The author's point about capsule-style living is a interesting one. Are there any examples of capsule hotels or similarly-tiny micro-rentals in the United States?
Supply and Demand is too simplistic a model to think about housing costs because it fails to account for velocity of inventory vs. velocity of occupancy. It also completely ignores the law of retailing which is “Charge what the market will bear”. Let’s also be honest about how opportunity growth drives demand for housing.
How is "opportunity growth" not just a change in the demand curve? And how is "charge what the market will bear" not just higher demand intersecting fixed supply at a higher price point?
Could you explain how "charged what the market will bear" is ignored by "Supply and Demand"? The entire basis of supply and demand is that prices change based on people charging what the market will bear, and buyers paying as little as they can.
Not the OP, but I would think he's describing: You can't out build rich people. There may be a supply of ten houses and a demand of ten people who need houses. However, that doesn't take into account that one of those ten people might be rich enough to want to buy all of the houses and then rent them back to the other nine. In dieting: you can't out run the fork. In housing: you can't out build the rich people.
In anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
But why can't you out build them? If there is demand of ten people who need houses and you build ten and a rich person buys all of them so they can rent them out, build ten more. Now the rich person has to buy those if they want to preserve the rental value of the original ten, so you've doubled their costs. They may not be willing to do this. If they are, build ten more...
At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
Yes. When it comes to economics, people seems to stop analyzing after the first iteration. The whole system is continuously adjusting to changes in supply, demand, technology, taste, etc. The rich people aren't going to keep buying due to some sort of spite. They only do so as long as it's profitable, and it's only profitable as long as there is still unmet demand waiting to rent.
This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall.
Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.
The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market. It's not like other consumer goods where there aren't really many resource constraints.
In turn, something needs to be done to drive down the incentive to speculate on land prices. Such tools can range from rent control which makes landlordism unprofitable to land value and vacancy taxes return lost value from lack of properly developed land back to the public.
Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
> The problem here is that land is a scarce resource that can only be redeveloped once it is put back on the market.
But it is on the market. There are no regions where land is unavailable at any price. The price may be high, but if it is, all the more money to be made by subdividing it into twenty times as many housing units that each sell for most of the original price.
> In turn, something needs to be done to drive down the incentive to speculate on land prices.
That thing is to eliminate zoning regulations that prohibit high density construction.
> Such tools can range from rent control which makes landlordism unprofitable
Economists almost universally agree that rent control is a terrible idea.
What you end up with is ten apartment units that could be rebuilt into fifty condos, but the prerequisite to rent control functioning is that you can't kick out the tenants (and they will never want to leave), so that can never happen.
It also makes new construction in general less profitable by removing all the landlords from the purchasing market, and makes all non-rent-controlled apartments scarce and outrageously overpriced.
> land value and vacancy taxes return lost value from lack of properly developed land back to the public.
Vacancy taxes are a spectacular idea in theory. Rich people would probably find various ways to avoid them, but they seem to have almost no downside. Particularly if you have sensible exceptions like for property that was occupied for more than 24 of the last 36 months. I'm not sure why they don't exist in all urban areas.
But that only works on the vacant properties. Doesn't work when you have a bunch of occupied properties and the issue is the incumbents capturing the local government to keep rents high by preventing new construction.
> Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
This is a benefit. That cost has to be paid by the people owning but not using it, giving them the incentive to put it on the market (at any price they can get) so that someone who can use it will have it.
Your analogy is logically sound, but it doesnt match what I've seen in reality. I think the extra factor is that rich people seem to attract more rich people. That is the number that I think can't be out built. The rise in prices attracts more of them. Or rather, the fewer poor people around tends to mean rich people find it even more desirable. In practice, no government or real estate boom can out build this network effect of rich people attracting more rich people who eventually decide they like things the way they are. Not just real estate, but everything about the place. And they now own it, so its not that crazy to imagine they get to decide this. Im not morally in support of it, just stating history.
Rich people are especially into "knowing the best", whether its vacations, cars, and yes, places to live. Thats what I meant about them wanting to come buy stuff in your town even if they don't currently live there. And the data kind of shows this. California has an outflow of poor and and inflow of richer.
Basically, desirability is inelastic. California has better weather than a lot of places. The only people who can pay up the vertical inelastic curve are rich people. There are a bunch of them who want to move to your town from elsewhere.
> I think the extra factor is that rich people seem to attract more rich people. That is the number that I think can't be out built.
That isn't a real problem though. If people are coming who actually want to live there, let them. There are zero cities in the world that are entirely covered in buildings the height of the Empire State Building. Every time you sell a housing unit for more than it cost to construct, you have that much more money to construct more housing with.
The actual problem is that the existing residents pass zoning regulations preventing high density new construction, because they know it would reduce housing costs, but once they live there their housing costs are fixed and what they're worried about is increasing their property values.
You may argue that the solution either way is to build more, but I think its important to take problems on at their source. The debate about supply and demand just seems to be the wrong level of abstraction when there's a more sociological root cause for pulling up the ladder.
> "Or rather, the fewer poor people around tends to mean rich people find it even more desirable."
If we don't address this, it will be impossible to convince people to build more, no matter how blue in the face people get about supply and demand charts.
> "Or rather, the fewer poor people around tends to mean rich people find it even more desirable."
But why is that a problem? It's like complaining about free money appearing out of thin air. If every rich person in the entire world wants to move to your city, that's really good. It would be a wonderful tax base. And there are a countably finite number of rich people, so there comes a point when you have literally every last one of them.
Having to build enough housing for every rich person in the world is ridiculous, but the reason it's ridiculous isn't that you couldn't physically do it (if there are a hundred million rich people, that's only a single digit factor more people than live in Beijing or Shanghai). It's that they would never all move to one place like that -- especially because every other city would be competing to keep them.
And if density is actually such a wealth magnet then every city should do it. Then the outflows and inflows would net balance and there would be no net migration of rich people to any city in particular. If you somehow got more than someplace else, what are you complaining about? Build even more housing to see if you can get some more, then go spend their money on your roads and schools.
If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them. This thread proposes that rich people consume many more homes than they can actually live in. So why don’t they draw some of those homes from other markets?
(I suspect this is because NIMBY policies in the face of population growth make SF housing an especially great investment, and that this advantage would disappear with zoning liberalization. Returns on the level of SF’s real estate market are hard to find in the stock market, for example. Why wouldn’t they speculate on it?)
> If rich people’s housing consumption were bounded by their own needs for personal residences, it would be easy to outbuild them.
Globally, certainly; locally in particularly attractive areas? Probably not even if that were the case.
> This thread proposes that rich people consume many more homes than they can actually live in.
Which is obviously true, 2nd through nth homes that are kept idle most of the year, or even for years at a time, are a thing, and a person can't actually live in more than one at a time.
> So why don’t they draw some of those homes from other markets?
They do. But there's enough rich people that want to draw some of their consumption from SF to eat up quite a lot of expansion, until you actually make SF unattractive to rich people.
What if because of the opportunities available, San Francisco creates more rich people. I know many tech workers who start out in small apartments with many roommates and then end up quite wealthy.
Haha, local residents in the Bay challenge the quantity of the agglomeration bonus. They believe they're currently at the perfect balance of dense and neighbourhood-like. Presumably this balance was attained shortly after they arrived and any further increase in density would cause congestion effects that dwarf the value of having more people around.
This is the same thing everywhere. When I was living in San Antonio, I'd always joke about folks who moved from Austin because they were always saying that "Austin was better X years ago." X being equal to +- 1 year from when they moved to Austin.
The problem is more that we are far better at building housing than we are at improving transportation and other infrastructure that needs to scale with population such as schools. Additionally, adding park space in already crowded neighborhoods is virtually impossible.
Overall I think it's clear that growth can largely be a good thing, we just need to do a better job deploying resources in a rapid when when large numbers of people move in. A good example is Seattle, where the population is booming, and even with massive transportation projects planned and in the pipeline, it's certainly possible that by the time things get built it's insufficient.
I think there's something to this argument. If the Bay Area had good public transportation, and not this mess of 5+ non-coordinating, independent systems (BART, AC Transit, CalTrain, Muni, VTA, etc.), then people could live in the East Bay (or wherever) and work throughout the region. As it stands, since I do live in the East Bay, there's no practical way for me to commute to the South Bay or Peninsula in under an hour and a half driving or 2+ hours on public transportation. That locks me out of a lot of jobs, but, in my case, there are enough tech things going on in SF for it to be worthwhile.
Implicit in this analysis is that density is valuable, and we can create value by increasing the densities of our cities. They consider the possibility that the increase in property values due to an increase in density may outpace the decay in property values due to an increase in housing supply. This is possible in a single metro, since population is highly dynamic and new residents can come from other cities and states, but if federal policies caused a universal increase in metro density, the relatively static population at the national scale would prevent the decay in property values from being wiped out by the agglomeration effect. You can imagine everyone moving a quarter mile closer to the closest metro population center. Average density and thus value would increase, while costs would stay constant.
I heard of a study some time ago that said that restrictions on urban development have cost the American economy on the order of trillions of dollars over the past few decades. When you also consider that existing property owners in cities have an incentive to maintain or increase their property values by limiting new construction, there is a powerful argument for the federal government to act on behalf of the interests of the nation as a whole in having more dense, dynamic, inclusive urban centers and prevent cities from enacting anti-development policies.
Furthermore, while developers are typically scorned by my comrades on the left, such a policy would be progressive in that it would tend to reduce the wealth of rich property owners, while decreasing costs for renters and making cities more accessible to people with fewer resources.
The NIMBYs described don’t value density, they value access.
Speaking for myself, I only value density as a means to establishing a global “right of return”, which I believe is a moral good:
Human ecologies are healthier when children who grow up in a place have the option to remain, or to return after exploring.
Oakland, right now, is forcing out large numbers of indigenous people, young and old, perhaps never to return.
I don’t care about the density of Oakland, I just care that people who have spent part of their development here can continue to embody the geography.
As long as there is a supply of wealthy would-be immigrants (which shows no sign of slowing) then that means I am for increasing density. But it’s a means to an end.
I hear you. I imagine people have many different reasons for self-identifying as YIMBYs.
In the context of the article, the theory of agglomeration effects cited by the author posits that increasing a city's density makes a city more attractive, and thus exerts an upward pressure on property values.
> This supply-demand model ignores something important: the value of living in a particular place is greatly determined by how many people live around it. As the number of people living in a place increases, so does the value of being there. This is often labeled the "agglomeration effect".
I'm not familiar with the empirical evidence for the agglomeration effect, but if it's real, it indicates that aside from whatever specific arguments one can make for or against dense cities, the market values density. The author suggests some plausible reasons why the market might value density, but really it's kind of besides the point why density is valued by the market (which represents the demonstrated preferences of you and I and every other economic actor). If the market values density, and there are perverse incentives which prevent cities from increasing density (the interests of existing property owners), it behooves us to intervene at the national level.
One can make a number of other orthogonal arguments for increasing density: smaller environmental footprint, increased diversity and social mobility in communities, equality of opportunity and access, and your argument for a "right of return," to name a few.
As someone who supports some aspects of YIMBYism almost entirely because I like very dense cities, I still think it's important to make note of the major negatives of density.
Namely, what happens to overbuilt places during periods of population decline (as maintenance of existing real estate becomes virtually impossible to afford). What happens to those living in the area should there be a major environmental or political crisis (it's much harder to evacuate manhattan than most other places). And how can we scale our infrastructure concurrently with increases to density such that transportation and other government resources are never lacking.
"As someone who supports some aspects of YIMBYism almost entirely because I like very dense cities"
I also appreciate (and spend a lot of time in) dense cities and I wish that a lot of SF were much denser.
But I appreciate grass roots, local control more and I am alarmed at how quickly principles of democracy are thrown out the window when they produce "the wrong kind of results".
Local control is elitism: the people who are local to desirable places control everything that matters. Justifying that by saying the rest of us have "local control" over our Rust Belt garbage dumps and third-world hellholes is worse than the doctrine of Separate But Equal.
Democracy means it is not only the rich who vote on taxation, not only the business owners who vote on regulation, not only the defense contractors who vote on foreign policy, even though each is the primary stakeholder in their respective issue. In the same way, it should not only be the homeowners in desirable cities who vote on access to those cities.
> Human ecologies are healthier when children who grow up in a place have the option to remain, or to return after exploring.
You obviously didn't grow up anywhere near where I did. I could easily buy property where I grew up, but there's no opportunity for me there, other than as a remote worker, and I don't prefer that. I get more value out of paying 3x what I would for my 2BR apartment here than living there.
I would appreciate it if the conversation could refrain from disrespecting people they disagree with, such as calling people "NIMBYs" as an epithet. I don't think it's a helpful label - it is more of a tribal/disrespect marker.
But it's impossible to return if the housing prices are so high.
That's the thing NIMBY's completely miss: NIMBY policies cause displacement of middle class and poor people by giving them no affordable housing in the area. YIMBY policies actually increase access for people wishing to return and enable indigenous people--even those who aren't rich--to stay in the area.
>We quantify the amount of spatial misallocation of labor across US cities
and its aggregate costs. Misallocation arises because high productivity cities
like New York and the San Francisco Bay Area have adopted stringent re-
strictions to new housing supply, effectively limiting the number of workers
who have access to such high productivity. Using a spatial equilibrium
model and data from 220 metropolitan areas we find that these constraints
lowered aggregate US growth by 36% from 1964 to 2009
The NIMBYs value their privacy and want to keep the riff-raff out. Areas like Forest Hill or St Francis Wood in San Francisco had explicit minimum house construction prices to achieve this goal. For them, density is a counter-feature.
> the federal government to act on behalf of the interests of the nation as a whole...prevent cities from enacting anti-development policies
Putting aside the moral/ethical of dictating zoning laws at the national level, I'm skeptical that the national government even has Constitutional authority to intervene is such a drastic way.
The federal government exerts considerable influence over housing by directing transportation/infrastructure grants and mortgage subsidies/guarantees. Historically and currently, that influence has been focused on engineering a sprawled-out, suburban model. It could do a 180 if we asked it to.
The bay area is currently depopulating. People are demonstrating, with their lives and futures, during one of the biggest boom periods in history, that the agglomeration effects are not sufficient to deal with the housing crisis in the bay area, even with the unprecedented slush capital flying around. The crisis is more happening because they're not even building enough housing for the people that already live in the bay area.
Honestly, from my experience living there for a year, the agglomeration benefits of the bay area are pretty oversold. I met some great people there, usually too far away to meet with regularly (transit is beyond terrible), that can't work on anything with you because they're too busy working an all-consuming job so they can afford rent, lost in an endless sea of people I would never want anything to do with.
Upvoted for second paragraph, but do you have anything to support the depopulation claim? Demographic stats from SF and San Jose indicate growth. The bay area in general also seems to be experiencing growth.[1]
I haven't seen any evidence for it depopulating. Anecdotally yes people talk about moving and how expensive it is, but I haven't seen any data or real evidence that there's a significant outflow.
There has to be an end to the housing price rises, though. I think it will happen when salaries get too high for tech companies to pay. Why pay double what you would for the same person in another area? Right now the ease of finding employees makes it worth it, but there has to be a tipping point somewhere.
I keep thinking the housing policies will kill the golden goose but it hasn't yet.
Inflow is greater than outflow but it primarily comes from births and international immigration. Additionally domestic migration into California is certainly still happening, but it's very likely the case that it involves the filtering out of the working class. https://lao.ca.gov/laoecontax/article/detail/265
The claim that people are leaving the Bay Area has been around since the 90s (possibly earlier) and I think it's never been actually true.
Even in 2008 property values didn't decline that much in this area. There's some growth in Washington, Austin, Colorado, LA too - but that doesn't mean the Bay Area is in decline.
Newsgroups: alt.folklore.computers
Path: sparky!uunet!stanford.edu!nntp.Stanford.EDU!abercrombie.Stanford.EDU!paulf
From: pa...@abercrombie.Stanford.EDU (Paul Flaherty)
Subject: Re: Sillycon Valley history
Message-ID: <paulf.731874319@abercrombie.Stanford.EDU>
Sender: ne...@leland.Stanford.EDU (Mr News)
Organization: DSO, Stanford University
References: <C3p1B1.EDE@csulb.edu>
Date: 11 Mar 93 18:25:19 GMT
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dpa...@csulb.edu (Dave Palmer) writes:
>From what I understand, the shine is rubbing off. The cost of housing is
>ludicrous, and companies are fleeing to places like Arizona. But you
>still can't throw a silicon wafer in Cupertino without hitting an Apple
>facility.
I think it's fair to say that Silicon Valley is dead. Cheap venture capital,
minimal startup cost, access to university researchers, and good inter
business communications fueled an engine which turned ideas into products.
You can now find venture capital elsewhere, with the discount rate being
what it is. The cost of housing and office space has spiraled out of
control, thanks to the environmentalists and Prop 13. The trade secrets
and intellectual property mania have pretty much destroyed open cooperation.
The universities remain, but aren't the driving force they used to be.
The place has a much different, more ossified feel to it than it did seven
years ago.
-=Paul Flaherty, N9FZX | "My boy, we are pilgrims in an unholy land."
->pa...@Stanford.EDU | -- Dr. Henry Jones Sr.
Someone pointed out to me recently that not long after this post he created AltaVista.
No, it has net growth, even though it has net domestic out-migration. It's getting more populated, from foreign immigration and natural growth, while losing in internal migration.
It seems like the expense of the Bay Area can't primarily be about density per se, because so many expensive parts of it are not that dense. The Sunset is full of detached single-family housing but it costs as much as the rest of San Francisco.
I never really understood why it was so expensive out there. It takes almost an hour to get from the Sunset to the parts of the city where people actually work. But, if I'm going to commute an hour, why not live in the East Bay and save on rent?
"Affordability" and "opportunity" are the same thing. If I don't have the opportunity to find affordable housing here, then it isn't affordable for me. Conversely, if I can't afford to live here, I don't have the opportunity to live here.
Value creation is a different matter though - a place can become less affordable and create more value, or can become more affordable and create less value (Detroit, with its vacant subdivisions, being an obvious example).
Can you think of a place that became more affordable after the fact and created more value, because I struggle to think of one. Virtually every city in America that is considered affordable has either experienced large amounts of population loss, or is in a region that is still on it's rise in popularity and happened to have tons of open land that it continues to subdivide.
All over the world, central urban real estate is very expensive, often because it has access to transportation infrastructure such as highways and trains that allow it to attract workers over a larger population boundary.
Every that grows chooses lower prices and greater opportunity vs. the counterfactual world where it’s subject to the same pressures but stifles growth.
The Bay Area’s situation is historically mundane; only its response is unique.
New York had a significant population by the mid 19th century. Imagine if its residents had decided to preserve the character of their neighborhoods.
You won't find examples of prices going down over long periods of time, but there are plenty of examples of prices remaining relatively affordable and stable.
For example, New York City up until the mid 1970's:
Manhattan experienced population decline from the 1920s through the 1970s, where while not all of that was people leaving the city, it always involved the annexation of new cheap land.
One that became unaffordable due to contracted supply and then became more affordable due to expanded housing supply? Can't think offhand of any examples that have pulled off this turnaround, which, sadly, bodes poorly for the future of the SF Bay Area.
Your point about central urban real estate is true, but that doesn't mean the entire urban metropolitan area has to be unaffordable. E.g., my friends in NYC tell me it is reasonably affordable in that although Manhattan itself is expensive, the surrounding boroughs and suburbs have plenty of affordable housing within reasonable commuting distance.
Of course, a lot of this is just generational - after WW2, there was a lot of investment in building in general, be it building up all the cities or the interstate highway system. This seemed to turn around in the 70s (at around the same time median wages became flat with inflation, and general inequality started rising).
So the author is discovering Say's Law [1] - basically supply can create it's own demand. Now if you talk to an economist they'll tell you Say's Law is bunk and has been for quite a while, supply doesn't create it's own demand. But let's say you don't mention Say's Law and you talk to an immigration economist, they'll say something like immigration is good because the supply of new labor actually creates even higher demand for labor than what they displace, basically Say's Law but disguised.
Which is all to say, does supply drive it's own demand? Hard to say but regardless YIMBYs need to deepen their explanations of the economics behind the issue, supply and demand graphs are good for introducing undergrads to the basics, they're not good for justifying very expensive and highly redistributive policy.
sidenote: draw a supply and demand graph. Now draw a second graph but make demand slightly upward sloping. Increase supply. What happens to price? Just googling around I found several articles about upward sloping demand in housing. It appears to be contentious (urban economics isn't an area I know too much about) but is something that should be considered.
I think the article raises an important point. I'm skeptical that increasing the supply of housing in San Francisco will lower prices. I do think that San Francisco suppresses a lot of potential business activity through restrictive housing practices. Some of this business can move elsewhere, but there's a chance that some of it just doesn't happen. More housing might just stimulate the local economy (the agglomeration effect mentioned in this blog post).
We certainly know that higher density doesn't necessarily produce lower prices - San Francisco recently passed Manhattan to become the most expensive housing market per housing unit, but Manhattan remains more expensive per square foot.
And even if it does, existing San Francisco house owners might still benefit. The structure isn't all that valuable compared to the land, at this point. So even if greater density causes housing prices per unit drop, and even if it causes prices per square foot of living space to drop (due to multiple unit apartment buildings but where a single or two story house used to exist), the value per square foot of land could increase astronomically.
And that's if per unit or per square foot prices drop. It could be that these prices would rise, which would only increase the value of land even more.
This is why I don't buy into the notion that San Franciscans are anti-development because of a desire to maximize the dollar value of their house. It could be that they haven't thought it through like this, or it could be that the have and they disagree... but I think a lot of San Franciscans are driven by a motivation to keep things from changing. They like it this way, and they don't really want it to change. They got in a while ago, they can afford it, their property taxes are low due to prop 13, and their house value has gone up to the point where they don't really need it to go up much more.
They just aren't motivated to seek more density, but it isn't necessarily because they want to maximize the value of their real estate asset (the land their house sits on). It could actually be indifference to the price of their house that motivates them to block new development.
Prices will not go down in the short term. The entire Bay Area needs to increase its housing supply by 50% in the next 20 years just to keep prices constant. SF produces less than 1/3 the required housing.
I imagine most YIMBYs would welcome the agglomeration effect, given it means more high-paying jobs created as a result of the economic efficiencies it enables.
Lower cost housing is a means to end, not an end onto itself. That end is a higher quality of life, for more people, and more productive higher density cities provide that.
If this was true, Economists would be all over it. It's the kind of stuff careers and Nobel prices are made of.
But Economists have studied this and know the effect is very small. Which is why you have software engineers speculating about it instead.
I know no other scientific field where people so confidently ignore well established known facts as Economics. Even people who otherwise quite scientifically literate.
64 comments
[ 2.8 ms ] story [ 192 ms ] threadIn anywhere nice to live, there will always be rich people lining up to buy up everything. Even if they don't live there. Even if they can only live in one house at a time.
At some point the rich person decides it's not worth buying 100 houses so they can collect rent on ten, and then they take a bath when they want to unload the first 90 properties which they can't rent for what they paid, to the benefit of everyone else. And when it's repeatedly demonstrated that it's possible to do this, rich people holding property they're not using will start unloading it and bring prices down without even building anything more.
This is why it can be as simple as "build more houses". Don't get bogged down in the relative affordability of each new unit, or demand that X% of any new development be set aside for low-income residents. Just build, baby. And keep building until the supply of housing meets or exceeds the demand. At some point, the value (either rental or purchase) of each unit will be forced downward to find a tenant or buyer. It doesn't matter how much it cost to build it, or how nice the place is. If there are a glut of them, the price will fall.
Real estate is different than commodities, though. I get that. Locations cannot be duplicated, the size of a geography cannot be expanded, etc. Those factors represent part of the value of each location, however. And when the density is low in areas that could support much higher density, it's not the market holding that number down.
In turn, something needs to be done to drive down the incentive to speculate on land prices. Such tools can range from rent control which makes landlordism unprofitable to land value and vacancy taxes return lost value from lack of properly developed land back to the public.
Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
But it is on the market. There are no regions where land is unavailable at any price. The price may be high, but if it is, all the more money to be made by subdividing it into twenty times as many housing units that each sell for most of the original price.
> In turn, something needs to be done to drive down the incentive to speculate on land prices.
That thing is to eliminate zoning regulations that prohibit high density construction.
> Such tools can range from rent control which makes landlordism unprofitable
Economists almost universally agree that rent control is a terrible idea.
What you end up with is ten apartment units that could be rebuilt into fifty condos, but the prerequisite to rent control functioning is that you can't kick out the tenants (and they will never want to leave), so that can never happen.
It also makes new construction in general less profitable by removing all the landlords from the purchasing market, and makes all non-rent-controlled apartments scarce and outrageously overpriced.
> land value and vacancy taxes return lost value from lack of properly developed land back to the public.
Vacancy taxes are a spectacular idea in theory. Rich people would probably find various ways to avoid them, but they seem to have almost no downside. Particularly if you have sensible exceptions like for property that was occupied for more than 24 of the last 36 months. I'm not sure why they don't exist in all urban areas.
But that only works on the vacant properties. Doesn't work when you have a bunch of occupied properties and the issue is the incumbents capturing the local government to keep rents high by preventing new construction.
> Lastly, there is a negative aspect to overbuilding housing, as it can be expensive to maintain real estate when people aren't actually using it.
This is a benefit. That cost has to be paid by the people owning but not using it, giving them the incentive to put it on the market (at any price they can get) so that someone who can use it will have it.
Rich people are especially into "knowing the best", whether its vacations, cars, and yes, places to live. Thats what I meant about them wanting to come buy stuff in your town even if they don't currently live there. And the data kind of shows this. California has an outflow of poor and and inflow of richer.
Basically, desirability is inelastic. California has better weather than a lot of places. The only people who can pay up the vertical inelastic curve are rich people. There are a bunch of them who want to move to your town from elsewhere.
That isn't a real problem though. If people are coming who actually want to live there, let them. There are zero cities in the world that are entirely covered in buildings the height of the Empire State Building. Every time you sell a housing unit for more than it cost to construct, you have that much more money to construct more housing with.
The actual problem is that the existing residents pass zoning regulations preventing high density new construction, because they know it would reduce housing costs, but once they live there their housing costs are fixed and what they're worried about is increasing their property values.
> "Or rather, the fewer poor people around tends to mean rich people find it even more desirable."
If we don't address this, it will be impossible to convince people to build more, no matter how blue in the face people get about supply and demand charts.
But why is that a problem? It's like complaining about free money appearing out of thin air. If every rich person in the entire world wants to move to your city, that's really good. It would be a wonderful tax base. And there are a countably finite number of rich people, so there comes a point when you have literally every last one of them.
Having to build enough housing for every rich person in the world is ridiculous, but the reason it's ridiculous isn't that you couldn't physically do it (if there are a hundred million rich people, that's only a single digit factor more people than live in Beijing or Shanghai). It's that they would never all move to one place like that -- especially because every other city would be competing to keep them.
And if density is actually such a wealth magnet then every city should do it. Then the outflows and inflows would net balance and there would be no net migration of rich people to any city in particular. If you somehow got more than someplace else, what are you complaining about? Build even more housing to see if you can get some more, then go spend their money on your roads and schools.
There are sufficient rich people outside of SF that want to be in SF to consume any reasonable housing growth.
Many other major cities already have most of the rich people that want to live in them (and some that really would prefer to live elsewhere, like SF.)
(I suspect this is because NIMBY policies in the face of population growth make SF housing an especially great investment, and that this advantage would disappear with zoning liberalization. Returns on the level of SF’s real estate market are hard to find in the stock market, for example. Why wouldn’t they speculate on it?)
Globally, certainly; locally in particularly attractive areas? Probably not even if that were the case.
> This thread proposes that rich people consume many more homes than they can actually live in.
Which is obviously true, 2nd through nth homes that are kept idle most of the year, or even for years at a time, are a thing, and a person can't actually live in more than one at a time.
> So why don’t they draw some of those homes from other markets?
They do. But there's enough rich people that want to draw some of their consumption from SF to eat up quite a lot of expansion, until you actually make SF unattractive to rich people.
I think there's two interpretations of the observation you describe.
Overall I think it's clear that growth can largely be a good thing, we just need to do a better job deploying resources in a rapid when when large numbers of people move in. A good example is Seattle, where the population is booming, and even with massive transportation projects planned and in the pipeline, it's certainly possible that by the time things get built it's insufficient.
I heard of a study some time ago that said that restrictions on urban development have cost the American economy on the order of trillions of dollars over the past few decades. When you also consider that existing property owners in cities have an incentive to maintain or increase their property values by limiting new construction, there is a powerful argument for the federal government to act on behalf of the interests of the nation as a whole in having more dense, dynamic, inclusive urban centers and prevent cities from enacting anti-development policies.
Furthermore, while developers are typically scorned by my comrades on the left, such a policy would be progressive in that it would tend to reduce the wealth of rich property owners, while decreasing costs for renters and making cities more accessible to people with fewer resources.
Speaking for myself, I only value density as a means to establishing a global “right of return”, which I believe is a moral good:
Human ecologies are healthier when children who grow up in a place have the option to remain, or to return after exploring.
Oakland, right now, is forcing out large numbers of indigenous people, young and old, perhaps never to return.
I don’t care about the density of Oakland, I just care that people who have spent part of their development here can continue to embody the geography.
As long as there is a supply of wealthy would-be immigrants (which shows no sign of slowing) then that means I am for increasing density. But it’s a means to an end.
In the context of the article, the theory of agglomeration effects cited by the author posits that increasing a city's density makes a city more attractive, and thus exerts an upward pressure on property values.
> This supply-demand model ignores something important: the value of living in a particular place is greatly determined by how many people live around it. As the number of people living in a place increases, so does the value of being there. This is often labeled the "agglomeration effect".
I'm not familiar with the empirical evidence for the agglomeration effect, but if it's real, it indicates that aside from whatever specific arguments one can make for or against dense cities, the market values density. The author suggests some plausible reasons why the market might value density, but really it's kind of besides the point why density is valued by the market (which represents the demonstrated preferences of you and I and every other economic actor). If the market values density, and there are perverse incentives which prevent cities from increasing density (the interests of existing property owners), it behooves us to intervene at the national level.
One can make a number of other orthogonal arguments for increasing density: smaller environmental footprint, increased diversity and social mobility in communities, equality of opportunity and access, and your argument for a "right of return," to name a few.
Namely, what happens to overbuilt places during periods of population decline (as maintenance of existing real estate becomes virtually impossible to afford). What happens to those living in the area should there be a major environmental or political crisis (it's much harder to evacuate manhattan than most other places). And how can we scale our infrastructure concurrently with increases to density such that transportation and other government resources are never lacking.
I also appreciate (and spend a lot of time in) dense cities and I wish that a lot of SF were much denser.
But I appreciate grass roots, local control more and I am alarmed at how quickly principles of democracy are thrown out the window when they produce "the wrong kind of results".
Local control is elitism: the people who are local to desirable places control everything that matters. Justifying that by saying the rest of us have "local control" over our Rust Belt garbage dumps and third-world hellholes is worse than the doctrine of Separate But Equal.
Democracy means it is not only the rich who vote on taxation, not only the business owners who vote on regulation, not only the defense contractors who vote on foreign policy, even though each is the primary stakeholder in their respective issue. In the same way, it should not only be the homeowners in desirable cities who vote on access to those cities.
You obviously didn't grow up anywhere near where I did. I could easily buy property where I grew up, but there's no opportunity for me there, other than as a remote worker, and I don't prefer that. I get more value out of paying 3x what I would for my 2BR apartment here than living there.
That's the thing NIMBY's completely miss: NIMBY policies cause displacement of middle class and poor people by giving them no affordable housing in the area. YIMBY policies actually increase access for people wishing to return and enable indigenous people--even those who aren't rich--to stay in the area.
>We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent re- strictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by 36% from 1964 to 2009
Putting aside the moral/ethical of dictating zoning laws at the national level, I'm skeptical that the national government even has Constitutional authority to intervene is such a drastic way.
Honestly, from my experience living there for a year, the agglomeration benefits of the bay area are pretty oversold. I met some great people there, usually too far away to meet with regularly (transit is beyond terrible), that can't work on anything with you because they're too busy working an all-consuming job so they can afford rent, lost in an endless sea of people I would never want anything to do with.
1: https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demogra...
There has to be an end to the housing price rises, though. I think it will happen when salaries get too high for tech companies to pay. Why pay double what you would for the same person in another area? Right now the ease of finding employees makes it worth it, but there has to be a tipping point somewhere.
I keep thinking the housing policies will kill the golden goose but it hasn't yet.
Even in 2008 property values didn't decline that much in this area. There's some growth in Washington, Austin, Colorado, LA too - but that doesn't mean the Bay Area is in decline.
No, it has net growth, even though it has net domestic out-migration. It's getting more populated, from foreign immigration and natural growth, while losing in internal migration.
Value creation is a different matter though - a place can become less affordable and create more value, or can become more affordable and create less value (Detroit, with its vacant subdivisions, being an obvious example).
All over the world, central urban real estate is very expensive, often because it has access to transportation infrastructure such as highways and trains that allow it to attract workers over a larger population boundary.
The Bay Area’s situation is historically mundane; only its response is unique.
New York had a significant population by the mid 19th century. Imagine if its residents had decided to preserve the character of their neighborhoods.
For example, New York City up until the mid 1970's:
https://ny.curbed.com/2015/6/2/9954250/tracking-new-york-ren...
Your point about central urban real estate is true, but that doesn't mean the entire urban metropolitan area has to be unaffordable. E.g., my friends in NYC tell me it is reasonably affordable in that although Manhattan itself is expensive, the surrounding boroughs and suburbs have plenty of affordable housing within reasonable commuting distance.
Of course, a lot of this is just generational - after WW2, there was a lot of investment in building in general, be it building up all the cities or the interstate highway system. This seemed to turn around in the 70s (at around the same time median wages became flat with inflation, and general inequality started rising).
Which is all to say, does supply drive it's own demand? Hard to say but regardless YIMBYs need to deepen their explanations of the economics behind the issue, supply and demand graphs are good for introducing undergrads to the basics, they're not good for justifying very expensive and highly redistributive policy.
[1] https://en.wikipedia.org/wiki/Say%27s_law
sidenote: draw a supply and demand graph. Now draw a second graph but make demand slightly upward sloping. Increase supply. What happens to price? Just googling around I found several articles about upward sloping demand in housing. It appears to be contentious (urban economics isn't an area I know too much about) but is something that should be considered.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2017...
https://www.ssb.no/a/publikasjoner/pdf/DP/dp618.pdf
https://ideas.repec.org/p/arz/wpaper/eres2018_267.html
https://www.sciencedirect.com/science/article/pii/S009411900...
We certainly know that higher density doesn't necessarily produce lower prices - San Francisco recently passed Manhattan to become the most expensive housing market per housing unit, but Manhattan remains more expensive per square foot.
And even if it does, existing San Francisco house owners might still benefit. The structure isn't all that valuable compared to the land, at this point. So even if greater density causes housing prices per unit drop, and even if it causes prices per square foot of living space to drop (due to multiple unit apartment buildings but where a single or two story house used to exist), the value per square foot of land could increase astronomically.
And that's if per unit or per square foot prices drop. It could be that these prices would rise, which would only increase the value of land even more.
This is why I don't buy into the notion that San Franciscans are anti-development because of a desire to maximize the dollar value of their house. It could be that they haven't thought it through like this, or it could be that the have and they disagree... but I think a lot of San Franciscans are driven by a motivation to keep things from changing. They like it this way, and they don't really want it to change. They got in a while ago, they can afford it, their property taxes are low due to prop 13, and their house value has gone up to the point where they don't really need it to go up much more.
They just aren't motivated to seek more density, but it isn't necessarily because they want to maximize the value of their real estate asset (the land their house sits on). It could actually be indifference to the price of their house that motivates them to block new development.
Lower cost housing is a means to end, not an end onto itself. That end is a higher quality of life, for more people, and more productive higher density cities provide that.
But Economists have studied this and know the effect is very small. Which is why you have software engineers speculating about it instead.
I know no other scientific field where people so confidently ignore well established known facts as Economics. Even people who otherwise quite scientifically literate.