process, real estate keeps increasing in value, although demand is steadily and predictably vanishing.
Again none of this is something that benefits from heavily centralized control, unless you want cities to be expensive exclusive zones, and force poor people to only live in rarely built (and poorly maintained) government housing while the rest are forced out into sprawling suburbs, with just as restrictive building rules, which can only forever expand outward consuming forests and farmland + forcing more cars onto the highways.
Then everyone has to drive into the city for work, meaning a political base who doesn't care about downtown infrastructure like public transit that only serves a highly exclusive downtown.
That's a system where no one wins.
https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-...
A landlord gets a loan from a bank to develop a residential property. That loan is paid by the tenants who live in that property. At the end of the day, the landlord owns the property. This is fundamentally unjust. If the tenant paid off the mortgage, they should own the property, or their portion of it.
Can you imagine this for anything else? Imagine I got a loan to buy a television. The television is yours in every sense but in the legal sense. It is in your home. You are the only person that uses it. Over time you pay me back the cost of the TV, and some extra for interest. Yet, even after you have paid me back, you have to keep paying. It’s still my TV, and will be forever. If any month you don’t pay, I can come and take the TV away.
Another way of looking at it is that a residential development in a high demand area is basically a guaranteed money-fountain. Banks buy them and gift them to whoever they choose. They always choose people who are already wealthy and low-risk, causing an increase in wealth inequality. A bank could choose a homeless person instead for such a low risk project.
Another idea is to only allow renting when it is rent-to-own. A developer may build a large development, but over time that development will eventually become a co-op.
Remove profit motive from housing entirely. When the only interest someone has in a home is living in it, prices will make sense.
Your analogy is also somewhat unfortunate since people did, in the past, rent TVs! Now that supply is far greater than demand, a quality TV can be purchased for very little money.
I feel like you are skipping over the part where people bid for houses, a process which advantages people with more access to capital in a fairly obvious way.
In risk terms the landlord is a better bet because they have collateral.
Landlords have assets they can leverage to acquire more property, while renters have to save deposits from income that's steadily eaten away by... rent...
I mean, yeah, they had access to capital.
As I understand it the traditional answer to this is "the landlord took the risk", but in practice I find that explanation questionable when propping up and supporting housing markets is basically political job #1.
I think the landlord was just richer, and was able to use that to exploit the renter.
Generally only winners get looked at. Not the loses in places no one cares about anymore.
Landlords can leverage existing assets (having 1 property helps you get more), benefit from asset appreciation and get tax advantages. When infrastructure or amenities get built, they capture a share of the value. When jobs are created or wages go up in an area, again the landlord captures value. Their asset class is politically protected in many ways. Then there's the whole inter-generational thing...
To a large extent, if your parents were owners, you will be an owner and if your parents were renters, you will be a renter. It's not guaranteed of course, but the effect is very strong.
I'm no socialist but I know a rigged game when I see one.
Uh… yes? I mean, housing is a basic right in most countries. Also, a humanitarian, right thing to do. That housing became big business (or business at all) is the real tragedy here.
I.e. rationed based on party loyalty. Or nepotism.
We currently mostly ration on money, which is the least worse option if we refuse to increase prices. There is also rationing based on sexual favours, which I'd assume everyone would agree is terrible.
Many would prefer to ration on place of birth -- if you are not born in the city then you don't get to live in the city and don't get the job opportunities of the city.
If supply in say London suddenly doubled overnight though (magically make every borough the same density as Westminster - with all those big open parks), that would put downwards pressure on prices.
It would release the currently suppressed demand as those currently living in overcrowded situations could afford to live on their own, those currently living outside the city who don't want to could move in. I'm not sure what the supply would have to be to raise main-home occupancy in London to 90% with prices down at the same level as it is in Stoke, but it's far far higher than it currently is.
1-2 properties can be considered primary homes and get all tax benefits
3-4 properties allowed but no tax benefits
5+ properties not allowed
You mean, like, cars?
Given that home loans are not, in fact, risk-free, how do you expect anyone to risk the large up front cost of financing a home if they do not have any expectation of profit? The small profit that landlords make off of these investments is mostly that risk premium. As a tenant, I am not liable to the bank for hundreds of thousand of dollars if any one of hundreds of calamities outside of my control were to occur rendering my home worthless. In exchange for this relative lack of risk, I gladly pay the 2% premium to my landlord. This is not to mention the benefit of mobility, among others.
Home loans are one of the most accessible loans in modern western civilization, so no, banks don't "always choose people who are already wealthy."
I assure you that if we were to remove the profit motive from financing the development of housing stock, there would be far less of it and home prices would certainly increase.
This is done already, and it's not complicated: A property development company will present a project and sell subscriptions to people who want to invest (usually people who want to live in the apartments). These people will start paying a monthly amortization to the property development company, which uses that money to purchase the land and start building. People start paying this amortization a few years before construction commences, and continue to pay it a few years after construction is finished. After that, they own their real estate outright.
Yes, the property developer expects some profit from this. And most people who are subscribing except profit as well. They can sell their investment / subscription at any stage of the development. But the financial risk is spread among all investors.