Build a fifty lane wide highway in the wilds of Montana and it will carry about as many cars as the current freeway.
We see induced demand in highways because the thing highways provide is valued (land for private vehicle operation), but the price charged is almost always far far less, usually zero. So just like a Starbucks that started to offer free coffee, the result is going to be long lines.
If housing was being offered below value, then you would surely see induced demand in housing. Imagine for instance if a govt program committed to offering apartments of unlimited size for $0/month. People would absolutely decide they need a 5000 sqft apartment instead of a 2000 sqft apartment, just as today they decide they need to drive to a store 10 miles away, instead of walking to one around the corner.
There are other factors to consider like transportation and traffic, the quality of life of the inhabitants, business, tourism, future growth, climate resilience and so forth.
This isn’t a let’s cut down a bunch of trees and build a house out of low quality lumber in a week kinda situation.
It took 20 months to build the 380-meter Empire State Building, which is about 6 days per story, and it is not made of low-quality lumber. Nowadays we know how to build taller buildings than that, though it usually takes a little longer; 广州周大福中心 took 6 years to build (75 months) ending in 02016 and has 111 floors in 530 meters, thus requiring about three weeks per floor. Barcelona wouldn't even be able to do the paperwork to build a new building in 6 years.
You might object that skyscrapers are impractically expensive. They can be a bit expensive, but they don't have to be. 广州周大福中心 is half residential, consisting of just over 600 apartments and hotel rooms, so contains space for about 1200 residences, and was built on a budget of US$1.5 billion, about US$1.3 million per residence-equivalent. This is partly because the residences are large; the building's total floor area is 508k square meters, so we're talking about 400 square meters per residence-equivalent. If you'd carved it into 40-square-meter efficiency apartments it would hold 12700 of them and house 25000 people, at a cost of US$120k per apartment. Also, skyscrapers that aren't among the world's tallest buildings are generally cheaper per unit area.
Skyscrapers are not the only way to get high population density, just the least bad way. 广州市 has 2500 people per square kilometer and a per capita GDP of US$23k per year. Manhattan, where the Empire State Building is (but which has lost the ability to build) has 29000 people per square kilometer and a per capita GDP of US$550k per year. Giza has 45000 people per square kilometer, without many skyscrapers, and a per capita GDP of about US$7000 per year (nominal).
Note that 广州周大福中心 occupies a lot of 27k square meters. The hypothetical same-sized building of efficiency apartments would have a population density of a million people per square kilometer, 20 times Giza's and 6 times Imbaba, Giza's densest district. Even the actually existing luxury building has a population density of about 50k per square kilometer, probably denser than Giza.
Barcelona? Barcelona has 15000 people per square kilometer and a per capita GDP of US$103k per year. Barcelona's problem is not that there isn't space for all the people or that greater density would inevitably produce misery.
广州市 = Guangzhou
广州周大福中心 = Guangzhou Chow Tai Fook Center
Edit: and BTW I find it bizarre to use Chinese characters like this on an English language forum without providing an English translation. To most readers here, they're a meaningless string of unfamiliar characters.
((广州市, 广州周大福中心) => 广州市 < 2 ? 1 : 广州市 * 广州周大福中心(广州市 - 1, 广州周大福中心))(10, (广州市, 广州周大福中心) => 广州市 < 2 ? 1 : 广州市 * 广州周大福中心(广州市 - 1, 广州周大福中心))
For better or worse, perl is by default unwilling to parse them as Perl.
"we've tried not building any housing, and we're all out of ideas"
It does. Evidence: no large city in the US, Japan, or the Western Europe managed to lower housing prices long-term by increasing density.
Prices only go down if the city population goes down or stops growing.
Once the population growth returned, the prices went up as well. And no amount of new construction helped: https://www.globalpropertyguide.com/europe/austria/home-pric...
Again, perfectly fits my prediction and contradicts your model.
The idea that people involved in housing are some how uniquely greedy has a long history and it's just wrong.
People who own housing - homeowners & landowners - are able to be more greedy than others because they are part of a cartel. The debate over housing reform & housing supply is about whether or not enforcing that cartel should be a government function.
Can you expand on that claim?
Here is a free textbook that requires no more than highschool math: https://openstax.org/books/principles-economics-3e/pages/3-i...
The "law of supply and demand" is a statement about aggregate, not individual behavior. "supply satifies demand" is not a statement about an inidividual transaction in which a person's desires/needs/wants were satisfied, it is about the aggregate behavior within an economy.
I think of it as an order book where supply is the ask and demand is the bid. You can only argue that supply never meets demand if there's no liquidity, but that doesn't refute the "law".
> For example: more supply can generate more demand. Demand can be inflexible with respect to supply. Supply and demand are unstable and can change unpredictably. In a monopoly situation price can be manipulated. Short term large supply can hamper long term.
Any model that tries to predict human behaviour will be imperfect, we all know that.
There is hardly a monopoly of housing in Spain, if we keep the current disconnection between supply and demand, prices will for sure keep increasing. There is evidence that building more reduces prices. It's not the only condition needed to reduce prices, but it's an important one:
https://commonwealthbeacon.org/housing/study-says-boosting-h... https://www.upjohn.org/research-highlights/new-construction-...
I didn't any suggestion to "disregard" the "law of supply and demand". I saw a suggestion that whatever kind of "law" this is, it is a very different kind of thing than a law of physics, to which a comparison was being made.
> Any model that tries to predict human behaviour will be imperfect, we all know that.
Yet we can rarely even bound the actual scale of the imperfection, so discussing "laws" of economics as if they are in some way similar to the law of gravity seems a little silly.
OK. Can you provide me just one example of a large city that reduced the housing sale prices by building more dense units? Not by crashing its economy or otherwise decreasing the population.
If your model is correct, there should be at least _some_ examples.
> There is evidence that building more reduces prices.
There is none. Your studies are basically nonsense. Here's the strongest result:
> One study cited in her report found that the average new apartment building lowers nearby rents by 5 percent to 7 percent “relative to the trend rent growth otherwise would have followed”
Translation: the prices grew, but we managed to P-hack a small subset of data that shows at least _some_ effect. They could not find actual _decreases_ and had to resort to "would have beens".
There's an overview article (that also contains the links to the study mentioned in your link): https://furmancenter.org/files/Supply_Skepticism_-_Final.pdf - feel free to look for the evidence for the failure of the "just build more".
2019 - 978,763 2020 - 995,484 2021 - 964,177 2022 - 975,418 2023 - 979,882
For the same reason, the SF rents also dropped by 30% during the pandemic.
And if you look at the surrounding Travis County (in TX), the population (and prices) there grew.
It's a very good approximation and there are special cases that it doesn't work. But for a practical human life-scale reality almost all of daily use technology is based on these laws.
Does the supply/demand work in all situations? No, you need to have a at least some resemblance of a free market to let the market forces work.
The reasons we know that this law is working are not only empirical understanding (try selling your laptop on ebay and you'll empirically understand why) but there were at least 2 testing approaches that validated it:
1) Experimental validation via:
- Market simulation: Repeated trading rounds (Chamberlin, Smith) show prices converging to equilibrium when participants learn from prior outcomes. Public price data accelerates this process.
- Policy tests: Lab experiments confirm tax/price controls create predictable shortages (e.g., rent controls reducing housing availability).
2) Modeling approaches:
- Random coefficients logit models: Isolate price-quantity relationships by controlling for unobserved factors like brand loyalty.
- Industry analyses: Cement and airline markets demonstrate markup adjustments aligning with supply-demand predictions under competition.
- Instrumental variables: Cost shifters (e.g., raw material prices) validate causal price-quantity responses.
> It’s weird that people try to explain the world with supply and demand as if everyone else was an idiot who doesn’t understand simple truths about the world, while in reality they are the ones who doesn’t appreciate the complexity of things like urban development.
This is a strange argument. So basically the supply/demand curve works, but there are some consequences if you change the supply. Yes, they are. But if you want to have cheaper housing you will not save it if you don't build more even if there are other negatives from increased supply. And yes, urban development might be complicated, but the basics of "people need to live somewhere" is not. You might get favelas like in Brazil, but if your city grows and you don't build, because the people in the government and landlords get squeeze more profit from the market the problem will not be solved.
Well, up until 2008, that was common wisdom. Post-2008? Anyone still pushing that line won’t get far. In this case, that must be the free part of OP’s nickname speaking, right before the faler kicks in.
What you're describing here is jevon's paradox and it particularly works on unfulfilled markets with high price elasticity. Additionally the field of economics deals a lot of what you're describing in the contexts of monopolies/monopsonies.
But as a general rule of thumb, if something has an inelastic demand (as in housing) the law of supply and demand will always be the guiding concept to explain the shortage and high prices.
In supply and demand, you have these things called "supply curves," and "demand curves." The price is on the x axis, and the volume cleared in the marketplace is on the y axis. Changes in the situation move the curves around.
Aye, there's the rub. Changes in the situation do NOT move the gravity curves around in any scenario where Newtonian physics is a reasonable model to be using. So whatever kind of "law" this "law of supply and demand" actually is, it clearly is not like the laws of physics.
Here’s just a taste. Do please read and if you have a problem with the identification strategies, I would love to hear it.
- https://blocksandlots.com/wp-content/uploads/2020/02/Do-New-... - https://www.dropbox.com/s/oplls6utgf7z6ih/Pennington_JMP.pdf... - https://research.upjohn.org/up_workingpapers/316/ - https://research.upjohn.org/cgi/viewcontent.cgi?article=1325... - https://furmancenter.org/files/Supply_Skepticism_-_Final.pdf - https://www.sciencedirect.com/science/article/pii/S009411902... - http://andreas-mense.de/wp-content/uploads/2020/02/Mense-202...
Seriously, all of the cities are massively overbuilt. More so the smaller ones, but even Shanghai, Beijing, Shenzhen, Chongqing. AirBnB is not allowed. Huge numbers of units sit never used and off market. BTW that's with a SHRINKING population. Overbuild estimate is 50M units (150M people) with some 20M units unfinished. Prices are insane and comparable to NYC/London @ $10k/m2, when incomes are only 30% as high.
Why? Financialization. Yes, property values ONLY started falling WHEN builders stopped completing buildings. They were not places to live, they were investment vehicles. This is just as true in London, Vancouver, NYC, SF, Miami, etc.
A 1 bedroom in the inner ring might go for around $400/mo, and in the outer ring around $200-300/mo. Double those numbers for 2bdrm, and 3-4x those numbers for the inner ring of a T1 like Beijing, Shanghai, Shenzhen, etc.
By American standards, that might be affordable, but median household income in China is around $300-400/mo, and the urban median household income is around $500/mo.
As such, it can be fairly unaffordable, but buyers who were lucky can continue to demand high(ish) rents while coasting on asset value depending on when they acquired property - especially inner ring property.
> A property bubble generally involves asset values rising past what rents support.
Rent is often used as a proxy for spending, but that doesn't necessarily work in China.
In China, because incomes outside of a couple top tier white collar employers remain low, private rents can be fairly inaccessible for the bottom half, so employers such as large factories often provide subsidized dorms/apartments, but these factory cities tend to be isolated and self contained from the larger community.
Furthermore, despite significant reforms, China still has a corruption problem, and the easiest way to convert black money into white money is real estate, so in that situation, asset depreciation is acceptable because it can make previously non fungible black yuan into fungible yuan or USD sellable or mortgagable assets.
This problem has constantly manifested all over Asia, and has tripped various former high flying economies like Malaysia (1990s), Thailand (1990s), India (2010s), Vietnam (present), etc.
Maybe try to research the city of Barcelona, the available space for construction, the process of developing high-rise buildings, and then try to ask yourself what steps need to be taken to build 100k new flats in the city?
Consider the infrastructure, the cost, the timeframe, steps needed to ensure quality, and make sure that it doesn't become unliveable like american downtowns...
Then you could maybe think about what happens when rent prices drop, and whether a decrease in apartment prices that follow would have some effect on the number of mortgage defaults.
Maybe consider the political support you'd need for such a development and how you'd get it from the existing residents?
Finally try to do some napkin math and figure out how quickly these new units would be bought up as vacation houses by the rest of Europe and the rest of Spain moving from smaller towns to the newly available stock in the city. For bonus points you could try to estimate how much new housing was built in Barcelona in the last 20 years.
Maybe that'll help. I'm really not sure what you mean by "identification strategies", but thanks for all your research about just letting developers build denser housing. I'm sure if they just listened to your simple advice, the problem would have been solved long ago. NYC and SF are known for their affordable and high quality rentals.
> You might be simply struggling with some cognitive hurdle here
lol the arrogance is off the scale.
The exception is if everywhere in the country increases in size at the same time. For example, Japan has cheap rent at the most populous city at Earth (Tokyo). But one quarter of the whole country lives there.
If the US had something equivalent, with 80 million people in NYC, and plenty of high-rises and missing middle in every city that is currently mostly single-family-homes, then we could have cheap rents everywhere. But if just one city increases density alone, it seems it will just attract people from elsewhere in the country
I strongly recommend you find a good book and educate yourself. Grasping this stuff is the easiest way to understand the world better than most. It's also a source of lifelong frustration as you see how cluelessly the world is governed...
> For example: more supply can generate more demand. Demand can be inflexible with respect to supply. Supply and demand are unstable and can change unpredictably. In a monopoly situation price can be manipulated. Short term large supply can hamper long term.
Supply and demand do not "break down" in any of your examples. You literally wrote how supply and demand apply in each of your examples. It is simply wrong to say they "break down".
But that doesn't contradict supply and demand. And, for example, if the prices stay the same while both supply and demand increase, that still has a positive side. It means that the city is becoming attractive while still permitting more people to live in it for the same price.
Do they teach this to you guys in school? Many people religiously believe it.
Newtonian physics is a model approximating reality, but it breaks down if you analyze cases that can be safely ignored for many engineering purposes, like traveling at high speeds.
Supply and demand are worse. They’re concepts approximating certain trends in economic outcomes that almost always break down in real world situations.
For example: more supply can generate more demand. Demand can be inflexible with respect to supply. Supply and demand are unstable and can change unpredictably. In a monopoly situation price can be manipulated. Short term large supply can hamper long term.
It’s weird that people try to explain the world with supply and demand as if everyone else was an idiot who doesn’t understand simple truths, while in reality they are the ones who don’t appreciate the complexity of things like urban development.