Comment by cocaclub
2 days ago
Supply destruction to put a floor on prices is not an unknown phenomenon.
The effort to make it seem silly to think that there aren't enough houses because the industry whose job it is to build houses did not build enough houses is itself a little silly. Circumstantial as the evidence may be, it's logical to assume that they didn't because it was more profitable not to.
> Circumstantial as the evidence may be, it's logical to assume that they didn't because it was more profitable not to.
This willfully ignores evidence that community after community has actively passed laws to stop that industry from building more.
Chesterton's Fence: why do those laws exist? Because people thought they were necessary to stop housing construction (especially, but hardly exclusively, densification).
It's not a partisan thing - red states are full of NIMBYs and littered with HOAs too - but the largest cities in red states have happened to not be hit quite as hard yet because they are generally newer cities, with plenty of room to sprawl horizontally still, starting from a lower baseline.
I mean, in my local case, the Chesterton's Fence answer is pretty clearly and directly racism.
> Supply destruction to put a floor on prices is not an unknown phenomenon.
The business model of construction companies is to buy a piece of property, develop it and then sell it for something more than the cost of buying it plus the cost of developing it. Constraining supply increases the cost of property which they then have to pay in order to acquire properties to develop. It isn't really in their interest to increase their own costs.
The most significant way it could be is if they were buying lower density units and replacing them with higher density units, so they'd be selling more units than they're buying and therefore benefit from the price per unit increasing. But in order to benefit from that they'd need to be increasing rather than decreasing the supply, which is contrary to the premise of them doing the opposite.
> The effort to make it seem silly to think that there aren't enough houses because the industry whose job it is to build houses did not build enough houses is itself a little silly. Circumstantial as the evidence may be, it's logical to assume that they didn't because it was more profitable not to.
Suppose that it would be profitable to buy a single family home and replace it 10 condo units, except that there is a law prohibiting you from doing that. Then it would be more profitable not to build those units, since doing so is illegal. But who is to blame for this?
> The business model of construction companies is to buy a piece of property, develop it and then sell it for something more than the cost of buying it plus the cost of developing it. Constraining supply increases the cost of property which they then have to pay in order to acquire properties to develop. It isn't really in their interest to increase their own costs.
Let's say for a moment that this is close but not quite actually the business model.
Let's say that the construction companies have spent a long time buying up vacant lots, faster than they are developing them, such that they now have a large inventory of land and would not have costs go up to continue operating if they did what you say.
What would you expect would happen in that case?
At that point you've ceased to describe construction companies and are now describing real estate speculators while calling them construction companies.
Moreover, notice how little sense that business model makes. To do that you would be sinking capital into vacant lots that you're neither developing nor receiving rents from while paying both property taxes and opportunity costs. You're paying interest on the loan or could have been getting ~10%/year by putting your money into the stock market. A real construction company would be trying to minimize the period they're holding an unproductive property.
And even if you wanted to be a real estate speculator, how does that make you more money than investing in rental properties and then actually renting them out so you receive rental income on top of any price appreciation?
Meanwhile, what, if not for zoning rules and other regulations, is preventing anyone else from undoing your attempt to constrain supply by opening up a new construction company which is actually a construction company?
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