It does because the poor people move into the housing that the upper middle class vacated. Population growth is an independent confounding factor. In other words, housing cost can still go up due to population growth but they would go up less if the new luxury housing is built.
> You need to build new homes at every pricing level
But you can't. You have high fixed costs like land, hook ups to the city utilities, architect work, plumbing, electrical, permits, and HVAC. These are pretty much the same regardless of how big of a house you build. The stuff that varies directly with size like dry wall, paint, framing, flooring, etc. doesn't cost that much. And even then the more you do at one time the cheaper it gets. In other words, hanging the last section of drywall costs a lot less than hanging the first one because you incur all of the over head to hang that first sheet.
The end result is that you can't build a new house that a poor person can afford. They probably can't even afford the fixed costs. Even if you could, it wouldn't be economically viable. You're way better off spending the ~10% more to get a upper middle class house that you can sell for 50-100% more. It's still good for affordability because you've increase supply. Everybody takes one step up the ladder and the benefit will trickle down to the poor.
That only works if the system is closed. If housing in the bay area goes down in price, you get people moving in from New York, LA, Boston, Austin, etc who previously avoided the area due to costs. Do you just ship off those poor people to those vacated homes hundred or thousands of miles away?
>Population growth is an independent confounding factor. In other words, housing cost can still go up due to population growth but they would go up less if the new luxury housing is built.
This is of course true. The question is just will building new luxury housing increase population growth to an extent that swallows the whole price break before it ever flows down to the bottom of the market?
>But you can't. You have high fixed costs like land, hook ups to the city utilities, architect work, plumbing, electrical, permits, and HVAC.
The reason housing in the bay area is so high has nothing to do with fixed material costs or else housing everywhere would be that astronomical. The reason housing is so high is because demand is high and the supply of land is limited. Land is the primary costs. You fight that by building vertically. The higher the building, the lower the marginal cost of land for each unit and therefore things become more affordable. But like I said in my first post, this doesn't happen if everything is left up to the market because it isn't the way to be most profitable, so the government would need to be involved to incentivize this.
Yes, and the other direction too, if NYC dropped hugely in price probably a lot of people would move from SF. If a city manages to solve its housing problem in some enormous way some of the benefit would go to other cities.
The reverse is true too, SF building nowhere near enough will cause people to move away and drive up housing prices in other places like Austin. This sounds more like the reality today.
It's a real effect, but it seems like the best action for people who need housing is still to build more.
The main thing is does luxury housing act like a totally separate market. For example, if no affordable luxury 2bd apartments are available, will a software engineer move to Boston from SF instead of settling for an ordinary 2bd apartment. I'd expect the majority of the time high-income people who can't afford luxury apartments simply displace middle-income people in ordinary apartments rather than move cities, but I don't have hard data on it.
If that were true the bay area would have been empty long ago because of the ridiculous housing cost. Fact is most people won't change cities for lower housing cost.
>The reason housing in the bay area is so high has nothing to do with fixed material costs or else housing everywhere would be that astronomical. The reason housing is so high is because demand is high and the supply of land is limited. Land is the primary costs. You fight that by building vertically. The higher the building, the lower the marginal cost of land for each unit and therefore things become more affordable. But like I said in my first post, this doesn't happen if everything is left up to the market because it isn't the way to be most profitable, so the government would need to be involved to incentivize this.
Developers are putting 5 on 1 buildings every where they possibly can because it's the most economically efficient use of the land. They can't in the bay area because of zoning restrictions. Remove the zoning restrictions and you'd see skyrocketing density.
Do you genuinely think that housing costs don't factor into which cities people choose to live? I'm not sure this conversation can go anywhere beneficial if we can't agree on that fundamental and in my opinion obvious fact.
There is a ton of pent-up demand in the bay area, because this has been going on for a long time. People who own houses there are going to fight you the whole way.
Developers will build as long as it seems profitable to do so. Presumably this means that when the prices do go down, a few projects will end up in the red when they're done.
The problem is that housing in any location is not a closed system with fixed demand. It is an open system in which increased supply can generate increased demand.
When you build that housing for upper middle class and up, they vacate their homes, the price of their old homes goes down, then upper middle class and up people who previously decided to live in a cheaper area over paying the extreme rent costs move in, the population grows, and the price break never fully flows down market to the poor people in the city. This is why the market approach to building more housing isn't going to solve the whole problem. You need to build new homes at every pricing level and the market generally doesn't do that without the government incentivizing them.