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'Renters Are Struggling': Economists Back Tenant-Led Push for Federal Rent Control
(www.commondreams.org)
this post was submitted on 06 Aug 2023
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Your own answer from earlier said so: increase supply massively whilst demand stays constant, means prices come down. Fair enough.
Well, if prices come down, margins by definition decrease, because building materials and labour aren't decreasing too.
Ergo, even if zoning restrictions were relaxed massively, and permits handed out quickly and easily, there's no incentive to flood the market like in 2007. This is especially true of big high rise, high density properties, as there usually are only a few companies who can build such buildings (in central London there's like 4), so it makes collusion to keep supply low much easier. Sort of like how OPEC works.
This is not accurate.
This is not how the housing bubble popped. It was demand-side, due to (absurdly) loose credit. Home prices were still rising dramatically in 07 - supply was not keeping up with demand.
Why is it not accurate? House prices come down but cost of materials and labour stay constant or go up, what am I missing?
Also, I feel like we have gotten so far off track so as to forget what exactly we are arguing about.
The original discussion was how to fix the housing market so as to create way more affordable housing. My original argument was the government has to do that, by building houses at a loss, which only the government can do.
Your argument seems to have originally been that the true problem is the zoning and government red tape, but I feel like we have both come to the conclusion that neither of those is true. Firstly, even if zoning isn't a problem, in places like LA and NYC there's no physical space left to build, except vertically. In London, the only new land to build is way outside Zone 5. Furthermore, what incentive is there for private sector builders to flood the market with new supply, either horizontally or vertically? No industry likes it when the price of their product goes down, not a single one, and no industry is going to help that happen.
Finally, building vertically requires way bigger companies to get involved, meaning there are fewer of them, meaning it's easier for them to collude to keep prices high. Building a ranch house out in Wyoming can be done by some local two-bit builder, but a skyscraper in Manhattan would need to be some big multinational. Ergo, even if the only solution is Shanghai style vertical flats, the prices are even more suspectible to collusion by the few big companies able and willing to build them.
Or, like I said, bypass all this bollocks and have the government build loads of houses and sell them at a loss, flood the supply and bring prices down for the altruistic, non-profit motive of getting more people into housing. Done and done.
Materials and labor are relatively static compared to home costs. A 10% rise in housing costs was like another 15-20 grand in most cases, before housing costs exploded, factoring in inflation.
Compare that to the doubling (or more - my home is over 250% of what I paid) of home prices (tied to lot value) and the difference is stark.
Even assuming a dramatic increase in parts/labor of like 50% of those costs and you're barely hitting on the final value, all things considered.
Space is the problem and building vertically (even just 2-4 stories) is the answer.
If it helps, consider that parts and labor are generally 30-50% of home costs (assuming "normal" values) and even a doubling of that cost is less than the growth of home prices.
By far, the biggest cost increase has been lot value.