Hacker News Reader

Comment by JumpCrisscross | Hacker News Reader

> its luxury apartments (almost always 5 over 1) that have rents higher than my mortgage. I don't see how this is accounted for

It takes two years [1] to get a building permit, and the two-year borrowing rate for the U.S. Treasury is 4.44% [2]. That delay alone will cost a developer at least 10% more.

That permiting process, alone, raises housing costs by double digits [a].

[1] https://www.sfchronicle.com/sf/article/housing-permits-san-f...

[2] https://home.treasury.gov/resource-center/data-chart-center/...

[a] 1.0444 ^ (627/365) = 7.75%

View on HN

So they'll be more incentivized for profit, not less. Also, OP never said any of this, you're just doing the thinking it out for them.

My point is the housing being built isn't going to serve the those who are housing insecure or migrants working construction jobs. If anything these places are taking over the neighborhoods that used to serve that sector.

> they'll be more incentivized for profit, not less

Why would any of this change developers' profit motive?

> the housing being built isn't going to serve the those who are housing insecure

We agree. This is because housing supply is constrained. That raises its price, which makes it unaffordable for more people. Removing supply constraints changes that.

Also, new luxury housing absolutely lowers housing prices. I've seen it personally. A luxury building opened nearby. I figured there was a 10 to 15% difference after accounting for amenities like its gym, in exchange for more space and a quieter apartment. Others clearly did the math, because we lost two people in the building to it. I showed my math to the landlord, told them I was considering decamping, and negotiated down my rent. I told my neighbours and they each did the same. We had more choices, and so had to pay less. Basic supply and demand.

There was just literally a scandal because real estate developers were inflating prices because it’s more profitable, even if it didn't reflect market demand.

Developers have the same incentive, they are not incentivized to build properties they'll make less on, even if supply goes up. I've seen lots of properties built, they can be half unoccupied/empty and the rents/leases don't change. They're simply not going to lower the value of their own properties, they'll keep it inflated because at least then it’s a tax write-off/loss.

This increased supply concept is being parroted but no one can provide examples of supply being increased and rents going down, or the very least demand can't be kept up with and no area gets saturated to the point prices go down. Usually the opposite happens, new apartment/housing = nicer neighborhood = more desirable area = rent/housing values go up. We usually call this gentrification. Not unless it was a government subsidized project or section 8 housing or a local economic collapse and people leaving (which cheap rent means little if there are no jobs/economy).

Developers are very risk adverse, they’ll never build in an area that risks supply outstripping demand.

I don't understand how people can live for 20 years, see these patterns and still believe the theories they get taught in economics 101 in school and think they're fully educated on the matter.

Yeah, this grade school-level notion of supply and demand is nonsense.

Not only do we not see a decrease in house prices and rent prices when new housing is developed, but there’s literally a higher vacancy rate than the amount of housing we’re supposedly short on.

In particular, corporate landlords have figured out that it’s better for their bottom line to keep units vacant than to lower the rent, partly due to plausible deniable collusion via RealPage et al.

> they'll keep it inflated because at least then it’s a tax write-off/loss

No, it’s because of loan covenants. Leveraged landlords can’t lower the rent without defaulting on loans. It works in the short term, and then the market either corrects or they default. (You see the same effect in CRE. And China.)

There have been cases of collusion. I can also cite company towns. These are scandals because they’re an exception; the housing crisis is one across continents.

Sometimes there are international conspiracies. More often, it’s emergent behaviour. Particularly in the landlord market, which features a lot of cottage industry, it’s a bit ridiculous to propose scandals as the universal solution. (Do you really know zero individual landlords?)

> they’ll never build in an area that risks supply outstripping demand

You’ve clearly never been to Phoenix. Or any other city that overbuilt on the back of zealous developers.

> no one can provide examples of supply being increased and rents going down

Literally did in an anecdote. Also Japan.

This has been deeply studied [1]. It’s difficult to find counter examples. Yet we continue to see the gentrification hypothesis parroted because most voters never got past high-school economics, nor learned to read academic papers.

> see these patterns and still believe the theories they get taught in economics 101

I mean, yes. Same here. That said, I’ll take the silver lining: I’m glad I’m a homeowner and can count on folks who think limiting supply will keep the gentrifiers out. (I’m still waiting for my price-fixing membership email.)

[1] https://www.aei.org/wp-content/uploads/2017/04/Overview-Talk...

Reply on news.ycombinator.com