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Comment by Ericson2314 | Hacker News Reader

Asking why they don't build affordable housing is like asking why don't they build used cars

This is a perfectly succinct way to put it.

New housing is simply more expensive; so it's marketed as "luxury", and it's sold at a premium to the higher end of the housing market. This reduces demand for the older, more affordable existing housing stock, and with depreciation and wear and tear, the new housing will become more affordable as time goes on.

If you're in a market with a shortage of housing, those with more money will simply outbid those with less, even for older, less desirable housing. I've seen it, where when I moved out of my last apartment before I bought a house, my landlady raised rent considerably when looking for a new tenant, and even then she got a tenant who wanted to pay her over the rate that she was asking for to ensure that they were able to get the apartment over all of the other applicants. Wealthy empty-nesters who were downsizing, and willing to pay a premium for an older apartment in a desirable neighborhood, forcing out anyone who might have otherwise been able to afford it.

So yes, while it does help for there to be some push to build more affordable housing, if taken to an extreme building only luxury housing will leave an unbalanced market, in a lot of cases building luxury housing is exactly what you want to do to reduce the competition for the existing, more affordable housing stock.

> New housing is simply more expensive

There is no natural reason for this to be the case. If anything, learning curves and economies of scale should result in new units costing less, not more, than ones built by artisans.

Baumol’s Cost Disease means construction labor cost rises faster than productivity. We’re allergic to prefab construction - banks and insurance companies block it. A lot of construction workers left the industry after 2007. Baby Boomers are retiring and told their kids to not get a blue collar job. New housing has to be ADA compliant. People expect to give each kid their own bedroom and have two car garage instead of one car or no garage at all. Recent immigration crackdowns and trade wars are the icing on the cake.

> Baumol’s Cost Disease means construction labor cost rises faster than productivity

Baumol’s applies to jobs that “experienced little or no increase in labor productivity.” I’m arguing there may be extraneous causes for construction’s productivity stasis.

there are! Land use code. And permitting. Municipal processes for permitting housing have stifled any really serious innovation in construction.

you know why we don't have modular, factory built apartment buildings? Not at scale? Because the municipalities won't permit them. and the real reason they won't permit them is because it would put all their inspectors out of business if you didn't have to do any walls open inspections because it was all built in a factory...

You would think, but constructions seems amazingly resistant to this. construction-physics.com writes extensively and convincinly on this.

https://www.construction-physics.com/p/sketch-of-a-theory-of...

With cars you can build a high margin luxury and a low margin affordable model if there are two buyers and collect profit from both.

With an apartment if there's one plot available, you build the high margin apartment.

Land constraints matter.

A 100% land value tax would help solve this problem and would make buying apartments more like buying a car.

When you build the high-margin apartment, people vacate other housing units to move into it, reducing demand on the older units, which reduces prices in the area. This is just the law of supply and demand, but you don't have to derive it axiomatically: it's empirically what happens when we increase supply at market rates.

I'd like a land value tax too, but it's not going to happen, and an LVT would guarantee market-rate development.

Your argument here is simply "rich people dont take second homes".

I think it's rather obvious that they do.

The number of rich people buying random unoccupied apartments in new multifamily developments has measure zero in the greater scheme of North American housing policy. Meanwhile: the construction of still more housing works against the interests of anyone who would buy a random apartment and hold it vacant as an investment interest, so this is a doubly facile point.

> This is a perfectly succinct way to put it.

I think the entire analogy falls apart the minute you realize houses almost always appreciate while cars do the opposite.

Land appreciates. Houses depreciate.

Houses depreciate if there's an adequate supply of newer housing keeping up with the housing demand of the area. If there isn't then the general GDP growth of the area in which the house is located dictates that the house's value grows as well.

Houses appreciate too. The materials and labor cost required to build my house have outpaced inflation by far.

This is most clear in insurance data where replacement cost is isolated from land value.

Cars would appreciate the same way if we only let you build half as many as there are demand for. And kept doing that for 50 years.

The project to build

https://www.libraryplaceithaca.com/

was almost a decade late, like a nuclear reactor, and they realized only after it was built that there is no market in our town for "luxury senior housing" because seniors with money go to Florida or Arizona. If they could fill the places you might say that it's better business to build expensive rather than cheap apartments but when these places are vacant you start to wonder if they are farming tax writeoffs or something

https://www.youtube.com/watch?v=9wfblqh9icQ

What you expect first is they are going to tell the local town they can't pay the property taxes, in a few years they'll tell the bank they can't afford the loans they took out to build it.

Other "luxury apartment" projects outside of Collegetown usually have some segment of subsidized "affordable" units, one of these has at least two police calls to it a day and in the last few weeks these have included murder and arson.

How are they still able to live in subsidized affordable housing after they are convicted of murder or arson? Don't we have jails for this kind of criminals?

Exactly -- all new housing is going to be marketed as "luxury".

Who is going to build a brand-new apartment and say "well, this is janky low-quality housing, you might want to live here if you're poor or something"?

I go outside and look at my neighborhood of bungalows largely built immediately after the war, they were not sold as luxury. They were sold as affordable housing.

Exactly

Plus housing you are mostly paying for the land. The land is expensive because it is finite and because zoning constrains how much housing you can build on it.

In many places the land is 2/3 the cost of the housing. The cost difference in building what left nimbys deride luxury and what would be considered affordable is really marginal. It’s like $100k in finishes in a $1.5M condo type difference.

r/cars swears up and down that they'd buy a brown manual wagon pre-used from the factory!

Because most people are out here driving used Ferraris and Koenigseggs and living in old mansions?

Your argument falls apart when you realize they manufacture and sell explicitly affordable cars. It's nearly half the market.

The problem is that you don't generally destroy the used car in order to build a new one. So increasing the new cars on the road eventually also increases the number of used cars on the road.

> you don't generally destroy the used car in order to build a new one

There is very little de-densification construction happening in hot housing markets.

De-densification isn't required; a one-for-one knocking down and rebuilding of a single family residence suffices.

> De-densification isn't required; a one-for-one knocking down and rebuilding of a single family residence suffices

Sure. The only reason developers do that is because land-use restrictions prevent the construction of denser, more-profitable and more-efficient housing.

Why don't they build $10,000 Ford Rangers anymore?

> Why don't they build $10,000 Ford Rangers anymore?

Fleet economy standards.

The same reason housing isn't being built, it was regulated out of existence.

This is the real answer, not the pat “no one builds new used cars” nonsense. It is entirely possible to build new, no-frills apartments that are 100% habitable and to code. But because of all the regulatory boxes one needs to check — namely all the fees spent, and time spent waiting for seemingly endless approvals — it is simply not possible to rent out bottom-dollar builds at a low market rate. The same logic applies for single family homes sold for purchase. The startup costs are just too damn high.

It's simplistic to say that the US car market is "regulated out of existence".

Consider how huge trucks that mow down children because they can't even be seen over the hood are unregulated, even incentivised. (1)

Wrong regulation, maybe. But not merely "too much regulation".

https://news.ycombinator.com/item?id=36480122

https://www.nbcnews.com/news/us-news/americas-cars-trucks-ar...

https://www.vox.com/future-perfect/24139147/suvs-trucks-popu...

You are right of course. I was being flip. There are multiple reasons it is no longer profitable for car companies to make small trucks. CAFE regs are part of that.

Except that outside of Japan, it is unusual for detached homes to depreciate in value. Apartments though you do have a point. Unless the location adds the value they will depreciate over time.

It's not unusual at all. Here's a bunch in America just over the past 12 months and during a huge economic expansion with low unemployment.

https://www.realtor.com/news/trends/zip-codes-cities-home-pr...

Detached houses almost always depreciate in value everywhere and require constant maintenance expenses just to keep from falling apart. It's the land under the house that appreciates in value. People often mix those two numbers up.

Not my experience. Cost to rebuild and cost/sqft seem to outpace inflation.

No… it’s like asking why they don’t build cheap cars. Which they do.

Do they? Are there any production cars under 20k? Plenty of used ones for that.

This is a fair point, but the analogies to vehicles don't really work anyway: they're a depreciating asset, houses are not. Even a tiny rundown place can cost millions owing to location.

But all things held equal, if you have a new house that's big and a new house that's small, the smaller one is cheaper. And further, mixed density builds will be cheaper than single detached homes. Beyond that there's nothing caked-in to the walls that makes a house cheaper or expensive. Shitty houses are just unmaintained, dilapidated. Flooding the market with houses will drop prices.

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