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Comment by acd | Hacker News Reader

While zoning restrictions can limit housing supply, the dramatic house price increases observed globally are better explained by monetary policy, particularly historically low interest rates. This is evidenced by simultaneous price increases across jurisdictions with vastly different zoning laws. When interest rates fell to historic lows, monthly mortgage payments became more affordable, leading to increased buying power and competition across all markets - even those with flexible zoning. The rapid price changes following interest rate shifts, compared to the gradual effect of zoning policies, demonstrates that monetary policy is the dominant factor in recent price trends.

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> evidenced by simultaneous price increases across jurisdictions with vastly different zoning laws

“Only in particular areas, especially New York City and California, do housing prices diverge substantially from the costs of new construction. The bulk of the evidence examined indicates that zoning and other land use controls are responsible for prices in high cost areas of the country” [1].

Inflation has raised construction costs; climate change the cost of homeownership. Beyond that, it’s almost all zoning.

> rapid price changes following interest rate shifts

Prices didn’t fall when the Fed spiked rates. The monetary-first hypothesis for housing requires epicycles to gain explanatory power over zoning.

Our housing crisis is a political choice.

[1] https://realestate.wharton.upenn.edu/working-papers/the-impa...

Prices didn’t fall as much as a simple model would predict, but sales volume fell a lot. IMO, that was driven by sellers withdrawing from the market, because they weren’t willing (or perhaps able) to sell for what buyers were able to qualify for mortgages to pay.

https://tradingeconomics.com/united-states/existing-home-sal...

There is also a zoning and policy effect, of course, but it’s a mistake to think that mortgage rates do not inversely influence transaction prices.

> Prices didn’t fall as much as a simple model would predict, but sales volume fell a lot

Sure. Anyone running a pricing model and not considering refinancing costs for marginal sellers—and financing costs for marginal buyers—isn’t describing reality. (Refinancing dynamics are heavily studied.)

> also a zoning and policy effect, of course, but it’s a mistake to think that mortgage rates do not inversely influence transaction prices

Nobody said they don’t. Just that the effect isn’t meaningful compared to zoning. The monetary hypothesis seems predicated on the effects of rates on home prices being symmetric, i.e. if low rates caused prices to go up, by enabling buyers to borrow more quickly than builders could borrow and build, high rates should do the inverse. But symmetry isn’t required in economics, e.g. wage stickiness.

There are a bunch of reasons why monetary policy didn’t flow through to pricing. We can debate that fruitfully. What shouldn’t be debated is that it hasn’t. Raising rates won’t fix this problem because it hasn’t. Fixing zoning will. (Do we even have an example from abroad of a housing crisis being fixed with monetary policy? Versus directly manipulating supply and/or demand?)

Construction cost may be a poisoned data source, does it take into account real estate purchasing costs? Or do individuals only build when they can afford a home at a price point greater than the 75th percentile home price in metros?

If you look at other countries you see that unsustainable housing price increases are happening everywhere. So yeah your local assholes at the permit and planning department are probably a symptom of the deeper finance driven problem.

We got rid of capital controls and stopped putting limits on what fiat money loans could be used for and a global housing shortage is the result. 50 years ago you couldn't directly borrow from the fed to invest London commercial real estate. More like you could borrow money from a local bank to build an apartment complex in the same city the bank was located in. And if you wanted to build an apartment complex in a different state you'd need to use a different bank.

Without the zoning restrictions monetary policy would have a negligible effect. In the 80s interest rates were 15%+ but there was far less restrictive zoning and housing was incredibly cheap. Unrestricted was the default and zoning was loosely defined where it existed at all. The permitting and inspection process was minimal or even non-existent. The 90s were the decade of extreme NIMBYISM, zoning everywhere and arduous inspection processes.

> In the 80s ... Unrestricted was the default and zoning was loosely defined where it existed at all.

Umm, pardon? Zoning was well-defined by the 1980s. A lot of post-war development was deliberately zoned single-family detached housing, for example.

The suburban and exurban sprawl in the 80s was driven by developers chasing unrestricted zoning. Sure zoning was defined in metro areas but there was a ton of cheap housing available and a major development boom in the areas that allowed it.

Now even very rural and remote places will in many cases have restrictive zoning and arduous permitting processes.

If house prices are nominally higher, but I can get money more cheaply, that doesn't seem like it would have much effect on the price I pay in terms of hours worked.

> This is evidenced by simultaneous price increases across jurisdictions with vastly different zoning laws.

The rate is not the same.

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