One of the biggest things holding back businesses is skyrocketing housing costs

Discussion in 'Economics & Trade' started by kazenatsu, May 16, 2019.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    One of the biggest things holding back businesses is skyrocketing housing costs.
    Many small businesses are having trouble affording the rents, and many businesses are having trouble paying workers enough to be able to afford living in the area.

    This especially affects business wanting to hire skilled workers when the business cannot afford to pay very much.

    Why did housing prices and rents increase so much? Because people became jam packed into the high density areas where all the economic activity is concentrated. Shortages of space and housing in these areas drive up prices.

    This is really holding back the economy.
     
    Last edited: May 16, 2019
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  2. OldManOnFire

    OldManOnFire Well-Known Member

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    It's a Catch-22 scenario.

    Corporate America today are large companies that require infrastructure and labor and our best infrastructure and labor pools are confined to a few metropolitan areas of the US...like LA, SF, Seattle, Denver, Chicago, Atlanta, Miami, NY, etc. Since the US seems reluctant to build 30-50 story apartment complexes, side-by-side-by-side, we live in 1-3 story buildings spread across 50 miles or more, and those with more money can buy buildings closer to work and play...supply and demand at play. And some areas like SF are sort of land-locked with little room to expand...again supply and demand at play. This forces those with lower incomes to live in remote bedroom communities, with long commute times, and higher costs for transportation. And now we're finding those remote bedroom communities are no longer affordable to lower and middle class workers!

    IMO we need to understand that the supply and demand scenario is only working for 20% of the population. The other 80% are fighting a losing battle! The design of metropolitan areas needs to change in order to facilitate all workers. Does SF need 10-20 40 story apartment buildings with affordable rent? If so, who builds and manages them as affordable housing? Is it too late to place efficient non-automobile transportation, like subways and trains, into these congested and expensive areas? It's obvious workers are not going to earn wages commensurate with $750K-$1 million housing prices...and it's obvious Apple is not going to open a facility in a remote town with 15,000 population...so something needs to change in the design of our labor and population centers...
     
  3. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    That reminds me a little bit of the dilemma facing China (and other Asian nations).
    If they increase their population they face overpopulation, overcrowding and not enough job opportunities for everyone.
    If they don't increase their population they face an aging population, demographics that will make it harder for them to take care of their old and a declining tax base.

    (I know this is really off topic here but just wanted to quickly point out that similarity, since you mentioned Catch-22 )
     
    Last edited: May 16, 2019
  4. OldManOnFire

    OldManOnFire Well-Known Member

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    Your comments about China actually pertain to all nations and all humans. The replacement fertility rate of 2.0 or 2.1, I think, means if below this population will decrease and above it will increase. As you say, it is imperative to produce enough newborns to provide younger people to work, yet over-population is a problem as well. Since the world fertility rate is around 2.4 we can expect worldwide population growth with a further strain on our resources, increased waste and pollution, and competition for jobs/income. This is not off-topic since population growth, and facilitating that growth, is key in discussing housing costs. People crowded into commerce and employment centers, when enough housing is not being created for ALL people, becomes untenable to lower and middle class workers. I doubt we will slow population growth so we need to do a better job designing our metropolitan areas...
     
  5. bringiton

    bringiton Well-Known Member

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    Nope. Housing is expensive because land is expensive. No other reason. Land is expensive because its value is simply the expected subsidy to the landowner, and that subsidy has been increasing rapidly because economic growth has exceeded the sum of the discount (interest) and property tax rates. No other reason.
     
  6. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I mostly agree with you, except I would add that new housing having to be constructed increases the cost of housing as well.

    Obviously it's much more expensive to build new housing than it is to use already existing old housing.
    And it's not just the new housing that's more expensive. When new housing has to be built, all housing becomes more expensive. More people want the cheaper older already existing housing, so that drives the price up.

    Where I am, at least, there's actually a shortage of the nice older housing. Lots of completely new houses exist, but the lots are much smaller and they're not really a good price value for what you get.

    That's why rapid population growth can drive up housing costs in some places even if there was no constraint on land.

    In the old days, most people bought houses that had already previously been lived in by someone else.
     
    Last edited: May 16, 2019
  7. bringiton

    bringiton Well-Known Member

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    No, that's incorrect. It would be trivially easy to build perfectly good housing for less than $100/ft^2. What makes new housing construction expensive is the high cost of land. People don't want to live in a $100K house when they have to pay $500K for the land to build it on. That would mean they are paying $600K to live in a $100K house. They won't do it. So when land is expensive, the houses built on that land have to be more expensive, too. That's how the housing market works.
    Of course: existing old housing has depreciated. But how are you going to increase the supply of housing without building new houses???
    No, that's incorrect. It's the land value that is rising. Building new housing increases the supply, reducing prices.
    Bingo. The astronomical cost of land makes it impossible to provide good, affordable housing.
    There's always a constraint on land, because the supply is fixed.
    Most people still do that. The difference is that now, low-cost housing can't be built, because there is no low-cost land near the cities where people want to live, and the market won't accept low-cost housing built on high-cost land.
     
  8. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Look, I'm mostly agreeing with you.

    I was just pointing out that housing was an additional factor - a much smaller additional factor in many places.

    All I meant is that building new housing can never reduce the cost of housing down to the level it was initially if the population growth had not risen.
    (assuming infinite building space and no constraints on the land)

    If new housing has to be built, the price of all housing will rise.

    (yes, obviously it would rise even more if more housing was not built)
     
    Last edited: May 17, 2019
  9. bringiton

    bringiton Well-Known Member

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    Sorry, I don't know how to think about such utterly counterfactual assumptions.
     
  10. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    It's just a theoretical hypothetical scenario to help us focus on one type of economic effect in isolation.

    If you can't think about hypotheticals, you'll never understand how all the separate components of the reality work.
     
    Last edited: May 17, 2019
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  11. jdog

    jdog Banned

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    The root problem is inflation caused by a debt based economy. Globalization has used exploitation of third world economies to offset inflation for imported items, but when it comes to domestic necessities like real estate, food, and energy, the inflation is undeniable. In addition lose immigration policy has skewed the labor supply.demand ratio making labor much less valuable than it would be without the constant flow of immigrants willing to work cheap. In the end, the people get what they deserve from their own political decisions.
     
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  12. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I believe this comment of yours is very insightful.
     
  13. bringiton

    bringiton Well-Known Member

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    No, it can't, because it is too far from reality. It's like you're trying to isolate the effect of air friction on gas mileage by assuming cars have no mass. It's just nonsense.
    I can think about hypotheticals just fine. I just can't think about how air friction affects the mileage of cars that have no mass, because a car with no mass doesn't need an engine.
     
  14. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    That would be a perfectly rational thing to do when trying to closely examine one aspect of the mathematical equation.

    Maybe you are misunderstanding what I am saying. I'm not saying don't consider air friction. I am just saying, let's temporarily set air friction aside for a moment and examine how exactly everything would work without that air friction. Then, after we do that, we can add air friction into the equation.

    Obviously we can't talk about two different effects at the same time. We need to separate them, analyze them separately, and then we can add them back together.
     
    Last edited: May 24, 2019
  15. bringiton

    bringiton Well-Known Member

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    But if you are talking about housing unconstrained by building space or land, then it is nothing but a durable consumer good, like cars or refrigerators. Do you really think cars or refrigerators would cost less if fewer were manufactured??? REALLY???
     
  16. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You are correct. So that is only one aspect of it.

    Housing is a little different from typical consumer goods though in that houses are likely to be sold again to another buyer, whereas a refrigerator is likely to go to the junkyard after the first consumer is done with it.

    I think you are getting confused about what I was trying to say. I never actually said houses would cost less if there were fewer of them.

    I just said that building more houses will not necessarily lower housing costs to compensate for all the additional home buying consumers.

    (Yes, more new homes will help prevent the prices from going higher than they otherwise would be, but they will not lower the price back down to the same price point the houses were before the population increased)

    And this effect I am talking about right now is completely separate from land & building space effects.

    This effect would still hold true with cars or refrigerators if those items were things that lasted forever and if most consumers typically bought a used car or refrigerator from someone else.

    It's always cheaper to buy a used consumer item than buy a new one.
    If there's more people and not enough of those items, the price goes up.
    Creating new consumer items isn't going to make the price go all the way back down to what it was before.

    That's all I am saying.

    In the case of houses, it's very likely that the price of the old houses will rise very close to the price of a new house. That's because new houses won't begin being constructed until shortages of the old houses cause housing prices to rise to a level that can make the construction of new houses profitable.

    In other words, if there are still old houses available for $200,000 most people in general are not going to pay $300,000 for a new house. When the price of old houses rises above $290,000 then you're going to start seeing new houses being constructed.

    No matter how many new houses you build, the price of houses is not going to go back down to $200,000. That was before there was a housing shortage.
     
    Last edited: May 24, 2019
  17. bringiton

    bringiton Well-Known Member

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    But that is the implication.
    But cet. par., it will.
    That depends on how many are built.
    It doesn't matter. Houses depreciate like any other durable consumer good. It is LAND that appreciates.
    It could.
    Nope. You are confusing house value with land value.
    It's profitable because old houses decay and have to be replaced.
    But that's just empirically false. People do it all the time.
    You don't seem to know anything about actual housing markets. Demand is very inelastic. If there is an oversupply, prices will drop. Look at Detroit, where oversupply means you can buy a house for $5K, or even less.
     
  18. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You ignore my entire argument then.

    You can't lower prices back down to what they were before because used houses are always cheaper than new.

    If you have to build new houses, prices will inevitably go up. That's all I was saying.

    So the existence of actual physical housing is a factor. So is land (and yes, land is often a much bigger factor in many areas).
    I was overall agreeing with you. We seem to be arguing about a more trivial point.
     
    Last edited: May 30, 2019
  19. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Yes, of course I understand this. But the issue is that the cost of constructing new houses is always greater than what current houses in the market cost.

    So unless developers made some huge gigantic mistake and are taking big losses, they could build as many houses as you want and it's not going to keep housing prices from rising in response to population growth.

    The point is that already existing housing stock, relative to population, is a factor in housing costs.

    It may be mostly land, but it's not all land constraints that explain housing shortages.

    Yes, Detroit has already existing housing.
    You obviously didn't understand my argument if you were bringing up that as an example.
     
    Last edited: May 30, 2019
  20. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I'm talking about house value, not land value.

    I wanted to imagine a scenario were there was an unlimited supply of land, but you didn't want to do that.
    It would have made the illustration of the concept I was trying to describe easier.

    Now you're just being difficult. You weren't listening to what I was saying overall.
    Yes, not every generalized statement I say is going to be entirely technically accurate, because then it would be so complicated it would be too hard for anyone to understand the point I was trying to make.
    Your observation that it is not completely true is irrelevant to the argument here.
     
    Last edited: May 30, 2019
  21. DennisTate

    DennisTate Well-Known Member Past Donor

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    I suppose many people might kind of hope that this guy had somehow been given a genuine insight for trends over the coming decades since he wrote his book in 1973.

    Already the price of housing in urban areas have skyrocketed to levels he could not have imagined back then so......... the guy was onto something with this prediction.

     
  22. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    That hasn't happened yet. The rural areas far away from the cities have become poorer over the last 15 years.

    Acreage within 30 to 40 miles of major cities have already soared. Just look at Denver, the outlying areas are practically home to the rich on big estate ranches with mansions.
    You have to get beyond reasonable daily commuting distance for the prices to fall.
     
    Last edited: May 30, 2019
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  23. DennisTate

    DennisTate Well-Known Member Past Donor

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    Strangely enough... if my proposal does take off.......
    can of worms that it may well be.....
    this could well play a role in making it possible for many
    city dwellers to move to rural Canada and rural America.

    Being able to work from home due to the new technology is already making this possible for many families.


    Five hundred dollars per Canadian per month, can this work?

     
  24. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    It would be a start, but I don't think they'd get very far on 500 a month. You might see some of the very poor displaced from the expensive cities move out into the country.

    If only there was some way to move those good jobs in the cities further out into the more rural areas where costs of living are cheaper.
    It's going to have to be a lot more than just giving people some free money though. (I think)
     
    Last edited: May 30, 2019
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  25. DennisTate

    DennisTate Well-Known Member Past Donor

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    True.... but my proposal would add $3000 / month to a family of six!
     

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