Building Luxury condos does create affordable housing. Where do you think those people move from? interesting thought from this link: If you destroy 10,000 luxury condo's in Toronto tomorrow, will your prices go down?
affordable housing is a pretty loaded phrase at this point. In fact it has come to just mean government-subsidized housing. So by that definition you are probably correct, people aren't often moving from housing projects to brand new condos. Nobody is saying that they do.
luxury condos is also a loaded phrase. In an expensive city, all housing is expensive, even if it is 50 years old and used to house working class people. So-called "luxury housing" is just regular-sized new apartments, with a few thousand dollars of added perks like sleek recessed lighting and upgraded appliances to help sell it.
If you take out those loaded phrases, people are absolutely moving from existing, mid-tier market rate housing into only slighty more expensive new construction market rate housing. The more new construction housing you build, the more supply you have, and the more prices come down. Which allows market-rate housing to become affordable to more of the population. That was the case 10-15 years ago, and could be true again in the future if we just let people build enough housing to match the incoming demand of new residents moving into cities.
Landlords charge more because people are still showing up to the open-house to rent. So of course they would increase rent. What you're describing is supply and demand. We lack supply. You can be sure the rent would go lower if nobody was at the door asking to rent their place. In fact, that's exactly what's happening right now with rent price in Toronto. Immigration is slowed, airbnbs visitors are gone and supply is up. Price are going down.
Of course it's a universal right. I don't think there's an idealogical gap between us on that front.
The other side of the "or" is a particularly egregious example of the excluded middle (separate from the missing middle housing shortage). The idealogical gap, if anything, seems to stem from willingness to believe that supply and demand affect housing affordability. I believe they do. The "regulations making housing artificially scarce" are exactly those inhibiting supply.
To that point and your question---of course landlords will always raise rent to the extent that the law allows it and the market will bear it.
Typically, migrant tech workers who came from somewhere else.
In the rest of the world that is not San Francisco, there is, in fact, an unprecedented rate of construction of new properties. Seattle has more active cranes building than anywhere else in North America. The Vancouver skyline changes year-over-year as 30-story condos spring up like mushrooms around SkyTrain stations. Toronto is building and densifying at breakneck speed.
And yet, rent in each of these locations is sky-high, squeezing the lower classes.
Could construction be faster? Sure. Would the problem be worse if there was no construction? Probably. Is construction fixing the issue? Hell, no, it's not. Not even close.
The law of gravity is actually not super simple. Relativistic gravity is an incredibly difficult and complex concept to understand, and the Newtonian law of gravity is simply wrong, enough that it has big impacts on the real world.
Whereas the law of supply and demand is not only preceded by a lot of assumptions that never are true in practice, and even with all those assumptions still has serious exceptions that apply to more and more and more goods as you move from theory to practice.
The laws of supply and demand are simply not useful for analyzing this market. Any attempt to use them will have to be accompanied by more classical incentive analysis and experiments that mean that ignoring it will give you better results than relying on it in this situation. Attempting to apply it gives you ridiculous conclusions, like that demand for housing is increasing everywhere in the world at the same time faster than supply, even when in practice supply is often greater than demand, leading to empty buildings, while prices still rise.
> Relativistic gravity is an incredibly difficult and complex concept to understand
You're right, but the underlying rules are simple.
> leading to empty buildings, while prices still rise
That's still supply & demand. In this case, it is likely that the demand is rising fast enough that delaying renting the building will result in higher rents in the future for that building.
It's a chaotic system, and I mean that in the mathematical sense, where simple rules lead to complex (and counter-intuitive) behaviors.
No, the rules for Einsteinian gravity are not simple. Absolutely not. The underlying rules are not simple either. Simply calculating the instantaneous change in trajectory of an idealized two body system under Einsteinian gravity is an ordeal, and idealized bodies are a lot less useful under Einsteinian gravity than under Newtonian gravity.
I agree, it is indeed a chaotic system, and is even worse than that because there is no simple rule any agent is following.
If it is the case that not renting a building will result in higher revenue because rents will be higher in the future, then that building will not be rented out and neither will similar buildings, which will continue increasing rent at increasing speeds; and at the end rent will increase towards infinity. The simpler explanation is that no, not renting a unit does not lead to higher revenue, as leases are at most YoY, the YoY increase in rent would have to be over 50% for this to make sense, which isn't the case, and in fact actors in the market simply do not act as one can accept in any way, which is why you can't use supply and demand, or any basic economics for that matter.
For rent, for instance, you could have supply completely equal or even significantly higher than demand, as in there are significantly more buildings than tenants and more empty buildings that tenants looking for landlords, and still see prices increase. Indeed, if the landlords are coordinated or if they know that their tenants will not act rationally in the economic sense, you can simply have a system where all landlords continuously increase rent every year. And there is nothing that any tenant can do, so they have to pay increasing amounts of rent every year. In such a system, because commodities are not perfectly fungible, because actors are very far from fully rational, because knowledge from every actor is imperfect and because there are hidden costs both monetary and non-monetary, you can have a system where supply is higher than demand, and yet prices rise. No matter how you dice it, no matter which definition of supply and demand you use, the laws of supply and demand aren't being followed. Rental markets tend to follow this pattern, in even more complex ways with other effects that lead to supply and demand breaking down even more.
This is why trying to use macro-economic laws such as supply and demand without carefully going through each assumption behind them is a very dangerous mistake.
They are. By the principle of equivalence, it is just mapping the Lorentz frame onto curved spacetime.
pg. 386, "Gravitation", Misner
> actors in the market simply do not act as one can accept in any way
If other actors are acting irrationally, others can make money off of them. There are always smart people looking to make money off of irrational people, to the latters' detriment. Hence it is self-correcting.
> knowledge from every actor is imperfect
Imperfect knowledge is a common reason given for free markets not working. This is not true at all - another word for "imperfect knowledge" is "risk", and risk is certainly priced in everywhere.
> not perfectly fungible
Another word for this is "friction" and it is priced in to supply & demand, it is not separate from it.
> no matter which definition of supply and demand
I prefer not to make up my own definitions of terms in order to win an argument. I'll stick with the standard one.
> the laws of supply and demand aren't being followed
Your preconditions are incorrect, and hence your conclusion isn't, either.
Seems off to call someone’s reply unsubstantial when their very argument is that a simple model is sufficient.
Of course developers are going to build high-margin housing. But why is it high margin? Because there is high demand and low supply. “Luxury” housing is only marginally more expensive to build than “affordable” housing. The expensive parts of development are the land, labor, and construction materials, not the light fixtures, appliances, and flooring. Shouldn’t we be celebrating that developers are building a much better product then they could be if they cut a few corners?
To the second point, developers are not in collusion to keep supply down, and the suggestion is absurd on the face of it. They are developers. They make money by increasing supply. The more they develop, the faster they develop, the more money they make. Developers generally sell properties once they finish them and move on, because they are not in the business of property management. Maybe there’s a non-absurd argument to be made that property management companies are in collusion to keep supply down, but they aren’t. Aside from the fact that it’s illegal, it would be impossible. There are too many of them and the market is too fragmented for a cartel to form, and defecting is too easy.
Developers normally borrow money to finance the development. That means they have major incentives to sell as fast as possible. Savvy buyers know this and can work that to get a better price.
Or, just maybe, the situation is a bit more complex than that, and demand as well as supply are stratified as well as other ancillary effects affecting prices beyond that?
Or are we just going to pretend that the world works just like an economics 101 textbook and close our eyes to the real problems instead?
Just take a look at the housing market in any city with high demand, you won't see very much delta for a given size unit. In LA, the shittiest 1 bedroom apartment with cigarette burns in the carpet and a view of the freeway is only maybe 10% cheaper than new construction. Engineers working for Google in playa del ray are directly competing for the same housing stock as low income custodians at Google who fit an entire family or three in a one bedroom in Palms.
However, if you build an apartment with pretty colors and a pool and grill and some artificial grass for your dog to poop on, that engineer working for google in that cigarette stained apartment in palms might just stomach the premium on rent for a better place, and that slumlord with the cigarette stained apartments might have a little bit more trouble finding tenants at top of market rent rates.
The fit and finish of apartments and houses is largely irrelevant. The cost of the housing increase over the past 20 years is the cost of the land beneath it. Largely because we have not built transit and housing and jobs elsewhere.
Based on your logic we should ban all new market-rate construction and magically prices will come down. That is nonsense.
...or international investors buy them up as an asset store or to launder money, leaving them mostly vacant. We unfortunately live in the real world, not an economist’s toy box, and have the example of Vancouver to prove it.
Vancouver is fixing the problem that the parent said is the solution - build a bunch of luxury stock to solve your housing crisis. It doesn’t work out that way in reality, which is what they’re now addressing.
Of course, destroying luxury condos and not replacing them with anything will not help. But the housing market is more complicated that straightforward supply and demand, with a lot of second and third order effects, and in the end building incredible amounts of luxury condos has done nothing for rent prices and housing availability in Toronto, or in Montreal where I live.
This is a naive take. Building luxury condos has definitely caused prices to drop, it's just that the effect of increased demand increased prices by more. Without the supply increase housing would be even more expensive.
I honestly don't believe this is the case. There is no empirical reason to believe it is the case, and there is research that suggests that it isn't the case [0]
Because the housing market has mechanisms (such as leveraged landlords) that mean that the price of land tends to inflate up until a situation of equilibrium such that the price of rent is always relatively high in any city where land is somewhat constrained, because zoning is a thing, because most people cannot get mortgages and are as such not able to participate in the condo market, because the price of land is wildly variable for reasons of zoning, because real estate investors do not always operate rationally (for example, empty rental homes held purely as stores of value), because the type of housing affects the type of transportation used which affects which kinds of land is suitable for use as housing, because not all housing is created equal in function or in value, and so on.
Simply supply and demand is not a sufficient mechanism to explain the housing markets in cities such as Toronto.
https://www.strongtowns.org/journal/2017/8/1/how-luxury-hous...