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Comment by ineedasername | Hacker News Reader

Author says that increased luxury housing will trickle down to lower level housing. I'm not so sure. I wish I could find it, and maybe it's a bit anecdotal, but I came across something recently that said decent sized chunks of luxury housing in NYC is basically bought and left vacant by people using it essentially as an investment vehicle. If this is the case, additional high end housing will not trickle down to the same net effect on supply & demand as additional low-end/affordable housing.

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The problem is that it takes decades to hit equilibrium. Chicago and Tokyo have relatively affordable housing because they’ve been allowing relatively unrestricted development for decades. Buildings that started it as high end luxury apartments got repurposed into mid-range buildings when new luxury units were built later. Housing has a very long usable life. When I lived in Chicago, I lived in a 40-year old high rise that had been built as a high end place. A studio was a good 30% cheaper than the brand new luxury building across the street.

But it still works. A study recently showed that allowing construction of two market-rate units (which costs the city nothing) has the same impact on displacement as one affordable unit that must be subsidized by the city: https://nextcity.org/daily/entry/subsidized-housing-developm... (of course this got spun as subsidized housing reduces displacement twice as effectively as market rate units, conveniently ignoring the fact that the former solution requires hundreds of thousands of dollars in subsidies while the latter is half as good for no cost to the city.)

The author actually spends a long time arguing the opposite:

> I think it is clear from this that we can’t expect new luxury development to have the same impact on rents at the bottom of the market as it does at the top. But how much less impact is not clear. In technical terms, there is no good recent data on the cross-price elasticity of demand between luxury housing and lower-cost housing. A large group of urbanists have taken to talking about the housing market as if these elasticities were close to 1 (increases in luxury supply have a big impact on the low-end rent). But it’s just as likely that the elasticity is closer to 0 (the rent at the bottom of the market is very insensitive to the level of supply at the top of the market).

You're (mostly) correct. I misread parts of his argument. But he doesn't conclude that opposite, only that luxury housing doesn't have the impact some argue for, and also that it might have very little impact at all on the opposite end of the market. However he does spend some time demonstrating that it does have some effect on the next tier down, then a little less on the next below that. And, as I argued, that some of the luxury inventory is purchased as buy-and-hold, not buy-and-move.

Actually the author is more nuanced than saying to build "some" luxury housing.

NYC is a special case all of its own with a bunch of factors specific to it. I'd say the biggest are:

1. Construction costs are so high that it's largely the same cost to build luxury condos than mid-priced condos

2. It's more profitable to build luxury condos, at leas tin Manhattan.

3. Globalization of property markets and the rise of the ultra-wealthy mean that a lot of real estate is just the ultra-wealthy parking money in homes they might visit for 2-3 days a year if at all. That's not just foreign money either (although Chinese, Arabians and especially Russian money seeking refuge in real estate in the developed world is obviously a factor). Steve Jobs owned one of the penthouses in the San Remo building on Central Park West for 20 years before selling it to Bono (or U2), having never set foot in it.

3. Bloomberg's "attract the billionaires" mantra mean that luxury condos, even after property tax abatements end, are the lowest in the city as a percentage of property value. This makes parking money in NYC more attractive.

4. The skyrocketing cost of insurance of construction projects [1].

[1] https://www.constructiondive.com/news/critics-blame-nycs-sca...

In NYC those luxury apartment towers get massive property tax breaks, because of course they do. Vacant housing should be charged (a lot) more tax—at eye-watering rates if that's what it takes for it to be rented out—but that's still not a substitute for simplifying zoning, eliminating parking minimums, and everything else that makes it more expensive to build housing without a good reason.

Yeah I'm surprised the article didn't bring up design. Shit like Hudson yards is so bad that the New York Times calls it a "Neoliberal Zion"[1]. Anything that comes off primarily as a "fuck you" status symbol is not going to inspire popular support.

Just compare the street level unit density of old new buildings anywhere in the city. Absolutely none of the relearned lessons of walkability, integration with the rest of the city, etc., being applied.

1: https://www.nytimes.com/interactive/2019/03/14/arts/design/h...

From the article:

>[The Vessel] ... ruinously manspreading

Is that what passes for journalism these days?

Two things: if there is a limited supply of luxury housing, the rich will buy mid-market housing (or low-end) and often renovate to make it luxury. Very common in SF. That means more competition for the lower/middle of the market.

And second, the luxury housing today will be middle of the market in a couple decades.

Ding ding ding, we have a winner!

This is something that most people who in the "only luxury housing will be built" camp miss.

If the newly rich (either acquired wealth or moving in) can't buy luxury housing because none is being built, they will just do create their own luxury housing. That's one less housing unit for normal folks.

Exhibit A: https://sf.curbed.com/2015/10/8/9913302/victorian-disembowel...

I don't disagree that luxury housing will have some effect, but the "in a few decades" part is where I see a problem. It's only a partial solution, and only in the long term. If there's demand for it then sure, build it. But also build other kinds.

Then keep building more. It will stop being such an attractive investment when the supply isn’t constrained.

This is obvious to anyone who lives in the real world.

Add 10k $1MM apartments to San Francisco and it won’t do anything appreciable for people making $55,000/yr. it will just attract more millionaires and investors.

Trickle down anything is paper theory for your intro micro course. By the time you learn about externalities and non-linear equations you quickly realize it doesn’t play out in reality the way you want it to.

Maybe the term isn’t really that misleading though. The concept of trickle down is kind of like a clogged rain gutter. Sure, a few drops trickle down, but most of the water just piles up.

I think the solution is the heresy that the central bank should put strings on the money they lend out. So the central bank has to apportion a certain amount of funds for high density housing in particular geographic areas. Directly loan money to states to build mass transit.

And specifically not to purchase paper, stocks, bonds, etc. All that stuff should be hard money loans.

And who decides where the money should be appropriated? There are plenty of other existing avenues for political action in setting economic policy. The money supply should never become one of those, for what I would think are entirely obvious reasons.

Why involve the central bank for those loans? I think the federal budget could handle it well enough and there is even some justification for it being a loan as a slight anti-graft measure to give encouragement to make it something productive instead of squandering it.

I don't know why you think that? Tech workers will buy them if they're close to work. That means they're not competing for other housing. Everybody has to live somewhere.

There are a bunch of tech IPO's about to happen. What do you think they'll buy instead?

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