This means that, in order for investment properties to work, housing must always become more expensive.
This is true of everything. For income to keep pace with inflation, it must always be increasing. In fact, to keep pace with inflation, prices must rise by the amount of inflation.
To clarify, in order for investment properties to work the value of a property must increase quicker than inflation in order to profit. Otherwise, you’re not investing, you’re simply retaining current buying power. This is true of all investments. You want your buying power to increase, not stagnate. This means that the cost of housing must increase at a higher rate than general inflation, and thus the cost of mortgage and rent must take up a larger portion of a persons salary otherwise the investors (landlords, investment property owners) will not profit.
Along with that income has not kept pace with inflation and hasn’t for more than 50 years. Both these issues have compounded to create the issue we see today. This is a closed system, and in order for one piece of the economy to be more profitable other pieces must decline. Otherwise, you are stagnating. Stagnation under capitalism is death.
I agree though that the prices of housing should be tied to inflation (or, better, to a percentage of average wage) but that would, necessarily, mean that the property does not accrue profit, it only sticks to inflation. This is not profitable, this is not an investment. This would, essentially, abolish landlords but in a much more economically violent way as their investment portfolio is now worthless (as an investment).
In other industries the cost of each product can decrease as efficiancy increases, and volume increased through incremental changes and diversification. This allows for profit to increase while the cost of goods matches inflation (or, like with computers, they get cheaper). Now, I’d argue this is unsustainable as eventually you’ll hit a wall where it’s not possible to decrease cost to manufacture, and you must now increase cost to purchase quicker than inflation, but there are ways to mitigate this and in it’s whole that is another conversation.
Apologies for novel, thank you for your kind argument though. You seem like a chill person
If your method of investing in housing is just buying and selling the same house, then yes it’s not going to work. That’s also a good thing because someone who just buys low and sells high isn’t producing any value.
But people can invest in properties by improving them before selling, and also by renting them out. And neither of those situations requires a housing market whose average price is outpacing inflation. In those situations, it’s the production of actual value that is the source of the profit.
Profiting from arbitrage requires a fucked up market, and a lack of information. Profiting from producing value just requires clear communication and competency. Two very different kinds of profit seeking.
If you improve the building, thus increasing it’s value, you’ve increased the proportional value of this house compared to the market. Now, since this house has increased in value, the average price of housing goes up and this house is less affordable. If everyone does this then the same effect takes place of average housing increasing in cost but now there’s a large quantity of very nice unaffordable housing. You no-longer increase it’s proportional value and the average price still goes up. Your house is in the same class as other housing bought at the same time.
If all landowners continually improve their housing in order to increase profits the profits must increase to a point where the cost to improve is matched and exceeded. This means that all property one wants to profit off of must still increase in price quicker than inflation. Under your proposed solution this only means the housing is nicer.
The outcome is the same, less affordable housing. If more, cheaper, housing is created then the value of these improved properties must decrease as well (supply and demand) and these cheaper houses if the price stays tied to inflation the profit gained is stagnant. There is no incentive to increase housing.
Currently though this is not happening. Most investment properties increase in value without improvement. Most landlords simply profit off of ownership of this land and housing not in their added value. If all landlords were to improve housing instead of simply raising price then that would increase investment price while not increasing overall profit. They’d make the same amount of money they would if they simply didn’t improve it. There is no incentive to improve as this adds risk for no reward. This is only possible on a small scale, and why we see few companies making profit off of buying housing, improving, and selling.
On rentals, even if they did cause value to be added, it would be through the money of the tenents and the labor of the workers. They are simply a middle man who adds no inherit value to this process. They produce no value, they simply take money from one hand, pocket some, and place some into another who adds value for them.
I’m going to respond by parts. Let’s see how this goes:
If you improve the building, thus increasing it’s value, you’ve increased the proportional value of this house compared to the market.
Yes
Now, since this house has increased in value, the average price of housing goes up and this house is less affordable.
No: the demand for housing stays the same, thus the amount of money to be had for housing stays the same, and hence if the same number of units exist then the average unit does not change in price by one unit improving. It’s only that this unit moves up within the mass of units, while all the others move down a little.
But also some yes: There is the fact that the improvement could be so good as to convince someone to switch a portion of their spending from some other luxury to the housing feature, like someone might decide to go for the house with the pool instead of the corvette. Then overall housing demand goes up, and hence average housing price goes up.
If everyone does this then the same effect takes place of average housing increasing in cost but now there’s a large quantity of very nice unaffordable housing. You no-longer increase it’s proportional value and the average price still goes up. Your house is in the same class as other housing bought at the same time.
No, because this stuff all follows from the previous sentence which I NOed too. The sum of a lot of average zero changes is zero. It doesn’t cause contagion to the rest of the market.
Except for rich people’s luxury money coming into the housing market, but that’s going to affect pricing of housing full of luxuries, because that demand is targeted to a different market tier than the one you’re worried about which is the cheapest housing for the people with the least money.
If all landowners continually improve their housing in order to increase profits the profits must increase to a point where the cost to improve is matched and exceeded. This means that all property one wants to profit off of must still increase in price quicker than inflation. Under your proposed solution this only means the housing is nicer.
Well, this is one way in which people with money can decide to invest it in housing: improving the housing. But they can also invest by building new housing. You do cover this here:
The outcome is the same, less affordable housing. If more, cheaper, housing is created then the value of these improved properties must decrease as well (supply and demand) and these cheaper houses if the price stays tied to inflation the profit gained is stagnant. There is no incentive to increase housing.
Well, if the set of players in the market stays the same this is true. But if new players can enter, then it’s not. I’ll try to demonstrate with the simplest scenario: one player controls all housing. Big Boss Casamio owns all housing and he’s the only guy who can build new housing. What are his incentives? Well, it’s like you said. If he builds new housing it just dilutes the value of his existing housing and he’s just spent money for nothing.
But what are someone else’s incentives? What if there are two big property owners in town? Then they gain something when they get more of the town’s population living in their houses: a higher portion of that housing demand becomes cash to them. That’s an incentive to build new housing. Yes, ALL housing’s earning potential drops, but you get 100% of the new property and only lose say 50% of the existing housing value to dilution.
And that’s when there’s two players.
If there’s 100 players, and someone owns 1% of the housing, they can build a new house and get the value of that house in terms of earning potential, while their other houses only lose 1% of their value to market-wide devaluation.
This is why free markets are important. The incentives are different for monopolies than they are for market players. A free market is like a market without strict border control. Each person is allowed to come and go, to bring their money into or out of the market, if and when they see fit.
Big Boss Casamio’s crackdown on housing construction is a corruption of the free market into a controlled market, a suppressed market.
Currently though this is not happening. Most investment properties increase in value without improvement.
I agree, and that’s a serious problem. Even the increase in quality witthout increase in number would be a problem, though slightly less. Only increase in number can bring prices down.
Incidentally, this steady increase in price is because of population increase, not property improvement. The improvement of properties isn’t pushing average pricing; only individual pricing up and the whole thing balances due to demand being finite. But the demand itself increases with population (I mean, with money in the system, and each person anywhere is going to be pushing a certain amount of cash toward housing, by necessity).
As the number of empty houses dwindles toward zero, the amount each person has to pay rises super fast. The result of supply and demand ratio shifts are nonlinear; population doesn’t have to double for the price of housing prices to double.
Most landlords simply profit off of ownership of this land and housing not in their added value.
True. I think that happens because we subsidize that by using government force to slow the building of new housing. I think that the government is taking the profit away from those who work to make new construction happen, and is giving it to the people who simply own existing buildings. I think this happens through building code enforcement.
And I think that’s okay. Building codes are important. If they skew the market so as to produce non-consensual homelessness, that’s a serious cost. But the thing they avoid is scenarios like the Chicago fire, where 1/3 of the city died.
I also don’t think that’s entirely a bad thing. If we have to suffer the existence of homelessness as a possibility in human life, in order to avoid some kind of Chicago fire scenario where shit safety planning led to 1/3 of the population dying, maybe it’s worth it. Anyway.
If all landlords were to improve housing instead of simply raising price then that would increase investment price while not increasing overall profit. They’d make the same amount of money they would if they simply didn’t improve it. There is no incentive to improve as this adds risk for no reward. This is only possible on a small scale, and why we see few companies making profit off of buying housing, improving, and selling.
Yeah we do have the Big Boss Casamio scenario, to a degree, due to both totally valid building codes, and totally invalid straight-up corruption and NIMBYist gerrymandering of building codes to protect certain wealthy people’s property values.
On rentals, even if they did cause value to be added, it would be through the money of the tenents and the labor of the workers. They are simply a middle man who adds no inherit value to this process. They produce no value, they simply take money from one hand, pocket some, and place some into another who adds value for them.
There are many types of valuable things.
Like, imagine if a worker wanted a house, but didn’t have time to build one himself. He works all day driving a bus. Another worker happens to build houses for a living. So the bus driver hires the house builder.
Even if the bus driver makes way more than the house builder per paycheck, he’s going to be in a tough situation to have to pay the house builder’s income during the time it takes to build the house.
Even so, I think they can figure out how to make a deal that works. Maybe the house builder is taking his time, doing an hour or two a day on multiple houses. So his living is spread out among the others’.
I hope you can see where I’m going with this because I don’t. I think it was something about how it’s valuable to have the opportunity to just rent a place instead of investing all that energy to build a house, just to have a place to live. Houses are costly even if there’s no capitalist middleman taking a cut, and it’s nice if there’s an option to pay for a place that isn’t going to be your house, just to get a roof over your head.
Rentals are a value to the renter, by virtue of being rentals, and it’s a value that houses don’t have when you own them. It’s simply the lower cost of entry to the living situation.
Like having a cabin for new villagers to live in while they get their own cabin constructed. It’s a source of value to have a building where people stay, but they don’t have to take ownership of it just to sleep there. Maybe the ownership in the village is the entire village. Like, nobody lays claim and everyone just pitches in to fix it when needed, because it’s valuable. The owner is the village, not the villager staying there.
Obviously, our current situation is fucked up and way too skewed toward being trapped. I personally think that would get better if we cut back with the suppression of new construction. Some building codes are good, but ours are bloated and that’s economically inflaming the homelessness crisis AND the declining mental health of the entire lower and middle classes.
I hope that didn’t get too incoherent toward the end. I’m quite tired.
Jesus Murphy that’s a long fucking comment. I’m sorry boys I’m just too tired to edit it down now. I’ll have a go at cutting her down in the morning. Unless I forget.
Ok, looks like I have to break this into at lease two parts
Book one
Housing Demand
No: the demand for housing stays the same, thus the amount of money to be had for housing stays the same, and hence if the same number of units exist then the average unit does not change in price by one unit improving. It’s only that this unit moves up within the mass of units, while all the others move down a little.
If you take one home, move it up, then there is one less home in the lower end. Supply in the lower end market decreases.
Average is a factor of adding all prices together then dividing it by the quantity. If one price increases the average increases. If all landowners do this to create profit prices for housing prices increase quite quickly. By making your housing more close to luxury housing you are decreasing the supply of non-luxury housing.
If we have three houses one costs 100 the other 200 the last 300 the average price is 200. If a person buys the 200 house, adds a pool, and sells it for 230 then the average is now 210. The average has increased. Now, if all profit from selling housing was tied to improvement, then all three must sell improve then sell for 30 more. Increasing the average by 30.
No, because this stuff all follows from the previous sentence which I NOed too. The sum of a lot of average zero changes is zero. It doesn’t cause contagion to the rest of the market.
I don’t think you understand. If someone buys a house for 100, does nothing, and attempts sells it for 130 they gain the same profit as a person who buys at 100, adds a pool, then sells for 135 (The pool cost 5 to add). In both situations a person profits 30 but in the second, they need money outright for the pool and labour, and the hope that there’s a market for housing with a pool when this is finished. In the first, they need only maintain the house.
If everyone simply increases price while doing nothing to improve then the new price for housing is 130. Those who don’t increase will have the houses they sell bought by the people willing to do so who will have more money to buy more houses out-competing. People will still buy houses because shelter is a nessesity. This is an inelastic good.
In the situation where pricing increases without improvement, yes, improvement can elevate the class of the house and maybe they sell it for 160 but in a system where improvement is needed for profit their improvement is not special it is market average, and they will profit the same as everyone else. Improvement adds risk, takes time, and at scale will always be beaten by non-improvement.
Lastly, though supply may fluctuate demand at the lower end will be the same. Everyone needs housing. If everyone makes improves their housing to sell for a profit, lower end housing supply decreases, prices rise. If nobody improves their housing and increases lower end pricing people will simply pay more for the required good.
But what are someone else’s incentives? What if there are two big property owners in town? Then they gain something when they get more of the town’s population living in their houses: a higher portion of that housing demand becomes cash to them. That’s an incentive to build new housing.
This is correct, but not incentive to build. This is incentive to get more people living in ‘your’ housing. Other incentives exist to entice people into your housing and to keep them there. Lets say, if you refer others, you get a portion of the profit. On top of this, agreements which force them to stay in your housing for a period of time.
Yes, ALL housing’s earning potential drops, but you get 100% of the new property and only lose say 50% of the existing housing value to dilution.
Ok, so you have 1000 houses out there, and build new ones. These ten you gain more money on while losing half the value on you current 1000. This is not economical, you lose more than you gain without increasing demand only increasing supply. You’d have to always make more houses than you currently have (or at least enough to outweigh the decrease in value) which is very risky, and takes a very large amount of upright money and time until you have the ability to sell
Housing also takes time to make and has a massive cost associated. This is riskier than buying a new home and takes a lot more time meanwhile you aren’t making money.
What if neither make new houses and increase prices anyway? Sure, neither get a larger proportion of the money made, but both make more money.
Lets skip forward to the 100 player situation,. If they make more housing that takes more time, and if it fails, the market for that home decreases before they can get it on the market, or they guessed wrong in the value of a new house in that location, they get less money than those simply increasing their prices. Those who simply increase their prices get more profit, invest back into the market more, and gain a larger share.
They are more flexible too. If the market goes down, they can sell, the builders cannot. If, lets say, the local school announces they’re shutting down the builder has spent quite allot building in an area that is now less valuable. The non-builder simply sells before the school shuts down, and buys where the new ones being built. The builder still must build their house, or take a loss.
All this means, with time, those taking the safer, more flexible bet of not building and not improving get a larger share of the market as they make money more consistently and can respond to issues quicker.
One more thing, what if people build, but then still increase prices like the others do? They get more money, and more share of the market. Sure, supply increases, but so does the price. If people need housing, which they do, they will pay the increased price.
I will state I agree with a mostly free, market based economy. However market economics fail with goods that people require. Demand cannot decrease, thus those with supply can price it however they please. Normally, a person can simply say I will no longer purchase this good, and demand decreases, but people need shelter to survive so this is not an option. In-elastic goods break supply demand economics
On top of this, no market actor wants the pricing to go down. That only loses them money, or potential money, with no gain for themselves. There is no incentive.
Sorry to drone on, but to restate, those new people who enter the market with cheaper housing will be out competed by those who keep prices high. They will have more money, they will buy those cheaper houses, they will sell them at their inflated prices. The new market actors will have less resources and can never become a large force even though most would prefer to buy from them. If an average non-investor does buy from them the house exits the market, as the owner is not trying to sell but is simply living there.
End of cassimos reign
I agree, and that’s a serious problem. Even the increase in quality without increase in number would be a problem, though slightly less. Only increase in number can bring prices down.
Well, there are other ways. You could regulate the sale of housing and force it to stay at inflation, or decrease. How will things be maintained or improve? Those who own and are using the housing will pay for it, as they currently are, and no profit will be needed. You may say you’d rather this not happen but it would decrease pricing, or stabilize it.
Incidentally, this steady increase in price is because of population increase, not property improvement. The improvement of properties isn’t pushing average pricing; only individual pricing up and the whole thing balances due to demand being finite. But the demand itself increases with population (I mean, with money in the system, and each person anywhere is going to be pushing a certain amount of cash toward housing, by necessity).
correct, it’s not because of improvement, because properties are not being improved. On population, though it is increasing so is available housing, and so are prices. We have many houses that remain empty and could house people that are not being used. They are up to code, they are in locations that are desirable, they are simply either priced too high or not sold/rented. This is a major issue in many cities. Sure, demand finite, but people will pay anything they can to survive and even if supply increases those with it can still charge the same price, or more, and people will still pay it. Those who decrease pricing with demand will have less money, and thus less market share.
Also, look at the places where population is decreasing. We still see housing prices increase there too
As the number of empty houses dwindles toward zero, the amount each person has to pay rises super fast. The result of supply and demand ratio shifts are nonlinear; population doesn’t have to double for the price of housing prices to double.
Correct. The number of empty, fully functional, fully legally tenable housing is increasing though, as are prices.
True. I think that happens because we subsidize that by using government force to slow the building of new housing. I think that the government is taking the profit away from those who work to make new construction happen, and is giving it to the people who simply own existing buildings.
There’s quite a lot of housing that remains vacant though, sixteen million homes to be exact. On top of this, public housing could easily fix the issue here.
I also don’t think that’s entirely a bad thing. If we have to suffer the existence of homelessness as a possibility in human life, in order to avoid some kind of Chicago fire scenario where shit safety planning led to 1/3 of the population dying, maybe it’s worth it. Anyway.
What if we can avoid both? If everyone was guaranteed housing, homelessness could be close to or equal to zero. This is not the conversation we’re having though, but it would fix the issue of housing being in-elastic
On rentals
Even if the bus driver makes way more than the house builder per paycheck, he’s going to be in a tough situation to have to pay the house builder’s income during the time it takes to build the house.
He has to anyway. The builders price to build the home is added to the cost of the home. The bus driver must, in the end, pay this to acquire the home. The only difference is that now he must also pay the landlord a cost on top.
The bus driver in either situation must either save up for this, or get a loan and slowly pay it off in order to acquire the home. The only difference in an increased cost.
it’s valuable to have the opportunity to just rent a place instead of investing all that energy to build a house, just to have a place to live.
I agree! however, if a person is paying for a home over the course of years this is what pays for maintenance and for improvement. The landlord must ask for more to gain profit. I’d argue, if someones paying for something they should gain something in return. If a person is paying more for a house than it costs to maintain they should acquire equity in the house. They should become partial owners of the house or apartment.
Rentals are a value to the renter, by virtue of being rentals, and it’s a value that houses don’t have when you own them. It’s simply the lower cost of entry to the living situation.
You can gain the same value through a mortgage loan, or a rent-to-buy agreement while also gaining equity on the house
Maybe the ownership in the village is the entire village. Like, nobody lays claim and everyone just pitches in to fix it when needed, because it’s valuable. The owner is the village, not the villager staying there.
This is public ownership of property, which I may agree is a partial solution, but I’d still agree with personal ownership of property. Public housing makes sense though as there is no profit incentive. They don’t need to make money off of the building. I still want a housing market though
Obviously, our current situation is fucked up and way too skewed toward being trapped. I personally think that would get better if we cut back with the suppression of new construction. Some building codes are good, but ours are bloated and that’s economically inflaming the homelessness crisis AND the declining mental health of the entire lower and middle classes.
I agree, though I’d argue the solution is to add in a public housing option for basic shelter thus allowing for a housing market to function based off of supply demand economics. On top of this, renters should accrue equity as it is their funds which maintain and improve the housing, any extra profit generated should be in exchange for this.
As for incoherence I assume we both suffer with this here. Also, I restated myself way more than needed. Sorry for that. Thank you for the conversation though
This is true of everything. For income to keep pace with inflation, it must always be increasing. In fact, to keep pace with inflation, prices must rise by the amount of inflation.
To clarify, in order for investment properties to work the value of a property must increase quicker than inflation in order to profit. Otherwise, you’re not investing, you’re simply retaining current buying power. This is true of all investments. You want your buying power to increase, not stagnate. This means that the cost of housing must increase at a higher rate than general inflation, and thus the cost of mortgage and rent must take up a larger portion of a persons salary otherwise the investors (landlords, investment property owners) will not profit.
Along with that income has not kept pace with inflation and hasn’t for more than 50 years. Both these issues have compounded to create the issue we see today. This is a closed system, and in order for one piece of the economy to be more profitable other pieces must decline. Otherwise, you are stagnating. Stagnation under capitalism is death.
I agree though that the prices of housing should be tied to inflation (or, better, to a percentage of average wage) but that would, necessarily, mean that the property does not accrue profit, it only sticks to inflation. This is not profitable, this is not an investment. This would, essentially, abolish landlords but in a much more economically violent way as their investment portfolio is now worthless (as an investment).
In other industries the cost of each product can decrease as efficiancy increases, and volume increased through incremental changes and diversification. This allows for profit to increase while the cost of goods matches inflation (or, like with computers, they get cheaper). Now, I’d argue this is unsustainable as eventually you’ll hit a wall where it’s not possible to decrease cost to manufacture, and you must now increase cost to purchase quicker than inflation, but there are ways to mitigate this and in it’s whole that is another conversation.
Apologies for novel, thank you for your kind argument though. You seem like a chill person
If your method of investing in housing is just buying and selling the same house, then yes it’s not going to work. That’s also a good thing because someone who just buys low and sells high isn’t producing any value.
But people can invest in properties by improving them before selling, and also by renting them out. And neither of those situations requires a housing market whose average price is outpacing inflation. In those situations, it’s the production of actual value that is the source of the profit.
Profiting from arbitrage requires a fucked up market, and a lack of information. Profiting from producing value just requires clear communication and competency. Two very different kinds of profit seeking.
If you improve the building, thus increasing it’s value, you’ve increased the proportional value of this house compared to the market. Now, since this house has increased in value, the average price of housing goes up and this house is less affordable. If everyone does this then the same effect takes place of average housing increasing in cost but now there’s a large quantity of very nice unaffordable housing. You no-longer increase it’s proportional value and the average price still goes up. Your house is in the same class as other housing bought at the same time.
If all landowners continually improve their housing in order to increase profits the profits must increase to a point where the cost to improve is matched and exceeded. This means that all property one wants to profit off of must still increase in price quicker than inflation. Under your proposed solution this only means the housing is nicer.
The outcome is the same, less affordable housing. If more, cheaper, housing is created then the value of these improved properties must decrease as well (supply and demand) and these cheaper houses if the price stays tied to inflation the profit gained is stagnant. There is no incentive to increase housing.
Currently though this is not happening. Most investment properties increase in value without improvement. Most landlords simply profit off of ownership of this land and housing not in their added value. If all landlords were to improve housing instead of simply raising price then that would increase investment price while not increasing overall profit. They’d make the same amount of money they would if they simply didn’t improve it. There is no incentive to improve as this adds risk for no reward. This is only possible on a small scale, and why we see few companies making profit off of buying housing, improving, and selling.
On rentals, even if they did cause value to be added, it would be through the money of the tenents and the labor of the workers. They are simply a middle man who adds no inherit value to this process. They produce no value, they simply take money from one hand, pocket some, and place some into another who adds value for them.
I’m going to respond by parts. Let’s see how this goes:
Yes
No: the demand for housing stays the same, thus the amount of money to be had for housing stays the same, and hence if the same number of units exist then the average unit does not change in price by one unit improving. It’s only that this unit moves up within the mass of units, while all the others move down a little.
But also some yes: There is the fact that the improvement could be so good as to convince someone to switch a portion of their spending from some other luxury to the housing feature, like someone might decide to go for the house with the pool instead of the corvette. Then overall housing demand goes up, and hence average housing price goes up.
No, because this stuff all follows from the previous sentence which I NOed too. The sum of a lot of average zero changes is zero. It doesn’t cause contagion to the rest of the market.
Except for rich people’s luxury money coming into the housing market, but that’s going to affect pricing of housing full of luxuries, because that demand is targeted to a different market tier than the one you’re worried about which is the cheapest housing for the people with the least money.
Well, this is one way in which people with money can decide to invest it in housing: improving the housing. But they can also invest by building new housing. You do cover this here:
Well, if the set of players in the market stays the same this is true. But if new players can enter, then it’s not. I’ll try to demonstrate with the simplest scenario: one player controls all housing. Big Boss Casamio owns all housing and he’s the only guy who can build new housing. What are his incentives? Well, it’s like you said. If he builds new housing it just dilutes the value of his existing housing and he’s just spent money for nothing.
But what are someone else’s incentives? What if there are two big property owners in town? Then they gain something when they get more of the town’s population living in their houses: a higher portion of that housing demand becomes cash to them. That’s an incentive to build new housing. Yes, ALL housing’s earning potential drops, but you get 100% of the new property and only lose say 50% of the existing housing value to dilution.
And that’s when there’s two players.
If there’s 100 players, and someone owns 1% of the housing, they can build a new house and get the value of that house in terms of earning potential, while their other houses only lose 1% of their value to market-wide devaluation.
This is why free markets are important. The incentives are different for monopolies than they are for market players. A free market is like a market without strict border control. Each person is allowed to come and go, to bring their money into or out of the market, if and when they see fit.
Big Boss Casamio’s crackdown on housing construction is a corruption of the free market into a controlled market, a suppressed market.
I agree, and that’s a serious problem. Even the increase in quality witthout increase in number would be a problem, though slightly less. Only increase in number can bring prices down.
Incidentally, this steady increase in price is because of population increase, not property improvement. The improvement of properties isn’t pushing average pricing; only individual pricing up and the whole thing balances due to demand being finite. But the demand itself increases with population (I mean, with money in the system, and each person anywhere is going to be pushing a certain amount of cash toward housing, by necessity).
As the number of empty houses dwindles toward zero, the amount each person has to pay rises super fast. The result of supply and demand ratio shifts are nonlinear; population doesn’t have to double for the price of housing prices to double.
True. I think that happens because we subsidize that by using government force to slow the building of new housing. I think that the government is taking the profit away from those who work to make new construction happen, and is giving it to the people who simply own existing buildings. I think this happens through building code enforcement.
And I think that’s okay. Building codes are important. If they skew the market so as to produce non-consensual homelessness, that’s a serious cost. But the thing they avoid is scenarios like the Chicago fire, where 1/3 of the city died.
I also don’t think that’s entirely a bad thing. If we have to suffer the existence of homelessness as a possibility in human life, in order to avoid some kind of Chicago fire scenario where shit safety planning led to 1/3 of the population dying, maybe it’s worth it. Anyway.
Yeah we do have the Big Boss Casamio scenario, to a degree, due to both totally valid building codes, and totally invalid straight-up corruption and NIMBYist gerrymandering of building codes to protect certain wealthy people’s property values.
There are many types of valuable things.
Like, imagine if a worker wanted a house, but didn’t have time to build one himself. He works all day driving a bus. Another worker happens to build houses for a living. So the bus driver hires the house builder.
Even if the bus driver makes way more than the house builder per paycheck, he’s going to be in a tough situation to have to pay the house builder’s income during the time it takes to build the house.
Even so, I think they can figure out how to make a deal that works. Maybe the house builder is taking his time, doing an hour or two a day on multiple houses. So his living is spread out among the others’.
I hope you can see where I’m going with this because I don’t. I think it was something about how it’s valuable to have the opportunity to just rent a place instead of investing all that energy to build a house, just to have a place to live. Houses are costly even if there’s no capitalist middleman taking a cut, and it’s nice if there’s an option to pay for a place that isn’t going to be your house, just to get a roof over your head.
Rentals are a value to the renter, by virtue of being rentals, and it’s a value that houses don’t have when you own them. It’s simply the lower cost of entry to the living situation.
Like having a cabin for new villagers to live in while they get their own cabin constructed. It’s a source of value to have a building where people stay, but they don’t have to take ownership of it just to sleep there. Maybe the ownership in the village is the entire village. Like, nobody lays claim and everyone just pitches in to fix it when needed, because it’s valuable. The owner is the village, not the villager staying there.
Obviously, our current situation is fucked up and way too skewed toward being trapped. I personally think that would get better if we cut back with the suppression of new construction. Some building codes are good, but ours are bloated and that’s economically inflaming the homelessness crisis AND the declining mental health of the entire lower and middle classes.
I hope that didn’t get too incoherent toward the end. I’m quite tired.
Jesus Murphy that’s a long fucking comment. I’m sorry boys I’m just too tired to edit it down now. I’ll have a go at cutting her down in the morning. Unless I forget.
Ha, eventually we’ll be mailing each other novels the size of way and peace. Looks like mine was a two parter. No worries man
Yeah I don’t really know how to keep it from expanding like that
Ok, looks like I have to break this into at lease two parts
Book one
Housing Demand
If you take one home, move it up, then there is one less home in the lower end. Supply in the lower end market decreases.
Average is a factor of adding all prices together then dividing it by the quantity. If one price increases the average increases. If all landowners do this to create profit prices for housing prices increase quite quickly. By making your housing more close to luxury housing you are decreasing the supply of non-luxury housing.
If we have three houses one costs 100 the other 200 the last 300 the average price is 200. If a person buys the 200 house, adds a pool, and sells it for 230 then the average is now 210. The average has increased. Now, if all profit from selling housing was tied to improvement, then all three must sell improve then sell for 30 more. Increasing the average by 30.
I don’t think you understand. If someone buys a house for 100, does nothing, and attempts sells it for 130 they gain the same profit as a person who buys at 100, adds a pool, then sells for 135 (The pool cost 5 to add). In both situations a person profits 30 but in the second, they need money outright for the pool and labour, and the hope that there’s a market for housing with a pool when this is finished. In the first, they need only maintain the house.
If everyone simply increases price while doing nothing to improve then the new price for housing is 130. Those who don’t increase will have the houses they sell bought by the people willing to do so who will have more money to buy more houses out-competing. People will still buy houses because shelter is a nessesity. This is an inelastic good.
In the situation where pricing increases without improvement, yes, improvement can elevate the class of the house and maybe they sell it for 160 but in a system where improvement is needed for profit their improvement is not special it is market average, and they will profit the same as everyone else. Improvement adds risk, takes time, and at scale will always be beaten by non-improvement.
Lastly, though supply may fluctuate demand at the lower end will be the same. Everyone needs housing. If everyone makes improves their housing to sell for a profit, lower end housing supply decreases, prices rise. If nobody improves their housing and increases lower end pricing people will simply pay more for the required good.
Book 2: Big Boss Casamio
This is correct, but not incentive to build. This is incentive to get more people living in ‘your’ housing. Other incentives exist to entice people into your housing and to keep them there. Lets say, if you refer others, you get a portion of the profit. On top of this, agreements which force them to stay in your housing for a period of time.
Ok, so you have 1000 houses out there, and build new ones. These ten you gain more money on while losing half the value on you current 1000. This is not economical, you lose more than you gain without increasing demand only increasing supply. You’d have to always make more houses than you currently have (or at least enough to outweigh the decrease in value) which is very risky, and takes a very large amount of upright money and time until you have the ability to sell
Housing also takes time to make and has a massive cost associated. This is riskier than buying a new home and takes a lot more time meanwhile you aren’t making money.
What if neither make new houses and increase prices anyway? Sure, neither get a larger proportion of the money made, but both make more money.
Lets skip forward to the 100 player situation,. If they make more housing that takes more time, and if it fails, the market for that home decreases before they can get it on the market, or they guessed wrong in the value of a new house in that location, they get less money than those simply increasing their prices. Those who simply increase their prices get more profit, invest back into the market more, and gain a larger share.
They are more flexible too. If the market goes down, they can sell, the builders cannot. If, lets say, the local school announces they’re shutting down the builder has spent quite allot building in an area that is now less valuable. The non-builder simply sells before the school shuts down, and buys where the new ones being built. The builder still must build their house, or take a loss.
All this means, with time, those taking the safer, more flexible bet of not building and not improving get a larger share of the market as they make money more consistently and can respond to issues quicker.
One more thing, what if people build, but then still increase prices like the others do? They get more money, and more share of the market. Sure, supply increases, but so does the price. If people need housing, which they do, they will pay the increased price.
I will state I agree with a mostly free, market based economy. However market economics fail with goods that people require. Demand cannot decrease, thus those with supply can price it however they please. Normally, a person can simply say I will no longer purchase this good, and demand decreases, but people need shelter to survive so this is not an option. In-elastic goods break supply demand economics
On top of this, no market actor wants the pricing to go down. That only loses them money, or potential money, with no gain for themselves. There is no incentive.
Sorry to drone on, but to restate, those new people who enter the market with cheaper housing will be out competed by those who keep prices high. They will have more money, they will buy those cheaper houses, they will sell them at their inflated prices. The new market actors will have less resources and can never become a large force even though most would prefer to buy from them. If an average non-investor does buy from them the house exits the market, as the owner is not trying to sell but is simply living there.
End of cassimos reign
Well, there are other ways. You could regulate the sale of housing and force it to stay at inflation, or decrease. How will things be maintained or improve? Those who own and are using the housing will pay for it, as they currently are, and no profit will be needed. You may say you’d rather this not happen but it would decrease pricing, or stabilize it.
correct, it’s not because of improvement, because properties are not being improved. On population, though it is increasing so is available housing, and so are prices. We have many houses that remain empty and could house people that are not being used. They are up to code, they are in locations that are desirable, they are simply either priced too high or not sold/rented. This is a major issue in many cities. Sure, demand finite, but people will pay anything they can to survive and even if supply increases those with it can still charge the same price, or more, and people will still pay it. Those who decrease pricing with demand will have less money, and thus less market share.
Also, look at the places where population is decreasing. We still see housing prices increase there too
Correct. The number of empty, fully functional, fully legally tenable housing is increasing though, as are prices.
There’s quite a lot of housing that remains vacant though, sixteen million homes to be exact. On top of this, public housing could easily fix the issue here.
What if we can avoid both? If everyone was guaranteed housing, homelessness could be close to or equal to zero. This is not the conversation we’re having though, but it would fix the issue of housing being in-elastic
On rentals
He has to anyway. The builders price to build the home is added to the cost of the home. The bus driver must, in the end, pay this to acquire the home. The only difference is that now he must also pay the landlord a cost on top.
The bus driver in either situation must either save up for this, or get a loan and slowly pay it off in order to acquire the home. The only difference in an increased cost.
I agree! however, if a person is paying for a home over the course of years this is what pays for maintenance and for improvement. The landlord must ask for more to gain profit. I’d argue, if someones paying for something they should gain something in return. If a person is paying more for a house than it costs to maintain they should acquire equity in the house. They should become partial owners of the house or apartment.
You can gain the same value through a mortgage loan, or a rent-to-buy agreement while also gaining equity on the house
This is public ownership of property, which I may agree is a partial solution, but I’d still agree with personal ownership of property. Public housing makes sense though as there is no profit incentive. They don’t need to make money off of the building. I still want a housing market though
I agree, though I’d argue the solution is to add in a public housing option for basic shelter thus allowing for a housing market to function based off of supply demand economics. On top of this, renters should accrue equity as it is their funds which maintain and improve the housing, any extra profit generated should be in exchange for this.
As for incoherence I assume we both suffer with this here. Also, I restated myself way more than needed. Sorry for that. Thank you for the conversation though