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Comment by AnthonyMouse | Hacker News Reader

> If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier, even if the prices in the latter sectors rise a lot.

That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.

Suppose people used to spend 20% of their income on housing and healthcare and 20% on apparel and electronics. Then housing and healthcare triple in price, apparel drops by two thirds, electronics drops by 98%, and everything else stays the same. Are they better off? No, because the most you can improve the cost efficiency of something is 100% (it becomes free), but the things that that cost more can increase in cost by more than 100% of the original cost, and some of them have.

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> That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.

Housing prices aren't going up because of construction costs alone. The biggest increase is from the cost of land. For that the cost of a house on top has become less and less relevant. If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.

The biggest increase is from the cost of zoning making land artificially scarce. But construction costs layer on top of that because of the nature of it: Instead of being able to build 20 new housing units on a lot that currently only has one and enough land to add more without destroying the existing building, adding more is now restricted to a small strip of the downtown where the lots already each contain 10 housing units. Which effectively doubles your construction costs to add 20 housing units because you still have to build 20 housing units but now you have to destroy 10 in order to make space, and then do that twice to actually add 20.

Which is a disaster if construction also got twice as expensive.

> If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.

If construction became really cheap and there wasn't an artificial limit on how much housing you could build on a given lot then there would be tons of cheap housing and billionaires wouldn't find it a useful place to park money because it would have lower returns than competing investments.

Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is also why zoning doesn't matter. Look at the big picture. Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use. What those areas do have in common: general availability of real estate to international investors.

Properties aren't bought up anymore to develop them or have any returns from use. They are being bought as a non-depreciating asset. Want to effortlessly park money and not have the money rot? Buy land. Never mind what happens to stand on top of it. You can see more and more of those rotting real estate plots all over the western world. And there's always someone who wants to park money.

Your thinking isn't wrong on a smaller scale. All those aspects matter for a local housing market. But the overall trend is governed by something else.

> Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses.

This is fairly simple arithmetic. Suppose we attribute the cost of a single family home (one housing unit) entirely to land, and then the cost of land doubles. Obviously the cost of the single family home doubles.

Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.

> Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use.

The places with less restrictive zoning objectively do have lower housing costs, and even most of the places with "less restrictive zoning" still have non-trivial zoning restrictions. For example, name the major US city that isn't accompanied by a significant land area zoned exclusively for single family homes.

> Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.

That's a brilliant plan! Let me buy the piece of land where that high rise stands with money you can't afford. Oh, you mean you have split ownership between all the owners of the units so you now can afford it? I'll buy half of the units then and rent them out. And when things are not looking good for people, I buy some more when they can't afford their loans anymore. Can't let those units depreciate, can we? My friends are in on the party and together we're keeping the demand up. And those prices go up and up. Oh, the cost of each unit has now doubled and tripled while your wages haven't? Too bad for you. I can still afford them and now you have been out competed by me.

It's the same game just with a lower starting point.

Maybe this former financial trader can explain it better https://www.youtube.com/watch?v=BTlUyS-T-_4&t=520s

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