Still, it mostly comes down to a developer's understanding of the market. We're so housing starved that there's demand at all size levels. Why would they choose the less profitable path?
This is generally caused by strict land use and single family zoning. In a situation where you can build a duplex/triplex/4plex on every single family lot, you can run an excess of housing in the areas that people actually want or need to live in which allows people to compete on other market factors like price.
Laser eye surgery - I wasn't even aware this is a category and there is much to differentiate between service providers on the surgery specifically. Plus, it's another tightly-regulated space, countering natural market tendencies.
Passenger air travel - you must be traveling first-class only to not notice that everything below is bottom-tier and getting noticeably worse every year. Sure, it's more affordable - I don't dispute that - but it's a question of how bad can quality go before it trumps price.
Smartphones, televisions - all examples of what I'm talking about. A huge amount of bottom-tier products, a few high-end flagship products. There's a degree of market segmentation so there's still some middle-tier options, but my impression is, they're rapidly dragged to the bottom.
As specific examples of what I have in mind, most of which I observed personally: everything not regulated about private healthcare; bikes and bike parts; food across the board; manual tools and power tools; clothes; toys; just about every commodity electronics. It's all low-quality noname brands, low-quality fake pseudo-brands, brands tricking people with old reputation, then nothing at mid-tier, then pricey brands that didn't start "capitalizing on their reputation" just yet.
Overall, what I'm saying is that the natural tendency of the market is to optimize offerings to be the cheapest and shittiest the market can bear - and I think this is a problem; there's a mid-point we can't seem to be able to keep in established markets. And in arguments for deregulating housing, I don't see anything addressing this tendency.
That's just because customers want something different. If the law requires 25 MPG and the carmakers can either give you a smaller, slower car that gets 60 MPG or a bigger, faster car that gets 25 MPG, lots of people pick the second one. Then you say they're barely meeting the minimum fuel efficiency but really the customer is the one making the trade off.
> Passenger air travel - you must be traveling first-class only to not notice that everything below is bottom-tier and getting noticeably worse every year. Sure, it's more affordable - I don't dispute that - but it's a question of how bad can quality go before it trumps price.
Air travel is a really weird market because the capital investment is huge but the market is fairly competitive, which is a recipe for bankruptcies. Make a bad prediction about customer demand or future fuel costs and you're not making enough to pay back the bank. Then they have to get creative or go out of business.
They tried price fixing for a while and got in trouble. The current trend seems to be cost cutting so they can lower the price and keep the seats full. It's the same thing as the cars: Customers keep picking the one with the lowest price, so they keep finding ways to lower the price.
> Smartphones, televisions - all examples of what I'm talking about. A huge amount of bottom-tier products, a few high-end flagship products. There's a degree of market segmentation so there's still some middle-tier options, but my impression is, they're rapidly dragged to the bottom.
This, and really most of the rest of your examples, is a result of China's long-term strategy to dominate manufacturing. Which is, use profits from one industry to subsidize another one until it dominates that too.
When they enter an industry their products are crap because they don't know how to do it yet. So no one would buy them. So they subsidize the price until they're cheap enough that people do. In a normal market they'd go out of business, but the government is financing their losses, so they don't.
Which destroys the middle tier products or forces them to slash quality and compete on price, because customers would pay more for them, but not infinitely more. And the low-end junk gets subsidized until it's cheap enough that people choose it.
That doesn't really apply to real estate. Real estate is already heavily tiered by price. If the 20th percentile house in a city is $200k and the 80th percentile house is $800k there will also be plenty of everything in between. It's not like the 20th percentile house is $200k and the 75th percentile house is $210k and the 80th percentile house is $800k.
Meanwhile most of the housing is still going to be the existing housing. If they build luxury housing, affluent people will buy it. If they build tiny studios, price-sensitive people will buy it. In either case you now have those people not bidding against you for the housing that already exists.
You are also under no obligation to wait for them to build something and then take whatever they offer. You can go to a construction company, tell them what you want and have them build it for you. You can get whatever you want -- if the zoning doesn't prohibit it.
https://web.archive.org/web/20201130142349/https://www.reddi...
>Cars are made to be recyclable now.
>Overall, the last 30 years have seen a revolution in automobile design. Better materials, longer reliability, and yes ease in repair.
>My grandfather restores classic cars, and I've been driving for 20 years. My first car was a '73 Volkswagen Beetle and he has Fords from the 50s-70s. I don't think he's even ever been in a car that wasn't a Ford. His daily driver is a F150, and my grandmother's is a Crown Vic-- both of which are a decade old.
>Nowadays, cars are built to survive, and they survive for years longer than cars from the 50s, 60s, or 70s. And once they're done for, they're designed to be easily recycled for reuse in other cars or products.
>Looking under the hood of my Outback, I see that the entire wiring harness has thick plastic coating, ABS plastic weatherproof connectors, and every inch of free-floating wire is wrapped in a wire loom.
>Compare that to a 50s-60s Ford or Chevy, with cloth-wrapped wires and bare metal compression fittings that corroded after six months.
>In my Subaru, the metal is galvanized, and heat/weight sensitive bits on the undercarriage are made out of aluminum.
>In a 50s-60s Chevy or Ford, the metal would have been bare steel, maybe with a coat of paint that would chip and flake off the first time you drove down a gravel road, and the bottom would rust out after the first wet winter.
>The engine in my Outback is 2.5L and outputs about 175 HP. It has gone over 120,000 miles without a single problem. The only maintenance I've done is an oil and air filter changes. It's about 25% over mileage for its timing belt replacement, but I'll get around to that eventually.
>A 50's-60's Ford or Chevy V8 might be around 5L and might put out about 210-250 HP (FACTORY STOCK NON-MUSCLE VERSIONS). It would also require religious maintenance every 2500 miles or so (monthly). Not only that, but after just a couple of years the seals would start going and it would start burning oil like a thirsty camel refilling its hump after a long desert trek.
>People are also replacing their vehicles less often now. Back in my grandfather's day and age, he would get a new car every other year. Now people are keeping their cars for 8-10 years.
>Average Age of Vehicles Reaches Record High, According to Polk [1]
>Back in the 70's, the Honda sedan was REVOLUTIONARY because it would go 30,000 miles without a major problem. Overnight people were introduced to a small, reliable car that wouldn't cost an arm and a leg to maintain. Now it is considered completely pedestrian, unremarkable, average even, for a car to hit 100k with no problems whatsoever. Back in "the day" this was something Mercedes-Benz sent you a metal medallion to affix to your front grille to celebrate.
>That plastic bumper won't rust, won't deform after a brush up against a light post, is easy to recycle, and doesn't need to be welded or riveted into place, just pop out some retaining clips and replace the bumper. Plus, it won't kill someone if you hit them at 15mph, and it will absorb much more impact than the ungalvanized steel plate that used to be used in bumpers and fenders. The old "good" metal bumpers and fenders would transfer near 100% of collision energy to the passenger compartment, and they would start rusting the minute the paint got chipped in the wheel well.
>If you took a "good 'ole" metal car like a Galaxie 500 or Chevelle from back in the day and crashed it at 40mph head-long into a 2012 Toyota Camry, the Camry driver would walk away with scratches and bruises, and the EMTs would be prying the steering column out of the metal car driver's sternum.
Air travel at any quality grade is more affordable. It's true new budget tier offerings with fewer amenities have been created, but that has made air travel vastly more accessible than it once was, so I don't see it as a negative.
Laser eye surgery along with cosmetic procedures are vastly less regulated than the rest of healthcare, and coincidentally, the only areas of medicine where costs have declined for procedures after adjusting for inflation. [2]
Bottom tier smartphones are far more capable than the first generation of smartphones, which was the $800 (inflation adjusted) iPhone.
[1] https://web.archive.org/web/20150309023831/http://press.ihs....
[2] https://www.healthworkscollective.com/wp-content/uploads/201...
Additionally, if you look at historical cheap rentals of the past, you see things like tenement buildings, which were arguably horrible, but provided a cheap alternate to homelessness.
You can also see examples of what low rent places look like today in Asian countries, such as Hong Kong tiny apartments. Many of those types of residences are not allowed by local government policies.
An actual $500 a month rental is going to be really tiny, might have a shared bathroom and kitchen with other units. And these are all things that are often disallowed by government policies.
With 13 years of inflation, that'd be $850/month. That apartment now goes for over $1200/month (Almost certainly hasn't been renovated). [1]
The issue is oligopolies. Few large businesses that own the majority of available rentals and thus can set prices to whatever they like to rake in the profits.
And the way you can tell it's not government policy driving up prices is this trend has been seen across states. There's no federal zoning laws, so why would everywhere from California to Idaho see the same drastic spikes in home prices? Why are existing units that have existed since at least 2010 (and I believe back to 2005) commanding $400 premiums over what inflation would dictate? Do you think back in 2010 they were losing money renting to me?
[1] https://www.camdenliving.com/apartments/irving-tx/camden-val...
If rent has gone up faster than inflation it just means that demand has increased or supply has decreased in that time.
You can build apartments for ~$250 per sqft. The issue is that local governments make it really hard to build more apartments. If you disagree I implore you to go get a construction loan, build some housing, and rent it out.
Arguments that boil down to "government policy" can basically be translated to "big companies policies". Whether it's through illegal or legal bribing (lobbying), it's what we see after decades of influence.
Those retired agents and teachers have exactly zero influence on local and state politicians.
Those big companies who host fund raising dinners at the CEOs mansions and contribute millions? Yes, a lot of influence. To the point where we've seen plenty legislative bills which turn out to be just cut & paste from what some corporate sponsor wrote.
It is actually the local voters who decide who governs the town. But when residency in the town requires you to own a house, the existing residents vote for people who make housing prices go up.
There is no such place in the USA. Residency means you live there, which you can do also by renting a place. Then you get to vote on all local elections.
Not quite. Landlords have the ability to fake demand in order to raise prices. One of the ways they do so is by leaving units intentionally empty (as they've done in NYC), which artificially restrains supply and allows them to raise prices on the units they own much higher than they'd normally be if they were releasing all units to the public. They can do this because these large apartment units are all owned by a small number of companies.
That kind of thing only makes sense if the city is imposing some kind of rent control or similar so they can't rent them out for the market rate and start getting weird incentives for rich people accounting chicanery.
Keep in mind the majority of the value is in the property too, not the amount made from rent. They can effectively sit on the property and still grow value, then withhold apartments in order to either force legislative changes or force rent to go up. The loss of value from leaving those apartments empty is less than the gain in value from being able to raise rent, which results in perverse incentives.
Sufficient supply is not being added to meet demand -- that's why prices keep going up.
> For example, NYC's population has remained relatively static or even gone down, but the rent prices sharply go up, far more than inflation.
NYC's population grows by about 0.3% every year:
https://www.macrotrends.net/cities/23083/new-york-city/popul...
COVID was an outlier for the obvious reason, during which it dropped by <0.1%/year, and is already back up to the high water mark.
Meanwhile the city has added less than that amount of net housing with the obvious result.
The housing market is also in a very weird state right now, because the fed raised interest rates, which long-term lowers housing prices by making it harder to borrow for a mortgage. But because the lesson people took from 2008 was to get a fixed-rate mortgage, now most existing owners have below-market mortgage rates and can't move without taking out a new mortgage at the higher rate, so they stay put, which means there is no inventory on the market and anyone trying to buy has to be desperate enough to outbid anyone else for the scarce inventory. But that can't last forever because eventually people will either be forced to move for any of the usual reasons or will have paid off enough of their existing mortgage for this to be less relevant -- or interest rates will go back down. Which, counter-intuitively, could actually lower housing prices by increasing inventory, especially because by then there would be pent-up demand for sellers to be able to move.
There is also some uncertainty in the stock market -- it had pretty much been on a bull run since right after the crash in 2008 until COVID but post-COVID has been a rollercoaster -- so you have a lot of investors looking to diversify and buying up real estate. Which they might be stupid to do because housing prices are crazy -- look at this graph and realize that 2007 was a massive housing bubble:
https://fred.stlouisfed.org/graph/?g=kYEb
> Keep in mind the majority of the value is in the property too, not the amount made from rent.
They still get that whether they rent it out or not. It's like saying well, I could get a 9% return from this investment, but if I refuse to rent it out then I'd still get a 5% return, so let me do that and set the rest of this money on fire for no personal benefit.
> then withhold apartments in order to either force legislative changes or force rent to go up.
But this is the part that makes no sense. To be profitable, you not renting out a subset of your units would have to make the rents on the other units (i.e. rents city-wide) go up by more than the entire amount of the rent on the units you withheld. How are they going to do that? The largest real estate investor in NYC owns far less than 1% of the real estate.
For that to make sense would require some enormous disadvantage to actually renting out those units, like rent control or laws that make it hard to evict destructive or non-paying tenants. Because that would make renting the units a significant risk to your investment, since a buyer wouldn't pay full price for a building full of tenants paying below-market rent or trashing the building who can't be removed.
But then the cause of the rent-increasing behavior is the inept laws that increase the cost of providing rental units by so much that it's not even profitable to do it when they're already built, and the solution is to remove the laws creating the perverse incentives.
Self-serving politicians like to take offense when investors respond in predictable ways to toxic laws, but umbrage doesn't lower the rent.
Like I get the feeling you don't rent. When I was living in Austin, my apartment rent shot up over 30%, in an area on the outskirts of Austin near nothing. It's nice to think that this problem could be solved by simply dumping supply on the market, but even in areas where that's being done or where there isn't significant demand rent is skyrocketing. And even when supply is dropped, it's bought up by said large corporations and investment groups that price fix it anyways.
It's occurring throughout the entire US regardless of local laws, though some areas are gouged even further. We know large landlords collude on this sort of thing to the point there's an actual term for it called warehousing [1]
[1] https://www.fox5ny.com/news/nyc-warehousing-empty-apartments
Austin's population has been increasing by ~4% annually for decades, which is high. Construction responds to that but it has a lead time. And Austin has zoning restrictions, but notice that it also has lower rents than cities that have more.
> It's nice to think that this problem could be solved by simply dumping supply on the market, but even in areas where that's being done or where there isn't significant demand rent is skyrocketing.
Can you name any US city where the amount of net housing growth exceeded the amount of population growth over the last 30 years?
> And even when supply is dropped, it's bought up by said large corporations and investment groups that price fix it anyways.
Most of them are buying it to rent it out, which adds supply to the market. The problem, regardless of who the buyer is, is that they're not building enough pretty much anywhere.
> "They're sort of not advertising their full inventory," Walkup said, "simply because they don't want to overwhelm the idea of what the supply currently is."
That's something else entirely -- they have a bunch of empty apartments and they wait to put some on the market until they fill the others, because why pay to advertise multiple units when they're all about the same? They're effectively all still on the market because as soon as anyone actually rents one they start advertising another one.
What you should be asking is, why don't they lower the prices some so they can rent them all out quickly and get some rent instead of none?
But that is the bad laws. If there is a short-term reduction in demand for urban apartments because of COVID, normally the incentive would be to lower the rents to whatever it takes to fill the units and then raise it again if the demand recovers. But if you have rent control or similar, once they rent it out they'd be stuck getting the short-term lower prices for decades to come, so they'd rather stick it out until they can find a tenant at a higher price.
Get rid of the bad laws and that incentive goes away.
But you still need to allow more housing to be built, because otherwise the rents would go back up as soon as COVID is over and people start moving back into cities.
Urban landlords don't have any kind of market power outside of control over zoning boards -- there are too many of them and none of them own a high enough proportion of the units to make a dent. Which is why they capture zoning boards to prevent supply from increasing to satisfy demand.
The 2 bedroom apartment I rented in college (ended around 2013/2014) was $719/mo. It is now $1699/mo.
It wasn't exactly in a nice area, either. Recently the news caught a story about somebody's drug dealer setting off fireworks in his apartment, which I suppose is pretty exciting if not in the worst ways.
Even if it's true that a few large businesses own most rentals, that kind of oligopolistic behavior should be undercut by new people entering the market by building more apartments - unless there's a big barrier to entry, like the difficulty in building things when there's restrictive zoning!
> There's no federal zoning laws, so why would everywhere from California to Idaho see the same drastic spikes in home prices?
The incentives that produce NIMBYs - wanting to keep supply low so that housing prices stay high, and not wanting to deal with any of the annoyances of increased density - are the same everywhere.
> Why are existing units that have existed since at least 2010 (and I believe back to 2005) commanding $400 premiums over what inflation would dictate? Do you think back in 2010 they were losing money renting to me?
No, but now there are more people who want to live there and they haven't built enough housing to keep up, so the bidding is more intense.
You're missing the forest for the trees here. The 'new people' entering the market sell the apartments and buildings they create to the big businesses in question. I've lived in apartments for my entire life, eventually they all get acquired by Greystar. Even the smaller ones.
If it costs twice as much to build a residential structure as it did 10 years ago, then rent will cost twice as much. There's no conspiracy, it's not Blackrock buying up all the houses, it's not the greedy politicians. It's caused by government spending beyond its means, expansion of the monetary supply, and the increased regulations that create more risk for investors and causes prices to go up.
I think the bigger problem is that land value is insanely high in The Netherlands right now, but there's probably a truth in the middle as well. Land costs might be lower in the US, but maybe not closer to metropolitan centers?
Lot size and location will matter but now they put houses right next to each other now.
Townhomes with shared walls are even cheaper!
Builders will also complain about inspections though since time is money… but if you don’t have them they will take shortcuts.
Some cities, like Seattle, go so far as to set an explicit minimum apartment size. It's obviously going to be challenging to build a brand new $500/mo apartment if it cannot be less than 500 sqft.
All that said, looking few brand new cheap apartments is generally the wrong approach. There's a whole filtering process of older apartments that's supposed to assure that. Similarly, nobody expects brand new cars to be price-competitive with fifteen year old Honda Civics.
Compare this to places in the Bay Area, where it's not practical to spread out any farther (no good public transport because of a dozen or more transit agencies that are always fighting and Caltrain, which is a hugely dysfunctional organization that can't even run trains at a piddling frequency). We have houses being blocked using CEQA and other nonsense, all because people who work in unproductive industries or not at all (non-tech, retirees) have decided to get more than their share by denying permits for new construction.
What's better? Some housing being built or none at all?
Yup
> What's better? Some housing being built or none at all?
Loads of housing is getting built but what we've not seen is subsequent drops in housing prices (the opposite in fact). This speaks to problems beyond a housing shortage.
Who knows, maybe in 10 years that will reverse and the market will correct back to pre-pandemic levels. Doesn't look like it, however.
Googling around it looks like the population of Idaho has gone from around 1 million in 1990 to around 2.2 million today.
Total housing starts from 1988 to today are around 400k (https://fred.stlouisfed.org/series/IDBPPRIVSA). So assuming that Idaho had "enough" housing in 1988, they've only built 1 unit of housing for every 3 new residents since 1990.
This doesn't seem like loads of housing to me.
Just in the past 2-3 years started to build as many homes as we need but the rate will take 15-20 years to catch up assuming it stays at the current rate.
Basically if you're 40 now you will be 60 by the time it's okay again and that's if we even keep the current build rate for that long.
No it doesn't. The only thing that would indicate a problem beyond a shortage would be if total supply was greater than and increasing greater than total demand. Building "loads" doesn't bear any of that data.
Read more.
The realistic path is that apartments become $500 apartments late in life cycle. It's extremely rare to build low-end housing, but not so unreasonable for units to filter down-market over time when new construction provides adequate supply at the upper end of the market. The logic of updating vs. repairing changes when new housing is a regular occurrence.
> “We have kept our rent increases to about 1% whereas the rest of the country was looking at 31%,” Mayor Jacob Frey said on Monday, citing data from The Pew Charitable Trusts.
> “That’s a drastic difference. And in part, it’s due to the policies that we’ve passed.”
> It’s mostly simple supply and demand, according to Mayor Frey. An explosion of housing, made possible by eliminating single-family zoning requirements, has kept prices down.
https://kstp.com/kstp-news/top-news/rising-rent-costs-slow-d...
The neighborhood I live in has six-ten unit apartments on the same streets as six-to-ten bedroom mansions. In some places, you can see where the owner of the mansion had an apartment building constructed in their front yard.
I could never imagine this happening today. Yet everyone in the region knows of this neighborhood as being prestigious, with the best schools in the state, huge sidewalks that are packed with people, and a nice little downtown with a coffee shop, dairy whip, a public library branch, and some restaurants.
People have no problem recognizing what a great neighborhood looks like. But for some reason, local politicians can't seem to enact zoning laws that allow them to be built in modern times.
People show up at the city council meeting and scream at them that the construction will destroy the neighborhood.
I think it's fair to say they've made progress in slowing the growth of the housing problem, but it is a big stretch to say they don't have a housing affordability problem.
Get most cities to do what they did and you get less of this net migration and housing becomes more affordable everywhere.
Some of this also takes time. You let people build, they start to build, that doesn't mean they've stopped yet.
> In his budget address last week, the Mayor recommended $18 million in the city’s budget for 2024 go into new affordable housing and another $5 million in ongoing funding for building and maintaining going forward.
> Statewide, the legislature invested more than a billion dollars to the cause. Exactly how far that’ll all go remains to be seen.
This is not due to a change to zoning laws — the construction is dependent on substantial public funding. As you’ve demonstrated it is “bigger government” that is the solution to this problem.
Basically all of them? All you need is minimum parking + a height limit. Since the ROI of the lot is a function of units *average price, and a height limit + parkinng requirements caps the # of units per lot, the average price has to be higher for it to make sense to an investor.
Also it’s worth noting that supply is just incredibly constrained vs demand in every major American city. Anything to help the supply side decreases housing costs across the board, even if it’s luxury housing.
China built too much (due to certain regulations being too lax it seems, and corruption probably).
https://www.reuters.com/world/china/even-chinas-14-bln-popul...
But I wonder/think that in the past infill targeting $500 apartments would be an older house that gets subdivided. Like all those brownstones in NYC that were turned into SRO, or the mansions in Pittsburgh that were chopped into four-plexes, etc.
Look at the inputs to construction, there's no difference between low end and high end. Everything has to meet building code up to an extremely high standard due to modern building regulations. New laws mandate things like low-e glass, tougher insulation codes, solar panels (California requires them on new builds now), seismic, radon mitigation, AFCI, firewall requirements, etc. The average 50 to 100-year-old apartment has none of those things, and it would be illegal to build such a thing today.
At least in the UK, it's because there's pushback against perceived "luxury" flats being built rather than affordable places. That luxury flats are still 2-bedroom 600sqft starter homes doesn't really come into it, it's the class of people each is perceived to be for.
So local governments block mid-and-high end housing in favour of fewer, worse, cheaper homes instead.
Bans on single room occupancy: https://en.wikipedia.org/wiki/Single_room_occupancy
Requirements for parking spots. Parking spaces are not free to construct or to maintain.
Requirements for windows.
And no, of course I don’t wish to live in a windowless single-room apartment without a kitchen, private bathroom or space for my car. But were I broke, I would rather live in that than pay money I don’t have for a nicer place.
> The reason there's not a $500 apartments being built is because by expanding the residence out just a tiny bit you can charge $2000 for the same space that 2 $500 apartments would occupy.
I understand that the typical pattern is that new construction is luxury, and over time those units wear down and become more and more affordable. Adding new $2,000 units to the market reduces the value of existing units.
https://www.nytimes.com/2023/09/11/opinion/editorials/tokyo-...
https://resources.realestate.co.jp/rent/tokyo-budget-apartme...
Whats their secret? Sane zoning laws created at the federal level that separate industrial use from residential, but don't segregate humans based on race or class.
If only people could point that out in the US without being accused of racism.
I just don't buy this argument. The reason there's not a $500 apartments being built is because by expanding the residence out just a tiny bit you can charge $2000 for the same space that 2 $500 apartments would occupy.
I'm seeing this play out where I live that has practically no zoning laws or regulations (LOTS of building in unincorporated land). There's almost no $500 housing going in but a lot of new luxery apartments.
Boise ID, for reference.