"More supply will solve insane pricing!" is what governments and property investors like to say. It sure sounds plausible - sounds like market economics doesn't it..... if there's so much of something on the market that supply outstrips demand then prices MUST go down, right?
Seems like a ridiculous idea to me that so many houses will be built that prices will crash down to the level that anyone can buy them.
In fact I think what happens when there is more supply is that investors buy more houses to put renters into.
It will never happen that so many houses will be built that they become so cheap that the pricing will crash.
Property developers love to say "more supply!" because it makes them more money, that's all - they know more supply will never drives prices down so much that anyone could afford a house.
>> Seems like a ridiculous idea to me that so many houses will be built that prices will crash down to the level that anyone can buy them
There is an entire history of business where that exact thing happens (assuming anyone isn't literal). Watch the markets for energy (increased drilling causes prices to drop), metals (mines come online, prices drop), ag commodities... and real estate. There was a massive overbuild in the US during the late 90's and early 2000s, which resulted in a big drop in prices.
Notice the dip after there had been a build up of supply? Prices dropped about 30%. Then notice the shortage of building for several years... and a run up in prices shortly after? The old supply and demand...
Just using common sense - land is a gigantic part of the cost of a house. If zoning laws made it such that you can build more units on a given piece of land...how could prices do anything but go down?
The old "supply is the solution" is old because it has been true since the beginning of humans buying and selling things.
It's not a theoretical question, but a practical question of relative magnitudes. Can we actually supply enough housing to stabilize prices? And let's say we did, perhaps a great cost, but then what happens in the next big demographic shift? And what of the environmental impact in the process?
The "direct" solution is not always the best. This line of thinking always reminds me of the approach to medicine where they'd rather cut out your gallbladder than put you on an elimination diet and send you to an acupuncturist.
Given that there are many areas of the US where there is enough housing for houses to be affordable by the barely or not-quite middle class, it seems like that is possible. Detroit, Pittsburgh, Buffalo, Memphis, Oklahoma City, Kansas City, Richmond, New Orleans, Cincinnati, Columbus, Cleveland, Philly and lots of the surrounding suburban and rural areas.
> In fact I think what happens when there is more supply is that investors buy more houses to put renters into.
Solve that with more supply. Those people only have finite money. We can keep building inexpensive housing and selling it to them at insane prices for longer than they can keep buying them at insane prices.
The problem is that, once we break them, then we almost certainly overshoot. The price seriously craters, and everyone who bought a house in the last N years takes a huge bath.
This is basically the housing market. Homebuilders react to high prices by continuing to build more homes as long as they can do so at a profit. Not hard to understand. There is always overshooting. That's OK, it results in a lot of homes.
Those who complain that there isn't enough housing are complaining that they are being priced out of popular areas. It's like complaining you can't afford a BMW and have to stick with an old Ford. Housing in the U.S. is still available and home ownership rates are relatively high.
The problem is that well-paid jobs are scarce, and getting scarcer, which puts a lot of pressure on housing in the handful of areas that have well-paid jobs. But that's not a problem with the national housing market, but the local markets in hot regions, which are captive to local zoning laws in those markets. Again, not something homebuilders can address easily.
I wish people would stop talk about housing problems and instead focus on the distribution-of-jobs problem. Housing is never going to be fast enough to catch up to a hot jobs market area, and it will always end up overshooting. Moreover, as a nation, we need well paid jobs to be much more geographically diverse if we are to survive as something other than pockets of wealth surrounded by vast regions of poverty.
Agree with a lot of this, but the zoning problems are real. They can't be fixed by homebuilders (of any type) and local governments face perverse incentives on the issue, so it can only be solved at a state level (US). In other jurisdictions it's likely similar.
I agree that the pains of restrictive zoning are very real and punish newcomers. When I was in SF, I lived in a rent controlled unit in which there was a cranky old lady paying $800 for a 2 bedroom apartment while a young couple moved into a smaller unit in the same building and were paying $3000. They were planning on having a child, but it was really hard. Both working full time just to afford rent. That's what happens when you freeze housing supply.
But the usual counterweight is to move to areas with more liberal zoning -- e.g. zoning is locally controlled and if a city wants to stop growing, then there's not much that can be done to stop them - California is trying, but there is a lot of opposition to forcing cities to grow if they don't want to.
The solution is to not build a major corporate HQ in such a city, or to move the HQ to cities that embrace growth -- which is the majority. But if that doesn't happen, then good jobs only exist in areas with restrictive zoning, and that's what makes the zoning painful.
We know what happens when the high-paying jobs become more geographically distributed. We saw it in Portland and Austin in the past few decades, for example: people are drawn to those places from California and housing prices go up significantly.
People do that to escape the high prices in California -- but by doing so, they cause prices to increase in the places they move to, because doing so creates a sudden influx of demand from buyers who have more spending power than the people who already lived there.
If the housing supply had been increased in California, fewer people would be flooding into Austin from California to buy houses.
> when there is more supply is that investors buy more houses to put renters into.
Where would the investors create these new renters from?
Immigration and net-new household formation are two sources. (If rental properties are cheaper, people might move out of their parents house earlier, might take fewer [possibly zero] roommates, or might move to a location because the rent is cheap. All of those factors seem quite small compared to a contemplated large increase in housing supply. However, you can only make so many new households by driving the price of rent down. At some point, either new households stop being able to soak up the supply or investors aren't willing to keep pushing the price of rentals down.)
Turn the problem around. If we assume as a given that some people can't afford houses at the level of supply that currently exists, does not increasing the supply help those hopeful buyers at all?
