Housing costs

[ijmorlan]

Cheaper houses, but not more people in them; that can be accomplished only by construction, either of more buildings or to re-configure existing buildings to fit more people. And if price drops, quantity supplied can be expected to drop as well, ceteris paribus.

I'm confused, you seem to be contradicting yourself here...if the price drops...quantity doesn't necessarily drop...housing is not a commodity item, profit would drop, but that doesn't mean that homes wouldn't still be profitable to build. I believe the limiting factor is regulation. You can have cheaper housing and more construction.

I’m talking about house prices dropping specifically due to rules on mortgage eligibility. Let’s take a simplified scenario. There are 100 houses, and 10 more that a developer is just barely willing to build at current prices. The 100 houses are all occupied, but 10 more people would like a house. 5 of the people currently occupying a house would like to move to a new house.

So, hypothetically, 5 people can move into a new house from an old house, 5 more people can replace them, and 5 more can move into a new house from nowhere (well, nowhere in our scenario; maybe they are from out of town, who knows).

Assume furthermore that under existing mortgage rules all these transactions can be accomplished (i.e., the 10 new people all qualify, as do the 5 people who want to move).

Now change the rules so it’s harder to get a mortgage. So the maximum that the various people looking for a house can pay drops. Now the developer can’t sell the new houses for as much, so they won’t build them (note: I said they were just barely willing to build under the old rules).

Obviously, real situations are insanely complicated compared to this. But at the margin these are exactly the sorts of things that can and do happen. I should have included some people who are in houses and moving out to retirement homes. Those people will, in general, sell for whatever they can get (although, at the margin, what they can get will influence their decision to move, just as with anybody). So they would still sell to people who want a house.

But the bottom line is, the only way to actually house more people is to build more housing. Messing around with the rules won’t build housing and has a good chance to making it more difficult to build housing.

This doesn’t mean we shouldn’t have rules. For example, houses would be noticeably cheaper if we got rid of the rules around fire safety and the plumbing and electrical codes; but of course people would be dying in fires, electrocuted, and poisoned by sewer gas and mould in huge numbers. But we do have to be careful to understand the actual economic impact of rule changes.

Even safety rules can go too far. Imagine changing the electrical safety rules in a way that doubles the cost of everything electrical from where it is, which eliminates half of the remaining deaths from electrical issues. It would take a detailed study to really figure this out, but I’m guessing the increased morbidity from people being homeless due to being unable to afford the more expensive housing would outweigh the numerically tiny reduction in deaths (since our electrical systems are already very safe). I’ve actually heard of an affordable housing project that was planned as a walkup. Code required an elevator. Result: no project built. Better overall? I doubt it; those people continued to live under bridges or wherever.

As for AirBnB I still disagree, travel is incredibly flexible, as we are seeing now...if AirBnB never was, the price to travel would be higher, and fewer people would do it, and the demand for travel accomodations would be lower.  I'm not saying that's a good thing, but it would mean certain local realestate markets would have a greater supply of housing.

When it comes to regulations...I mean, some are good, some are bad (some are very bad...I'm looking at you parking minimums), so I think regulations need to be smart and adaptive, but generally I think some regulation is absolutely needed, and Uber/AirBnB are the last folks I trust to actually do the regulating.

Yes, I agree we don’t want the people who run Uber/AirBNB/etc. running things. But to take an example, if the taxi business wasn’t a government-sanctioned cartel of existing license holders, then anybody with an idea on how to run a taxi better than the incumbents could try. As it is, only a huge company that can tie things up in the courts and do massive lobbying is capable of disrupting the existing taxi companies.