The Folk Economics of Housing
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What is less obvious is that this still increase housing supply. It's not new affordable housing, but the people moving in to the new expensive houses are leaving their old houses, and the people who buy those are leaving their old houses, so eventually the price drops happen on the older, smaller homes at the bottom end of the market.
It's a market manipulation problem that's not going to go away for as long as we maintain the perverse incentive of using real estate as an investment vehicle. Japan has never had this problem and likely never will because housing depreciates in value there like cars. A 30-year-old house is often worthless or near-worthless in Japan.
If you're only legally or practically able to build and sell so many cars, then you're gonna focus on Lexuses more than Toyotas. But if you can build and sell as much as you want, that's when you start seriously addressing the mainstream market.
Humanity needs to learn how the cooperate much more effectively, or we are going to fuck everything up.
The younger generations living in their parents' houses en masse in their 20s and 30s is a sign of it.
This effect, in this context, is called "filtering."
this logic makes zero sense to me.
this was in a similar regulatory environment we face today. so if you take the market logic, then the market caused the problem as much as regulations.
Like there are plenty of houses marketed as “luxury style” in my area and command $500k-$700k easily but it’s just fancy looking. Not built with any better materials, wood, concrete, drywall or brick that you can get any local Home Depot.
No, they are saying that building one high-end house still has the slightly unintuitive effect of increasing the supply of low-end homes. They also give their reasons for believing this.
I keep seeing this, but if the housing being vacated is in a different, less-desirable market, it's a bit tree-falling-in-the-woods for locals.
If a $450,000 house in a Chicago suburb is freed up by its owners moving to a $700,000 condo in Seattle, the people who can't afford a house in Seattle don't see the benefit of the condo building and aren't going to buy the house in Chicago, and the people who can't afford a house in Chicago don't recognize the Seattle development as the cause of the house hitting the market.
The effect is so minimal when you zoom into a single sale of one home and purchase of one condo, but in aggregate this causes real noticeable price movement.
Is the existence of the $700,000 condo the limiting factor for those people moving? If it isn't built would they instead bid up an existing unit in Seattle and put it more out of reach of existing Seattle residents?
If someone in Chicago moves to Seattle, then our policy options are (1) no new condo in Seattle or (2) new condo in Seattle.
Under policy 1, the new buyer from Chicago must outbid locals for the fixed housing supply; they will wind up buying older housing stock, which otherwise would have gone to existing local residents. Prices go up.
With policy 2, the new entrant buys the new condo and does not compete for pre-existing housing stock.
In this scenario, whatever house is freed up in Chicago is irrelevant to the housing stock in Seattle. I'm not sure why you included it.
The entire question can be contained by the assumption that "there is someone new coming to Seattle" and whether it would be better to have a new condo unit to sell to them or have them compete for existing fixed stock. The whole bit about the Chicago housing market is a distractor, because it stays the same under either policy.
Are you denying that induced demand is a thing for housing? That everyone who wants to move to Seattle will move there regardless of housing prices, and no one will leave because they get squeezed out of the housing market by new arrivals? Or is there a more nuanced argument that I'm missing?
That new condo allows one more family to live in Seattle regardless, whereas if they were competing with existing stock, some family would probably have to leave. We could play a few rounds of musical chairs to prove that fact.
"Squeezing out" is done by a price mechanism: a family that would prefer to stay in Seattle decides to sell, because that new buyer (unable to buy the condo, because it hasn't been built) decides to offer a high enough price to induce the existing family to leave.
That's only done by reducing housing affordability (increasing prices) which is the public policy outcome we're trying to avoid.
It sounds like you agree that new supply is good, I think, because you believe new entrants would otherwise "squeeze out" existing residents and I assume you would agree that this is done by price, and so therefore you would also agree that new housing stock (which decreases the "squeezing") also suppresses price level relative to the alternative fixed stock scenario.
Thanks to the magic of Simpson's Paradox it is possible to have the average house price go up even if houses get more affordable for literally everyone, which seems to be the situation you're going to. Which is true and interesting, but not really politically important. Obscure mathematical effects do draw attention to the fact that one metric isn't enough to develop policy, but shouldn't eclipse the fact that more houses is what people want, need and should be getting. There is this crowd of people who want to move to Seattle and live in nice houses, let them do that and pay people in Seattle to build them. Otherwise everyone will have to compete for existing housing stock.
We (Seattle) are also completely built, new projects must overwrite existing housing stock and additional capacity only comes from increased density.
But what you're arguing is different: that increasing supply has no effect at all on the clearing price. That would require an unusual demand "curve" that is perfectly flat, i.e., perfectly elastic, where there is infinite demand at a given price and zero demand at just a dollar above that price (or else that infinite demand would have already pushed prices up higher than the pre-existing price).
This clearly doesn't make any sense for the housing market; home buyers are sensitive to price, there is not infinite demand, some people have more or less desire to pay for a house. In fact, perfectly elastic markets essentially don't exist, and very low slope demand curves only exist in some unusual edge cases in markets (such as commodities that are near-perfect substitutes).
I never argued that it has no effect, only. that it could have no effect. Obviously if you can build enough supply and get way ahead of demand, you will see prices fall. But that just isn't done in practice, so most of the time new supply is brought online, housing prices do not decrease. Well, that's just builders trying not to kill themselves in a market economy, so that shouldn't be surprising.
It is only controversial if you really expect prices to fall when new housing is built (or to say, if you think the only solution is to build new housing and nothing else). Otherwise, the "building new housing" part isn't controversial at all.
If your goal is to decrease costs, the amount of supply needed may be surprising of latent / induced demand is very large. If NYC cost 1/4th the price to live there it would probably triple in population, so you'd need 40 million new units to get the costs down that much, and the price of the penthouse looking at central park would probably increase even if mean and median costs go down a lot. If a city is at the equilibrium point where supply meets demand, more housing may only keep prices flat for a large amount of new housing.
> This paper suggests another, complementary explanation for the over-regulation of metropolitan land use: the failure of ordinary voters to appreciate that large, exogenous increases in regional housing stocks would put downward pressure on prices, coupled with voters’ tendency to blame housing providers (developers and landlords) for high prices.
and
> Studies of interregional migration in response to negative employment shocks have tended to find that mobility is lower than economists had expected (Autor, Dorn, and Hanson 2013; Greenland, Lopresti, and McHenry 2019; Yagan 2019; Choi et al. 2024). Similarly, US metro areas with greater regulatory barriers to new supply experienced less housing-stock growth and less in-migration, but no more out-migration, than less constrained metros from 1990 to 2000 (Molloy, Nathanson, and Paciorek 2022). Such frictions mean that regional housing supply shocks will have larger effects on regional than on national prices.
> But again, laypeople have no reason to know of these research studies. Nor do ordinary people have first-hand experience with large, sudden shocks to their metro-region’s housing supply. Regional housing stocks have changed slowly, especially in recent years. Between 2008 and 2023, the total housing stock in the United States increased at an annualized rate of only 0.7 percent, with much of the growth concentrated in only a few active markets (US Census Bureau and US Department of Housing and Urban Development 2023a). Meanwhile, national median home prices have risen consistently except during recessions (US Census Bureau and US Department of Housing and Urban Development 2023b). It would be no great leap for the layperson to infer that only macroeconomic factors and financial markets, and not local supply-side factors, such as land-use restrictions, determine housing prices.
Part of that perception is in locals' belief that new high-end local housing stock can help affordability _only_ if it frees up affordable units in the local market. If the perception is that new high-end units aren't freeing up lower-end units _in the same market_, then locals are going to complain to electeds and oppose new developments, regardless of whether it's rational to do so.
It's Sisyphean to prove to a local that an outsider buying up an attractive unit priced out of the local's reach is actually a good thing for the local; there's no visible benefit and they receive no tangible relief from it. They couldn't afford a home before the new stock is built, and they can't afford a home after the new stock is fully occupied. Either the benefits are on a long timescale, or there are larger problems than housing stock influencing affordability.
The "people moving in to the new expensive houses are leaving their old houses" argument then becomes a non-starter because of the "rationally ignorant" but anecdotally pervasive argument among locals that these new developments aren't helping them.
- Locals see an influx of people from other cities/states/countries moving into attractive units that were built with prices that locals already can't afford. It doesn't matter whether that influx is 10% of the new stock or 100% of the new stock; these new outsiders stand out in _perception_ regardless of reality.
- Locals likewise don't see a short-term increase in attractive housing stock that they can afford, else they'd have already tried to acquire it.
- Developers point to affordable, vacant housing stock, but when that stock isn't in equally attractive places to live as the unaffordable stock, locals don't consider it to be beneficial to them. The fact that the unattractive place would likely become more attractive over time is a hard sell in places where that pitch has failed to materialize in the recent past due to things unrelated to housing stock (COVID, local recessions, outmigration events).
- Locals seeking affordable housing in attractive areas start advocating for enforced rent modifications or pricing mandates that developers oppose.
- Locals are voters who can influence electeds that control policy, and non-locals who haven't yet moved here aren't, so the battle enters the political sphere with a tilt toward locals. Either the government caters to voters and enacts anti-development policies, causing developers to slow down in or exit the local market, or developers lobby the government, causing voters to rebel against electeds and protest harder against developers.
The cycle grinds local regulation to a standstill. Locals get no net benefit in the local housing market, perpetuating the underlying problems. Everyone's perception of everyone else in the situation degrades further, making further changes harder to enact.
I do not believe this is accurate, at least not in the last ~10 years or so. The houses are purchased by hedge funds and other smaller investors.
With greater supply, there comes a point where you can make better investments than buying up empty houses. And so they will stop buying them.
You don't see PE making huge investments in gas stations, because you can always easily just go to another gas station, and there's way too many of them to easily corner the market. We could pretty easily make housing similarly unattractive.
The hedge fund thing is way overblown. Even if they buy up homes in hot markets, their incentive is still going to be to sell them if/when the market cools. Corporations do not enjoy the same tax incentives as homeowners in this country, and the risks/costs to rent out older homes just doesn't pen out for non-local investors. If PE wants to get into housing, it's such a better deal for them to just build apartments.
Currently less than a percent of homes are owned by private equity. And the majority of those are owned for the purpose of turning around and selling them, like Home Partners.
(Zillow also tried buying up homes for the purpose of arbitrage and it ended up blowing up in their face).
I think the reality is that the main component of investor pressure is from people who hold onto an overly large/well placed home far past the point of utility, because they want to sell as late as possible and maximize their return. Follow that with small-time landlords, and then finally actual explicit investors buying homes as some kind of commodity. A lot of the dysfunction of capitalism (so-called "late stage capitalism") is induced by people trying to outsmart the market, time the market, etc. when they really don't have the knowledge or information to play such games.
As I commented elsewhere, that’s the paper math version that doesn’t resemble reality for those of us living in it. Buyers of new luxury stock are increasingly just leveraging prior housing equity to fund the new purchase and renting out old stock at “market rates”, which doesn’t actually increase supply or decrease pricing. Laws have made short-term rentals and long-term landlording immensely profitable for those who got into the game early, especially in major metros that lack regulations on rent control or have preferential property taxation schemes. When actually affordable housing is built (i.e. starter homes), they’re frequently snapped up by PE firms and investors rather than being sold to first-time homebuyers.
The “property cycle” you mention does not exist anymore, and that’s by design. It’s why meaningful legislation and taxation policies are needed to deter landlording of SFH properties and prevent exploitation of renters by implementing rent controls.
Raw and overall housing numbers can be misleading by their nature. That is, they can be technically true while being false for many/most people.
Declaration: Housing supply is increased!
Actuality: Increase is only in homes for >$100k income earners.
The declaration is true for >$100k.
It is not true for most <$100k earners.
(of those <$100k earners)
There could be a very slight increase in supply for $80k.
It'll be less, if any, for $60k earners.
There is no increase in supply for <$40k (25% of US households).
Generally, there is no affordable, reasonable housing for typical income earners.
Asking for the 25% of Americans who make <$40k/yr.
Is that true? A median household (with ~80K income) should be able to swing a 250K mortgage, probably a $325K house with down payment.
80k is 3-4 typical wages. That is, the wages of jobs that are most obtainable make 25k-31k.
The folks in those income brackets are 25% of the population (and 35% of minority groups).
Housing stats are commonly presented as if they don't exist. However until few administrations, they had a long history of home ownership.
But paper often neglects reality. A reality where it can be more profitable to simply hold the land rather than lease out the home on it. Where a constructive loss can improve tax savings. Where the intent is to have it vacant for some other perceived use or gain - like a vacation home, AirBnB rental, Pied-a-terre, or just letting the structure languish until it can be condemned and bypass red tape around teardowns/rebuilds.
Current incentives and structures do not mandate that homes are made available when someone buys another domicile. That’s one of the myriad of issues affecting the housing crisis.
So if building one unit of housing increases the housing supply by 0.7 units on average or whatever, then the same logic applies, just overbuild by 30%.
Ok, but they have finite leverage and financing. The market can easily overwhelm their access to capital, no investor class has anywhere near enough access to capital to fully corner the behemoth that would be a healthy housing market.
> eventually the price drops happen on the older, smaller homes at the bottom end of the market
I'd be interested in how long "eventually" takes for single-family homes. I think for rental units it happens very quickly.
Two things to think about when making this argument:
* Older housing could have been torn down to build new housing. So before, you had a rooming house with 10 or so low cost tenants, and now you have three town homes with three very rich families moving in. Life just became a lot harder for people in the lower end of the market. Gentrification of entire neighborhoods is an extreme example of this: a blighted neighborhood is great for cheap housing options, but then people start coming in and redeveloping it and...it is no longer blighted, the neighborhood is better, and the cheap housing is gone replaced by much more expensive housing.
* Demand is induced by new supply. We accept this as a fact for highway construction, but it is somewhat also true for housing in a hot market where everyone wants to live. So building a bunch of new housing in Seattle could attract new resident, causing the population to grow, rather than adding supply to deal with fixed demand. Yes, adding housing in Buffalo isn't going to run into that, and yes, overall the situation becomes better for the country (or world if you are inducing demand from other countries), but locally you feel like you are going nowhere with the problem. A more extreme example of this is handing out housing to your unhoused population (you'll almost certainly wind up with more unhoused than when you started even though you've given some housing).
Induced demand is only a thing with highways because use of the highways is free; there's no counterveiling cost pressure unless and until traffic jams start forming. By definition induced demand doesn't exist where the market can set prices for using newly created resources.
Closer to your point (if we stretch really hard) would be something like lowering crime. If Seattle successfully lowers crime without, say, increasing taxes, then Seattle becomes a nicer place to live, and people can (and will) move there to enjoy lower crime without having to directly incur the cost of lowering that crime. One of the externalities of that "induced demand" would be an increase in housing prices. So obviously Seattleites who oppose residential development should just promote more crime.
The fundamental issue here is that people don't like being subject to market forces and the insecurity that engenders, particularly when it comes to housing and labor. That's understandable. They do like market forces when they get to enjoy lower prices, though. But the feeling of insecurity is particularly acute when it comes to housing and the issue of new development. That's also understandable, notwithstanding that it's simply irrational and empirically disproven that NIMBYism makes for lower prices than the alternative of allowing market development. You get higher prices with NIMBYism than YIMBYism, period; though there's simply no guaranteeing that absolute prices will come down, especially for a city that permits development where others don't. That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
I knew the fent addicts on the D line in Ballard were good for something! But seriously, you know, there are two sure fire ways to lower housing prices: make the place a crappier place to live, or just get rid of jobs/economic activity. My dad was in Seattle working for Boeing after Vietnam, and got hit by the "will the last person to leave Seattle turn out the lights" Boeing bust. It is kind of like falling oil prices: you know, drilling more doesn't really affect the price of oil as much as reduced demand due to an economic recession.
> That's a collective action/free-rider problem, where the positive externalities of good public policies of one community are captured in part by other, cheating groups.
Isn't that the main problem? This is the main problem with progressivism at a local level: even if you are making the world a better place, you could be failing to improve your place (seeing no benefit for your money) or actually making it worse (seeing negative benefit for your money). How many of us are saints who are willing to sacrifice our own lives for the greater good?
Building densely is actually more profitable, there’s already incentive to build as densely as possible for developers. Adding an extra story and creating a duplex, triplex, etc doesn’t cost much more and means you can sell multiple more units. Building as tall as possible and getting more units into the same footprint is almost always more profitable than just building one single family house.
The problem is that zoning limits what type of building is allowed to be built on a site. Who controls zoning? Existing homeowners that already live in the area, so of course they are going to make sure that new builds are low-density, as it impacts them less (parking, traffic) and keeps their home values high.
Source: I tried to build dense housing myself and was stymied by zoning.
I don’t think a lot about the pricing of my rental units and I’m not quick to raise them but when some new development comes into town and puts up billboards with their eye-popping prices and runs ads in the paper and on web sites and on the radio I think “Gee…. I must be leaving money on the table because I could raise my rates 50% and it would still undercut what they’re advertising a lot”
Of course the money they are spending on advertising indicates that their pricing is aspirational and they may very well next year be telling the city that they can’t afford their property taxes because they can’t fill the units and might be telling their lenders the same in a few years.
In Ithaca we got “luxury housing for seniors” that was nuclear reactor late and they can’t fill
https://ithacavoice.org/2025/03/library-place-to-sell-at-a-l...
(Don’t seniors with money go to Florida?)
A few market rate projects had an affordable component which has been part of a surge which has taken a bite out of our homeless colony but it is now like that talking heads song where they’re “burning down the house”
https://ithacavoice.org/2025/08/inside-asteri/
My understanding is many “luxury” developments are shoddily built and not a good place to live
https://www.nytimes.com/2022/04/15/realestate/condo-defects-...
If there was such as thing as a $250k house within a few hours drive, I would buy all of them and just sit on them, maybe rent them out.
History shows us that there are many bear markets in housing. There's also Detroit.
I sold my previous home in 2000. It recently sold for 4x what I sold it for. A great ROI, eh? If I'd invested in the S&P 500 in 2000, it went up 6.61x. And I didn't have to pay property taxes, insurance, real estate commissions, maintenance, repair vandalism, clean up after teen hookup parties, evict squatters, or any of my time.
And of course, had you let it sit empty the whole time, you still would have had to pay commissions, taxes, insurance, and maintenance (because an empty home goes bad very quickly).
There are very few scenarios where the appreciation at the end would be big enough to leave you with a profit after all those expenses, especially considering financing and/or opportunity costs.
Americans also think in terms of stories with actors, and supply and demand doesn’t have any obvious actors. “Prices are high because bad people are choosing to keep them high” is an easy narrative for people to understand. There’s an obvious villain, and the success simply requires the hero to defeat the villain. This leads to a funny meme: https://www.reddit.com/r/neoliberal/comments/13l1lmn/present...
There's no technical reason why building some shelter that keeps the rain out and the heat/cold where it should be is not something that could not be done cheaply at large scale using affordable materials. People have been building shelter for tens of thousands of years and it's easier than ever with modern materials. It's not rocket science to keep people dry and comfortable.
People routinely buy recreational vehicles that, because they have wheels, are not considered houses. So, suddenly there are much less rules and you can just produce those efficiently in factories. Except getting permission to park those and live in them is really hard to come by in many places. It's OK for recreational use. But not for living permanently. Which of course some people do anyway. But it's highly stigmatized.
Recreational vehicles come out of factories. Houses are built artisanally at great cost. The only functional difference that matters is mobility and wheels. Why should people not be able to get a nice second hand RV for a few thousand dollars and park it in a nice spot and live there?
Answer: it would immediately devalue the notion of owning brick and mortar.
The minimum lot size requirements don't help the situation either.
It likely would be more efficient and profitable to build a townhouse, or even a mid-rise, and let more people live on the same parcel of land, but zoning restrictions often prevent that.
It still increases supply, though. And if there's no market for expensive houses, eventually they'll make cheaper houses.
Also, the people on the market who can afford the expensive houses, would still outbid you for a shittier house.
A better benchmark would be a manufactured home. Transported on wheels, built in a factory, but intended to be used full time indefinitely.
IIRC, stick-built homes are only like 15% more expensive than the equivalent manufactured home, and you have a lot more flexibility in the design. Probably this is most of why manufactured homes are only popular in particular niches.
Crime and social class segregation is another aspect. Who lives in a neighborhood matters as much as the physical assets. Bans on MDUs (multiple dwelling units), permanently parked RVs, and manufactured homes serve as a barrier to entry. It’s not explicitly stated but the effect is the same as saying “If you can’t afford a $410,000 house we don’t want you as a neighbor.”
So even areas where population is stable, and housing supply increases, it can result in very few tangible gains at the margin.
Could that also be explained perhaps by the fact that people are willing to live farther away from cities (where land / homes are cheaper and larger) because they only have to work 3 days a week from the office? Or because commuting is less painful with newer cars?
It's a mix of car culture, proprty value being lower farther away from cities so develops can create a high margin on building neighborhoods marketed on big, new houses.
Those families' kids have now grown up, and the houses have appreciated, sometimes as much as 2-3x, due to a nearby light rail development connecting the neighborhood to the city at large on cheap transit. So those families are cashing out their housing by selling primarily to out-of-market elderly wealthy downsizers, typically from California, Arizona, Nevada, Colorado, and Texas.
The result is a neighborhood of 3- and 4-bedroom homes that once housed families of 4 or more people now mostly inhabitated by 2 or fewer people (many left vacant more than half the year as these wealthy retirees frequently travel). They also refit these former starter or second homes to accommodate these elderly inhabitants' reduced mobility and/or increase the home's luxury.
When these residents die in 10 or so years, even if the market corrects prices downward, these homes will now be even less suitable for anything but wealthy elderly inhabitants. The intelligent thing for the city to do would be to tear them down and replace them with accessible and affordable density; the reality is that the wealthy elderly who haven't died yet will spend the rest of their lives blocking such efforts out of spite.
Or, they're just protecting their property value and neighborhood composition, like anyone else would do.
Nearby property development often increases property values. People are not fighting developers because of money.
^ This...
> demand housing is much, much more elastic than people realize
^ ...does not imply this.
If the only housing that is available is 3000sq.ft. for a family of 3, that family doesn't have the option to split it up and only buy 1500sq.ft. of it. They need to be able to afford the whole thing.
(Also, I question the extent to which this premise is true, at least in cities. Everything else I've been seeing is that people are living in much less space than they used to, due to the rising prices. Taking a studio apartment rather than a 1-bedroom, living with roommates, etc. But even if the premise is true, it doesn't imply your conclusion.)
"All these developers are building is just expensive new luxury apartments"
And as the study mentions:
> To the extent that ordinary people form loose mental associations between “housing development” and “housing affordability,” they may well associate more development with higher prices rather than greater affordability. New housing, being new, tends to be more expensive than existing, depreciated housing.
It is just a perception bias thing. You don't really "see" everything around you aging because it happens slowly.
Except that’s not the reality. The reality is that a large chunk of the market (as much as 25% in some areas) is speculative in the form of PE-owned inventory and rentals. It’s not used as shelter, it’s used as a vehicle of growing capital. When that’s pointed out, suddenly economists blame the very same people who can’t get onto the “property ladder” for failing to “compete in the free market”.
In a vacuum, their original idea makes sense. In reality, it’s heavily exploited for the gains of those already on the ladder at the ongoing expense of those they actively prohibit from joining them. It’s societal exploitation leveraging the singular most basic human need after food and clean water: shelter.
https://fortune.com/2025/07/08/investors-buying-25-us-homes-...
I’m on mobile and can’t dig into total ownership figures at the moment, but I do know that in the sunbelt states property acquisition by investment firms has been a real issue. Even slumlords are getting bought out at top dollar, and affordable housing is increasingly just a trailer rented on land owned by - you guessed it - PE or REITs at consistently inflating rents.
> Nearly 27% of all homes sold in the first three months of the year were bought by investors
That isn't PE firms, it's all investors meaning anyone who isn't planning on living in the home. Most investors are regular people who own 2-3 properties.
It’s a rigged game top to bottom. A free market would’ve fixed this years ago, but this is not a free market anymore. The difference is I advocate control of necessity markets returning to government regulations around availability and affordability, while luxury markets remain relatively untouched.
Housing is a necessity. No market god is going to fix it.
The solution is the (hard and slow) work to engage and educate voters.
As I learned watching Union vs Non-Union labor interactions, it’s exponentially cheaper to do the right thing sooner than being forced to do a compromise thing later. The fact the crisis has gotten so bad that there’s campaigns for national rent control schemes and “homeownership as a human right” legislation means they have already lost by not doing the right thing sooner. Once organization happens, you’ve lost the game.
The rest is just time.
This problem took (in some places) 30+ years to create, it won't be fixed quickly.
It is indeed hard work, especially if you want to influence people who aren't engaged in politics to vote. I find that people who aren't engaged with politics are most receptive to extreme messages that discourage them further. They're all ears if you tell them that the system is rigged and it's impossible for people to defeat the corporations or the elite. It's much harder to convince them that voting matters.
Let me put it into simple numbers the detractors can understand:
I build ten homes in a market that needs a hundred. I price them affordably because I’m not an asshole and understand there’s a crisis.
* Statistically speaking, 25% of those homes will be bought by PE or REITs. I cannot deny them the sale because the law says so. Let’s round that up to three homes out of ten. Those homes may be rented out at market rate rent, which is far higher than the mortgage would have been, which doesn’t reduce pricing or improve supply - rent remains high because these groups have data to keep rent that high, and supply remains constrained because a fourth of my inventory just got sold to profiteers instead of people.
* Of the remaining seven homes, all are likely sold to actual people. Due to bidding wars and my obligations to shareholders however, I have to take the highest bids. Because of anti-discrimination laws, I can’t sell to underserved minority groups because that’s considered discrimination. So a plurality of owners will be higher net worth individuals, many of whom likely already own property.
* Because we’re in a housing crisis and everyone wants money for doing nothing, it’s likely that about half of the new homeowners won’t outright sell their existing home, but instead rent it out at or near market rates set by PE/REITs. They want that cash after all, and know there’s a lack of supply. Because their old homes aren’t being added to the market for sale, this doesn’t apply negative pressure on housing prices since a home for rent is not a home for sale
* So now we have just three homebuyers left who bought their only home, aren’t renting it out, didn’t have prior equity, and almost certainly overpaid for what was on offer. This places them in a precarious environment where a job loss could lead to eviction or having to sell the home - but because they’re in the midst of a crisis, they can likely get a quick cash offer from a PE/REIT without actually putting the home on the market, making their problems disappear and putting them back as renters. Maybe one to two homeowners are affected by this.
So out of ten homes built, only three go to people not already on the property ladder in some form, and of which as many as five are likely to end up in the hands of an investor at some point anyway. Ten homes for a net gain of five purchasable properties is not a meaningful increase because the market, government, and tax incentives value less supply and more demand.
Sounds like a great outcome! Let's do that some more.
Wouldn't that motivate them to build more?
Your statistics are damned lies to those of us observing lived life in our cities. Nobody is hand-checking every single unit out there for accurate statistics on housing utilization, it’s all self-reporting.
2. usually things are quiet at night because people go home and/or bed
3. the only places i've been to where the nightlife is in a neighborhood called "downtown" are small towns
4. my anecdotal data contradicts yours
There was a big splash of PR for a report on high vacancies in new LA apartment buildings a few years ago, and it had to be retracted within a week because the methodology was pretty much nonexistent, like counting lights in windows at night and not realizing that people visit friends, go to concerts, go out to eat, stay at their girlfriend's place, or any one of many other things that keeps lights off in occupied apartments.
I see it with every single new multistory building in my small downtown. People complaining about a building being fully empty shortly after it has been built, when in reality it's filling up faster than planned and there are only 20% of the units left.
Yes, there are lies, but in my experience the lies are only for too many vacancies.
They wouldn’t be buying 1 out of every 4 homes and bankrolling schemes to “unlock homeowner equity” (HEOCs, reverse mortgages, etc) if they thought this would be a resolved issue anytime soon. That’s exactly why government needs to get involved and force divestiture.
As a solution to the housing shortage, building new is 25% inefficient? Great, it's 75% efficient. That's not bad for a solution. So let's do it, in volume, and actually make a dent in the problem.
And for the builders, they don't care. A speculator bought that house? It payed me just the same. But even better, the demand is still there, so I should build another one.
Yours (and every other detractor trying to eSplain Econ101 and market forces to me) ignores the complex realities of the marketplace. It ignores tax structures that benefit demographic groups over others in homebuying and wealth accumulation, incentives to hoard property for passive income through rent in lieu of releasing the property onto the market for sale, tax savings for owning secondary properties or rolling over capital gains, regulations that make teardowns harder until the structure is condemned and thus constrict supply, of homeowners who will go to extreme lengths to preserve paper valuations instead of building more housing.
Taken as a whole, with all the variables, and it’s readily apparent that it’s not “simply” a supply and demand issue.
Sure, take care of all that other stuff too, but the data does lot match your theory, and it does match what you call "Econ 101." And I would point out that you haven't even attempted to show that these other things come close to cancelling out Econ 101 effects, you merely have hand waving on the theory without any substance.
If the properties are being rented, they are providing shelter. They haven't been "removed" from the housing market.
Your point was not immediately clear, so forgive me if I misunderstood.
This is false.
It is absolutely used as shelter. It's used for renting. Investors don't generate just sit on housing and leave it empty (unless they're remodeling it or something).
Also it's not mostly private equity -- that's a tiny percentage. It's mostly small investors, like a mom and pop who own and rent two other homes to help fund their retirement.
Investors are not taking away living space. And many areas don't have enough rental properties (remember, not everyone wants to own, especially people on a short-term job or relocation), so conversion to rental helps here and brings down rental rates (as happens whenever supply increases).
> "All these developers are building is just expensive new luxury apartments"
Nobody with enough money and exposure to large amounts of real-estate wants to kill the golden goose. Look at the post-Covid-migration build stories. Rents start to soften and development dramatically slows.
Like Austin - https://austinmonitor.com/stories/2024/08/as-construction-sl...
Or Denver - https://www.denverpost.com/2025/07/24/apartments-housing-rea...
You would need continued serious government investment to make sure focus continues to be on total units and consumer price instead of investor ROI.
Because even adding four fancy town-houses or condos helps if what used to be there was single-family or duplex. But it doesn't help NEARLY as much as adding 100 units by converting an old shopping center or 30-unit apartment. But there are strong incentives against developers doing "too much" of the latter if they know they can make the same ROI by selling fewer, nicer units.
Individual residential property owners take a lot of blame here but they're not even benefiting THAT much - every crazy price increase is putting any upgrade to their own situation further out of reach. And fighting low-density residential NIMBY-ism is a slow process if you still only can buy one lot as a time as it becomes available. So focus on underutilized commercial and industrial near major hubs or transit corridors where most of what you're displacing is ugly parking lots and empty storefronts that contribute to crime as well.
That is, adding supply lowers prices. And lowering price reduces potential profit such that fewer people will build. With fewer people building, prices should go up again.
Stated differently, thin margins reduce the number of people offering products in a market. Ironically, the main way to get more building is with bigger builders in that scenario.
1) If people see their costs going up while they also see new construction, the correlation machine's gonna jump to the wrong conclusions
2) If costs are still going up people are still going to be unhappy and worse off
Supply can increase AND price can still go up, and so for people to be won over and convinced you need to crack the second part, not just the first part. In a libertarian "just reduce regulation" approach that's often pitched, the natural equilibrium will be closer to "supply increase and price go up slowly", and people skeptical of "just reduce regulation" as a solution are more accurate than they're given credit for. Gotta actively intervene to make supply increase enough for any sustained period of time - we only see it in cases of macro shocks. Like the 2008 recession, or the post-Covid-bullwhip.
It is frustrating, as that feels like an easy argument to show why a lot of things decreased in price. You had governments spending a ton of money. Or incentivizing the spend. Usually both?
I think my approach there would be to say you can't use profit as incentive to lower housing prices? For the exact cycle we both spoke to.
This is my big "abundance pill" that I've swallowed. It isn't necessarily deregulation you need. But if you want a goal, you have to spend towards it. And "lower prices" is a goal. To get there, governments will have to spend money.
One legitimate reason to not think supply reduces prices is because of big financial companies buying up lots of houses and having effectively free rein to price how they want. It removes the competitive piece. In many areas the new houses are built by a few large home builders doing a few large developments, and the new apartments are owned by a few large corporate owners. That can slow down prices reaching their market value.
Because all the same voters (demographically, if not also frequently literally the same individuals) voted for a bunch of red tape that's only passable for the big vertically integrated businesses and even then it's only profitable when they're doing cookie cutter single family on .25ac or 5 over one apartments.
https://www.redfin.com/news/investor-home-purchases-stabiliz...
Yet those large housing companies charge on average between 7-8 €/m² and are nowhere near to holding a majority of the housing share.
Big corporations don't have unlimited money to do this kind of thing.
And in practice, the expensive areas they do it in, are usually very limited in how much new housing goes up, they're still very much supply constrained markets.
If what you're suggesting was really happening, then what you'd expect to see is an area with a relatively high vacancy rate (due to all the new supply), like 8% or even higher, but stubbornly high prices in spite of that. And I can't think of any examples where that happened. Can you?
At any rate, if a buyer notices it happening in their area, then "it's not happening that much" is not only not going to make them feel better, it's going to also make them feel like you don't want to fix it.
I agree that the algorithmic price fixing needs to end, though I think it's mostly gonna be strong in a market where vacancy rates are still low. Harder to maintain the cartel the more options people have.
https://www.redfin.com/news/investor-home-purchases-stabiliz...
This just isn't true and isn't supported by the data. https://www.noahpinion.blog/p/corporations-arent-the-reason-...
No, its not. If only one big company was allowed to do that in each locality, and they had the ability to buy up all the supply no matter how much new housing was built, that would be a reason; absent monopoly power, they don't have free reign to price how they want, and can price higher the less supply there is, even if you assume all of it is owned by similar big firms and used as rentals.
If this comment section is anything to go by, there seem to be plenty of people that firmly believe that increasing housing supply doesn't actually increase housing supply, let alone the bigger leap that increasing housing supply decreases prices.
They’ve been building houses in my area non-stop since 2010 or so. Prices haven’t gone down.
There are other factors than supply. But most of the new supply is large houses. If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
Real or nominal?
> There are other factors than supply.
It is not uncommon for places with a lot of housing development to also be places with rising housing demand because it is a growing area.
> If you don’t want 4+ bedrooms and a 2000+ sq. ft. house the supply hasn’t changed much at all.
And many of the people buying large new home are moving out of a smaller existing home.
And my impression is that, when we talk about the housing shortage, we're talking about apartments to starter homes, not about 4+ bedrooms. So what we seem to have is a disconnect between what the market needs and what builders are building.
But maybe that's only "seem". I'd bet that a 4+ bedroom house sits on the market a lot longer than a starter house. Maybe starter houses are being built, but not enough to satisfy the market, and so they're going almost immediately?
Nonetheless, I don’t think this has much to do with the public policy as it stands because the people who make the policy do understand this. So while I think the assertion is correct, people do not believe it, I do not think that is a large factor and why the policies restrict housing.
But I have been looking at the cost to build a home, it costs even more to build than to buy a used one. Who, exactly, is going to be able to afford to buy the new houses while selling their current home at a lower price than it would currently fetch?
Maybe if AI replaces all the software developers they can flood the home construction market in their quest to find new work and push the price of labor down, thus reducing the cost to build a house, but otherwise...
A lot of the homes from the 50s and 60s that people talk about being very affordable at the time they are made, were very small things by today's standards.
Would it really be that cheap, though? Hell, even a single wide trailer built in a factory, which is about as ideal as it gets from a cost perspective, is still a home largely out of reach of the average Joe.
It remains unclear who is going to buy all these new houses unless they are sold at a loss — but who is going to build a home with a plan to sell it at a loss? You?
Which is about the same as the value of the average used home, less the land. But remember, the average Joe can't afford that. If they could, we wouldn't be here.
Increasing the supply of labor, thus reducing the cost to build the home, was spoken to.
The average construction worker makes $30/hr. Get that down to minimum wage and the cost of a house will come down pretty quickly. You still might not be able to afford one on a minimum wage salary, perhaps, but the goal of reducing housing prices is met.
Normally if you make essentially the same product for 15 years, production costs fall.
It is just general demand, really. Every step of the way can charge more, as compared to 15 years ago, because people are willing to pay more for their services.
Like the headline suggest, the solution is to increase supply. Except, not of houses, but the inputs that go into houses (materials, labor, etc.). Until supply is met there, the cost to build cannot come down, and until the cost to build can come down used homes cannot come down either. Alternatively, we could stop wanting so many houses, but that is likely less practical.
As mentioned, if you get all the software developers building houses instead the price would drop pretty quickly. But... good luck convincing them to do that. That is what has to be overcome.
Back in the day I would often run into people who would mention something like "oh yeah, my Dad built our house." Wonder what happened to that? Thinking on doing this right now in our neighborhood, I can see lasting 5 minutes before busybodies and town inspectors showed up with stop orders
One piece of data I’ve found is that 65% of Americans are homeowners (meaning American families, not rentals or investments), which is also about the percentage of Americans who make $50K or more per year (~68%).
For people with a middle class networth (not income, I mean networth, which is about ~1M-9M when compared with the top of US society), homeownership currently works as a wealth-building mechanism because of scarcity. There’s also the desire to live close to certain areas, but why not make more neighborhoods or areas worth living in?
Regardless, if the goal is to maintain scarcity for wealth building, then I think the scarcity mechanism will remain intact if homeownership is increased to a high rate while balancing the cost of materials and labor, and building houses specially for certain income levels, as mentioned already in other posts.
But no one seems to be doing materials innovation, or construction innovation. I don’t think 3D printing is there quite yet, and might be more expensive. Where’s the push on automating construction? Why not build with a genetically engineered bamboo that’s cheaper and more sustainable than wood? Seems materials innovation will help with both housing and sustainability goals.
None of this is really allowed anymore and it's very hard to find a piece of land to do it with. Enabling this sort of construction and forcing or incentiving small plots of land might open up options for people on the lower end.
price of land + price of materials + cost of labor + margin + other (marketing, admin, fees, financing, etc.)
When you try to boost the number of homes, you also boost demand for construction labor, materials, and buildable land. Those inputs tend to rise or at least not fall much, so there isn’t a big, easy savings there. That leaves soft "other" costs or developer margin. Other is a relatively small slice, and typical margins aren’t huge push them too low and projects stop penciling, so fewer homes get built.
Even if margins were squeezed, the price drop would usually be too small to bridge the affordability gap for most households.
The bigger issue is that household incomes haven’t kept pace with housing prices over the last few decades.
These two hypotheses sound like the same thing to me. Homeowners organize to protect themselves from negative externalities that affect their property values (and quality of life).
Liberal land use and other rules would eventually bring down prices to affordable levels for most families. But not all of them. Every country has to have some strategy to provide housing for the bottom of the income range, since they typically won't be able to afford "dignified" housing based purely on the Capex/depreciation/opex value of the housing (they will always be renters).
So you need something like liberal land use to provide for 80%, and then some kind of government intervention for the bottom 20% (numbers will vary based on the location/nation/etc)
Disincentivize investor ownership, and it will be harder to tell the story of investors buying up all the property, and the rest may fall into place at best, and at worst you get marginally lower prices and less validation of the investor price inflation stories.
Even if the number of units increase, the price can actually go up.
The relative market power matters most. A developer with cheap bridge financing and a large portfolio of unsold units has every incentive to hold prices to set expectations, while buyers who are occupiers generally are compelled to buy in a certain time frame and location.
- Building cost is often marginal compared to land.
- Land value is highly correlated to economic opportunities around it.
- Economic opportunities are following a power law around economic centers (highly non-linear).
- There is a density ceiling, with some variations depending on cultural traditions but still constrained by transportation technologies and psychological factors.
- The location of economic centers is not randomly distributed but constrained by geography, especially access to water transportation routes.
Financial speculation and building restrictions are second orders effects of the inherent housing scarcity, amplifying it, but not a root cause.
Here in the UK it's really hard to convince people that it's really hard to address our housing shortage through building alone when we bring in about a million people every year. Even a lot of economists seem to think supply/demand doesn't apply when it comes to wages and house prices if you introduce immigration as a variable.
Unless it's undeniable I find people will just believe whatever suites them personally. Which is fair enough. I guess I'm just surprised at how unconscious this bias is for most people. Or at the very least they seem to truly believe that the housing market is an exception to supply/demand dynamics.
What would happen if real estate investors/developers by law also had to dwell in the most dense type of housing they built?
Hypothesis: Humans by and large are all looking for a bit more breathing room, privacy, and quality of life in their choice of home. (In other words, qualities diametrically opposed to the black hole compression cubicle end game of 'efficient housing for the masses').
interesting video :
You need to also consider what is being built. NYC has built a lot of ultra-luxury property that really amounts to money laundering and will never increase the supply to ordinary residents.
The private sector will never solve this problem on their own.
The problem is that demand for housing is relatively fixed, in that every human needs a shelter, and every human wants a home. That doesn’t change outside of population statistics: in a vacuum, all things being equal, every human would buy a home.
The issue is that the supply side is so heavily gamed by existing players that the entire market is deliberately engineered for maximum extraction of wealth from new buyers to prop up valuations of existing owners and builder/landlord margins.
Relatedly, this is why I’ve stopped fighting each niche front individually and instead focused on the “nuclear option” of mandating affordable housing as a human right. That would open the floodgates to lawsuits against communities, states, and companies that hoard existing stock and bar newer, denser construction. It would add a sorely needed lever of pain to deter hostile housing practices, by threatening things like rent/price controls or forced divestitures unless the supply problem was meaningfully addressed post-haste.
In places where a third of renters are spending half their income on rent (as some stats have shown for CA), it is implausible to believe that nibbling around the edges of the problem is going to result in enough of a reduction to make a difference. I haven't seen any estimates of how many market-rate units would need to be built to, say, reduce the number of rent-burdened households to 10% or 5%, but presumably it would need to be in the millions. I haven't seen any studies of supply/price issues that contemplate anything like that scale.
Just as important, such studies generally ignore the issue of inequality. It doesn't really matter what rents are; if there is someone who can afford to own multiple vacation homes that sit empty most of the year, rents should be lower.
Edit: Here I am getting downvoted by people who don’t have the bravery to confront their own contradictions and realize that their own beliefs are being manipulated to ruin their own lives.
But at the end of the day, everything is subject to market forces and it's folly to deny that.
Central London monthly rent for a 3-bed house is around £3500, but a 1-bed flat rents for £2100. So split the house into two flats and the landlord makes more money.
Hence relaxing zoning restrictions will push prices up.
If you build houses, they’ll just buy them and rent them out for profit.
House prices are so high because some people own too many of them. A home shouldn’t be an investment strategy
No one's trying that policy. It's certainly not what's led us to this point. Building is nowhere near fast enough to keep up with demand, especially in the areas with lots of homeless people, and especially in the affordable price ranges.
Seems to me the policy that has the consequences you describe is, in fact, the policy you described in the GP.
Reminds me of all the posts I've seen with photos of things happening in America—a country which is, quite famously, under capitalism—with captions saying "this is what socialism gets you!"
I rent my house from the woman who lives next door. I could not afford to buy this house. I have a nice garden and my kids go to great schools. Your policy means that this arrangement is forbidden. My family is not allowed to access this life because I am not rich enough. That is a bad policy.
Eventually if supply keeps up that will change, and longer still the wealth may trickle back down. But imho it would be faster to focus on avoiding the concentration in the first place through SFH as investments, via simple tax policy that discourages mom and pop investors from purchasing extra homes.