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Comment by Workaccount2 | Hacker News Reader

>But a lack of supply doesn’t tell the entire story.

No, it does.

Depends on how you look at it. Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem. We're seeing this in many capitals across the world. Realistically I think any solution must start with making real estate a non-feasible investment vehicle, otherwise you're always going to bid against the ultrarich of the world either directly or indirectly, no matter how much supply you add.

Supply is supply of sellers, in this case. A market works best with lots of sellers and lots of buyers.

No, the article clearly talks about the supply of housing in the quote the above comment has outlined.

The point is supply of housing units is moot if there is only 1 seller or cartel of sellers (barring land value taxes or other sufficiently large penalties for vacant housing units).

> If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem.

Can you explain a little bit more about how this situation is supposed to arise? Perhaps you're saying that regardless of how much new housing is built, landlords will always be able and willing to buy it for a higher price than "ordinary people"? That sounds quite implausible to me. Landlords don't have infinite amounts of money. Maybe you're saying something else.

The problem arises when you have long periods of either zero or near zero interest rates and no policy guardrails to regulate the market. The implausible scenario has played out in many cities in Europe, sometimes even to the extent that companies aggregating landlords started to build their own real estate that would never be sold, only let, because they ran out of real estate they wanted to buy. This left behind only low quality or poor condition housing, but at extremely high prices because everything else is gone from the market.

The issue here is essentially a cash flows problem, once you're a landlord that has a sizeable portfolio of real estate, you can use that as collateral and offload the extra expense to renters. In a healthy market, renters can turn around and buy their own homes if the rent gets too high. Where this doesn't work is if housing is too expensive for the average buyer so they're forced to rent, come hell or high water.

The Netherlands is a good example of this. While the problem has a lot more nuance and historical context to it, the state of affairs is the Dutch are short somewhere between 300k and 400k homes while two people earning the median wage can not afford an average home because the price is too high to obtain a mortgage. Meanwhile nearly all rental homes are owned either by companies or whale land lords.

Rereading my comment now I'm not sure if I was able to convey what I mean well enough, sorry about that. I'm happy to answer any questions should you have them.

What I don't understand is that you say "the Dutch are short somewhere between 300k and 400k homes" when you previously said "Simply adding supply doesn't really address the underlying problem if you don't look at the rest of the context. If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem".

What does it mean to be "short of 300k" homes if not "adding supply of 300k homes will address the problem"?

In this specific example it means the Dutch have built a considerable amount of homes in the past few years, but the number of homes the supply is short has increased, not decreased. Simply adding more houses alone is clearly not going to solve the problem.

I don't think I understand why not ... Presumably there has been a lot of immigration to the Netherlands in the same time. Naturally building needs to keep pace with immigration, so (300k + net migration) homes sounds like it should resolve the problem. If not, why not?

There are two key points you might be missing here. One is affordability. Landlords buying up housing to let pushes the prices up for everyone. In the Netherlands this has reached a point where two people living together and both earning the national median wage cannot get a mortgage for an average price home because they don't meet the minimum income requirement. This in turn means they're effectively forced to rent, barring outside intervention such as social housing programs etc, which creates more cash flows to landlords.

The other issue is time. Building new housing takes time and even though new housing enters the market, companies and landlords with large portfolios have ample time to build up capital to buy it. They can afford to bid considerably more than starters who are buying their first home.

To maybe exemplify what I mean, the last time I rented a home in the Netherlands, my landlord was a family estate that owned hundreds of apartments. At Dutch prices this means they can afford to put in a down payment for a mortgage for a number of newly built homes every single month, and they aren't even a big player in the local housing market.

Thanks, I take the point that housing is expensive and two people pooling their median wage can't afford an average price home, and in the meantime they're paying rent to landlords. I also take the point that whilst paying rent to landlords, those landlords are increasing their wealth and this contributes to them being able to buy more homes. What I don't get is how you can conclude:

> If any freshly built housing is bought up by landlords who can afford to outbid ordinary people, then adding supply doesn't alleviate the problem.

Assuming house building is economically viable (and if it's not all bets are off anyway) then isn't it equally plausible that building masses of housing means that

1. There will be simply too many new houses for landlords to buy them anyway. Their capital isn't unlimited! And,

2. House prices will drop, forcing landlords who are holding housing for the appreciation will exist the market, further putting prices down.

Landlords may have much more capital than the average person, but they don't have an infinite reserve.

Investment opportunities compete with one another for investor dollars. If the yield on housing goes down, then investors will shift their money to (non-REIT) stocks and bonds.

Let's do a thought experiment and imagine the worst-case scenario for the "build baby build" camp.

1. We build a ton of new housing, more than we need.

2. Landlords snap all of it up immediately.

3. They collude to keep rents steady despite the massive oversupply.

4. So now most of the housing is rented out at artificially high rates, and some housing is extra and thus empty. However, a ton of capital is locked up on the empty houses.

5. The more housing we overbuild, the more investors' yield on housing goes down - they have to invest more and more to snap up all the houses, but the number of houses that's collecting rent is steady.

6. The rational subset of housing investors pull their capital and buy stocks and bonds instead. Housing prices fall.

7. The irrational subset of housing investors hold out, hoping to keep collecting high rent or sell the housing on to a "greater fool". Housing investors lose some of their capital, and the worst ones are cycled out of the system as poor capital allocators.

This whole idea relies on the prerequisite that you're capable of overbuilding desirable housing though, no? It's reasonably straightforward to overbuild housing, just look at ghost cities in China, but building housing that's desirable enough that someone actually wants to live there is a different matter entirely.

I agree with the rest of your comment that the issue largely boils down to making real estate an undesirable investment class. I think where we diverge is that I think legislation and building is the most feasible way to achieve this, not just building.

Fair points, another difficulty up here in Canada and probably in the States as well is that there are shortages of people who can build houses. But that's no excuse for giving up on the problem.

I will also add though that even though it's physically hard to add housing to a place like Manhattan or politically hard to do so in the Bay area, there are tons of mid-sized cities all over the continent with lots of room to grow. With remote work and an army of millennials reaching house-buying-baby-having age all at the same time, there's no reason these cities can't be desirable and cheap places to live.

> Fair points, another difficulty up here in Canada and probably in the States as well is that there are shortages of people who can build houses.

That didn't stop them before.

Joking aside, I find the build quality in the US quite poor overall (even in the north, in Ohio). We have the same issue in continental Europe (France-Germany at least) with new-ish, low-end stock (late 90s-early 2010s at least), but we're not nearly as bad (I'm mostly thinking of windows and electricity, but even carpentry is approximative from what I've seen).

Which is weird, because I've seen / talked with skilled tradespeople in West Virginia, and saw the most impressive house in the middle of nowhere, Lincoln County.

It's always been hard and expensive to build anything right. The only surviving old buildings were the good ones.

Yup, the law of supply and demand does tell the important parts of the price story. Using software to help set prices lets suppliers converge on the market rate more swiftly, but doesn't change that rate by a lot. It's the same when a buyer uses software to see a long list of market prices. It helps them determine their demand price, but doesn't do a lot to move it beyond the supply and demand story. Banning such software would reduce the efficiency at which we arrive at those prices on both the high and low side. It's not clear that demanders would benefit more than suppliers.

Value/Price of commercial real estate are significantly determine by theoretical rent, so are the commercial loans.

It’s a positive feedback loop of high rent. There is no theoretical abstract proper rent just waiting to be discovered like that comment seems to think exists.

This is correct. The big picture is supply and demand. RealPage won't let you charge LA rents in Houston, because Houston has a different mix of supply and demand that is better for tenants.

That said: if this system lets landlords eke out even 1% extra compared to the status quo... well 1% of a lot of people's rents adds up to a lot of money and I won't be sad if the company gets sued and loses.

But what you can't do is let your eyes off of the local NIMBYism that so often is the root cause of supply issues:

https://bendyimby.com/2024/04/16/the-hearing-and-the-housing...

They want us to believe the problem is the greedy landlords, and not the incompetent, greedy, and entitled politicians.

Every time they "allow" more housing they weigh it down with petty pet requirements.

I think it is a little more complicated. The actual native population in the US is shrinking so demand and thus cost should be shrinking.

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