{"items": [{"author": "Julia", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658414325292", "anchor": "fb-658414325292", "service": "fb", "text": "Building high-end housing will generally increase the cost of existing housing, in my experience. The really tough part of the housing situation is that the people \"solving\" the problem are not out to help people but to make money. Developers are business people, not social workers. Most hope to increase the taxable values of land and buildings, so that they can sell their products for more profit. The mark-up depends so much on location. The cost of building is about $160 per square foot. If you can get $350 or $400 a square foot in a sale, then that location is totally prime.", "timestamp": "1399386235"}, {"author": "Jeff Kaufman", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658415837262", "anchor": "fb-658415837262", "service": "fb", "text": "@Julia: \"Building high-end housing will generally increase the cost of existing housing, in my experience.\"
Could you expand more on what your experience is here? This is a question I'm really interested in, but it's hard to know how to weigh your experience without more details.
\"the people 'solving' the problem are not out to help people but to make money\"
That by itself isn't necessarily a problem. If more housing would be helpful then it doesn't matter much whether the people building it are doing it for profit or charity.", "timestamp": "1399387588"}, {"author": "Hassan", "source_link": "https://plus.google.com/109686970531250960199", "anchor": "gp-1399387715411", "service": "gp", "text": "I think that filtering only makes sense if your housing market is essentially a closed system, and the units being constructed are a net gain.\u00a0\n
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\nThat is, the idea of filtering relies on the projection that new luxury housing will be filled by people living in slightly cheaper housing in the same area, moving everyone along a bit. But what if that's not true? What if, for instance, building luxury housing in the city actually draws in people previously living elsewhere, like in outlying suburbs? In this case, there may not be any filter effect.\u00a0\n
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\nIn the second case, it seems like filtering only works when the luxury housing is a net increase. If a developer buys an old factory building and makes it into luxury lofts, this adds a certain number of units to the market. But if the developer buys existing housing and renovates it, that might not be true. In fact, if a developer buys lower-income housing and converts it into a luxury option, it is very likely it will lead to an overall reduction in housing as units are consolidated or replaced by amenities. In that situation, we have lost more housing than people can filter up into.\u00a0\n
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\nI think the former problem is one that is very difficult to control, because trying to govern who gets to rent a unit is very messy. It does seem like the second one is easier to handle, though - just require that any developments on existing residential properties do not lead to an overall reduction in the number of units, either in the same structure or through partnered construction in the same area.\u00a0", "timestamp": 1399387715}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1399388873455", "service": "gp", "text": "@Hassan\n\u00a0\"What if, for instance, building luxury housing in the city actually draws in people previously living elsewhere, like in outlying suburbs? In this case, there may not be any filter effect.\"\n
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\nWouldn't the suburban houses get cheaper? \u00a0But it's definitely a point that the housing that gets cheaper might not be in the same place as the new housing.\n
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\n\"it seems like filtering only works when the luxury housing is a net increase\"\n
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\nYes. \u00a0But if you think filtering does work in that case then it probably makes sense to work hard to remove barriers to net increase instead of trying to make new construction affordable. \u00a0(It's also much harder to prevent renovation, especially amenity upgrades, than it is to prevent new construction.)", "timestamp": 1399388873}, {"author": "Ruthan", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658417708512", "anchor": "fb-658417708512", "service": "fb", "text": "I too am curious. There are a couple of Really Swanky Developments going up on the other side of downtown from where I want to live, and I keep hoping all the rich people will go live there so it'll be easier to find a rental.", "timestamp": "1399389208"}, {"author": "Julia", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658418876172", "anchor": "fb-658418876172", "service": "fb", "text": "Housing cost, like anything else, is based on supply and demand. Say I am a developer. I have money to invest. I am going to add housing until no one will buy or rent. In a high-end market in a high-demand location, the return is enormous. In my town, Bedford, a builder can get $350 a square foot for a house. Spend $450k on building, plus a fee of $300k for a lot - you can sell that house for $1 million. That raises the value at that location, and raises the overall value of the neighborhood - ergo, existing housing gets more expensive. A homeowner can sell to a developer and get more because the lot is worth a lot. There are houses in my neighborhood that have sold for over $400K that were torn down to provide space for a bigger, new house. Same for renting: if a house-owner can get a certain price for an apartment because there is high demand for housing in the town, then she will. Adding more housing in that town will continue as long as there are more renters desiring to move in than there is housing available. The mere fact that a developer will invest is a signal that the housing market is desirable. Hundreds of rental units have been added to my town, and the rents have gone up. Now, the one variable that is difficult to gauge is: How much would rents have gone up if there weren't new units being added? I think overall more housing helps a lot - it is just that developers are not going to let the profit from building go down if they can help it, because increases on existing homes gives a developer more opportunities because owners are more likely to sell to a developer who isn't asking to have the house upgraded or bringing in inspectors to get the sale price down. A developer will take a place \"as is\" which saves a lot of aggravation.", "timestamp": "1399390149"}, {"author": "Ben", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658419884152", "anchor": "fb-658419884152", "service": "fb", "text": "The single best examination of this phenomenon I have seen is http://techcrunch.com/2014/04/14/sf-housing/ Warning: it is long, but totally worth it.
The core idea that jumps out at me: cost of producing new housing is a relatively calculable thing, so barring constraints you should be able to forecast rents: cost + whatever profit margin shows up as the going rate in unconstrained markets. In places like San Francisco, you might hit constraints that start elevating price because 1) the permitting process is hostile to new builds, and no one can hit the market price with new supply, or 2) you actually hit maximum structural carrying capacity, irrespective of permitting, given current materials science. (Ie buildings as tall and together as we can make them.)
I do not see the latter bound happening except in places like downtown NYC, and I don't understand how prices could stay significantly elevated above costs barring the former; if that were the case, everyone would/could pile their cash into new builds and make money. The American middle class may be squeezed, but I do not think things are so bad that there would be no cash to resolve that sort of systematic irregularity. Also, it is what happens everywhere that does not have hostile permitting.", "timestamp": "1399390945"}, {"author": "BDan", "source_link": "https://plus.google.com/103775592027106438640", "anchor": "gp-1399392764763", "service": "gp", "text": "As I understand, in a lot of places poorer people are, in fact, being driven out to the suburbs. One of the problems, though, is that transportation costs are still very high in the suburbs (or even increasing, with increasing gas prices) despite housing prices decreasing. Housing prices in the suburbs have to go down a \nlot\n to be able to afford the car that you need to get around them.", "timestamp": 1399392764}, {"author": "Topher", "source_link": "https://www.facebook.com/jefftk/posts/658412478992?comment_id=658423666572", "anchor": "fb-658423666572", "service": "fb", "text": "One thing to consider is that even if the first units of housing built don't lower prices, building units to match population growth might. If 30k people have moved to your city in the past decade or so (as has happened in San Francisco) knowing the effect of building the next 1,000 units doesn't tell you much. You want to know the effect of building 10k or more units.", "timestamp": "1399393734"}, {"author": "Josh", "source_link": "https://plus.google.com/118273920476267337216", "anchor": "gp-1399430581792", "service": "gp", "text": "A simpler economic argument is \"if you increase supply, prices drop\", and corollary to that, \"if you restrict supply, prices go up\". It's probably not quite that simple, but that's a pretty powerful effect that anything more complicated should probably take into account.", "timestamp": 1399430581}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1399465201615", "service": "gp", "text": "@Josh\n\u00a0\"A simpler economic argument is 'if you increase supply, prices drop'\"\n
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\nSure, but if building luxury housing only decreased prices for luxury housing that wouldn't be solving the main problem.", "timestamp": 1399465201}, {"author": "Josh", "source_link": "https://plus.google.com/118273920476267337216", "anchor": "gp-1399470244443", "service": "gp", "text": "Sure, but that's more true if \"luxury housing\" is a different kind of thing from \"other housing\", and not just \"housing that's more expensive\".", "timestamp": 1399470244}, {"author": "Allison", "source_link": "https://plus.google.com/103741579182942078941", "anchor": "gp-1399564738638", "service": "gp", "text": "If I were to try and answer this question, I'd just get a lot of data: you'd need before/after prices in areas with housing development, and also for the same time period in areas of comparable housing costs, but without developments in that time range. \u00a0Gather lots of time-series pairs like this, and you can hopefully find a trend.", "timestamp": 1399564738}, {"author": "Marcus", "source_link": "https://plus.google.com/115811589251174483775", "anchor": "gp-1399932622863", "service": "gp", "text": "The argument against luxury housing that I've heard is slightly more complicated. Short version:\n
\n- Luxury housing gets built, bringing greater wealth into the neighborhood.\n
\n- Amenities to cater to the wealth, make the neighborhood more attractive to other higher income folks.\n
\n- They bid up the price of the lower rate housing.\n
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\nThis can be seen in practice.\u00a0 For example, the end of rent control in Cambridge caused the value of non-controlled properties to increase: \nhttp://seii.mit.edu/research/study/what-were-the-effects-of-ending-rent-control-in-cambridge-ma/\n
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\nRequiring affordable units just makes the market rate units more expensive, squeezing out middle income buyers or renters.\n
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\nThat being said, not building any housing is not a viable solution either, especially when you have an area where people are increasingly living, as they will bring up the prices of existing housing stock.\n
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\nIf you want more middle class housing, you need to build more middle class housing, either by requiring developers to construct it or by middle class public housing, like in Singapore or Hong Kong.\u00a0 Even if the \"filtering\" works, it's highly inefficient.\u00a0 For every moderately wealthy working professional who would be equally happy either buying a high rise condo in Downtown or renovating a Somerville triple-decker, there's going to be a much richer person scooping up a high end property for the two weeks a year they spend in Boston that would never consider the Somerville location.\n
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\nI posit that building middle class urban housing can be done profitably if we create a regulatory framework to incentivize it.\u00a0 Our current structures don't do a good job of this though.", "timestamp": 1399932622}, {"author": "Jeff Kaufman", "source_link": "https://plus.google.com/103013777355236494008", "anchor": "gp-1399941267851", "service": "gp", "text": "@Marcus\n\u00a0\"For example, the end of rent control in Cambridge caused the value of non-controlled properties to increase\"\n
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\nI haven't read the study you've linked yet, but I'm not sure it's looking at a relevant case. \u00a0It probably does show the progression you're talking about, but the question here isn't \"does upscaling existing units produce upward pressure on other units\" it's whether building additional upscale units produces more upward pressure via gentrification than downward pressure via increasing supply.\n
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\n\"For every moderately wealthy working professional who would be equally happy either buying a high rise condo in Downtown or renovating a Somerville triple-decker, there's going to be a much richer person scooping up a high end property for the two weeks a year they spend in Boston that would never consider the Somerville location.\"\n
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\nAs long as there are people wanting to buy high-rise condos Downtown we can just build skyscrapers and they'll pay for them. \u00a0At some point you run out of superrich people who want two-weeks-a-year condos, and I'm not actually sure there are very many people in that group.\n
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\n\"Even if the 'filtering' works, it's highly inefficient.\"\n
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\nIs it? \u00a0It seems to me that for the most part each unit added to the market does it's part to reduce housing prices through filtering, and it does it pretty quickly. \u00a0This is one reason people who already own houses tend to be against letting developers build more: it would decrease the value of the homes they've already paid for (or committed to paying for via highly leveraged investment).", "timestamp": 1399941267}, {"author": "Marcus", "source_link": "https://plus.google.com/115811589251174483775", "anchor": "gp-1399988297624", "service": "gp", "text": "@Jeff Kaufman\n ,\n
\nSecond homes are a huge percentage of the luxury market, to the point that some neighborhoods are increasing empty most of the year:\n
\nhttp://www.nytimes.com/2011/07/07/nyregion/more-apartments-are-empty-yet-rented-or-owned-census-finds.html?pagewanted=all\n
\nhttp://www.nytimes.com/2013/02/12/nyregion/paying-top-dollar-for-condos-and-leaving-them-empty.html\n
\nhttp://www.nytimes.com/2013/04/02/world/europe/a-slice-of-london-so-exclusive-even-the-owners-are-visitors.html?pagewanted=all\n
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\nAs to your last point, I've never heard anyone say they oppose new construction because it will threaten property values. That's usually a retort of those who favor the new construction.\u00a0 It's almost always, \"inconsistent with the character of the neighborhood\", or something like that. Again, from personal experience, (I grew up in a town with a lot of anti-growth sentiment), this belief is sincerely felt.\u00a0 People just don't like change; they're not really thinking about property values.", "timestamp": 1399988297}]}