A well-researched video that explains why some dense urban areas are quite expensive.
TL;DW: Despite a substantial historic housing stock, our most expensive cities have built very little housing in recent years, leading to very low vacancy rates and high prices. Ramping up housing construction will be a necessary part of solving the affordability crisis.
First mover advantage works against new housing too.
Like, you as a small retail consumer in your twenties, move to a place that you really can’t afford. You find a way to buy a condo/house/apartment and tie up 90% of your net worth and expenses to that new place. You scrap by on other expenses like transportation and food and clothing, but you find a way to make it work.
Because of supply and demand and no new places being built, the price of your place increases 3x in the next decade even though you didn’t do anything to improve it.
Your net worth increased almost that much (depending on how much you paid down towards principal) and now you can leverage that “home valuation” to borrow against and buy more things. Maybe even use it for a down payment on another condo. But you are going to do it because you are in your 30’s now and tired of living the simple life of a pauper. You need things. You need cash flow. You DESERVE it.
Now you, a small retail consumer, are aligned with big real estate because you don’t want new housing to come in and drive down the net worth that you borrowed against to live a better life. So you would be more susceptible to voting against housing density projects, and you would be outspoken about keeping the “charm” and “character” of your quaint little neighborhood.
Rinse and repeat for 75 years and this is the result.
It still irks me how there is incentives for private companies to build dense, but they literally cannot since zoning laws make it illegal. Like, how often are the incentives of corps aligned with the public?
Not often. I think in general they are not that aligned, it’s just that overly restrictive zoning and other bad policies have created such a severe crisis that the free market solution, which in a better society we might spend more time critiquing, has become dramatically superior to the status quo.
I think long-run we should still develop better systems to build and distribute housing according to the needs of the community as a whole instead of private investors and the wealthy, but those systems today are virtually non-existent, and they take time to build. Today, people are literally dying on the streets because housing is too expensive. I think it’s harmful to be too ideologically purist about solutions in the midst of such a serious crisis.
I totally agree with you. I’m simply astonished that we’re in this situation at all.
@LibertyLizard I just feel like this video is going to misinterpret so many things about reality.
I’m curious as to why you think this video is “well-researched”. Because it throws a lot of statistics of dubious relelvance on the screen?
Did you watch it? I don’t know if it’s just awkward phrasing but your comment makes it seem like you didn’t. If so, I think your concerns and questions will be best answered by watching.
There is a lot of delving into housing data in the video, which I found relevant and convincing but feel free to form your own opinions or post a more substantial critique if you wish to.
@LibertyLizard I did watch it. Like most videos of its type, it throws up a bunch of relevant-seeming statistics uncritically. You cannot make a bare comparison of rents between cities with wildly differing income structures and land values.
Did the author not wonder why Philadelphia and Pittsburgh are so low on the list, despite being highly desireable places to live?
It’s obvious that prices are controlled by a multiplicity of factors, not all of which can be covered in a short video. However, I found the complete lack of high-COL, high-construction cities to be quite convincing. This suggests that housing supply is so important that it’s very rare for prices to rise so high when supply is high, even despite these other factors. It’s not necessary to discuss every factor to demonstrate that one factor is a very important one. Why do you think this analysis is uncritical?
As far as Pittsburgh and Philadelphia I don’t think there is any real mystery—they simply aren’t considered as desirable as New York, SF, or LA by most people. They’re not quite Detroit but you don’t have thousands of people moving across the country to these cities—or wishing they could afford to.
Honestly, we know from every other category of good that scarcity causes prices to rise. It shouldn’t be terribly surprising that, despite some additional complexities, the housing market works the same way.
