Comment by lambda | Hacker News Reader

Comment by lambda | Hacker News Reader

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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.

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...

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...

> 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 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.

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.

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.

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.

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