Why would you produce more bread, milk, eggs as prices fall? You would of course wait for the next-pig cycle - when the starving masses pay any price to you.

The answer- essentials can never be a non-government interferring market. This can be by creating artifical oversupply by buying up oversupply for foreign aid or bio fuels(food production). In the case of housing, this is by having the goverment continually construct housing.

I'm confused by this objection, if you draw a stereotypical supply and demand curve, you can see how prices settle to an equilibrium point. Of course reality has more complications, but I think your objection is 95% answered by a supply and demand curve. You keep building houses when it is profitable. You stop when it is not. This naturally keeps everything in balance.

Because home builders don't make money by buying and selling houses, they make money by building them and selling them.

How can real estate have zero margin when housing rises exponentially in price?

No other good behaves like this. A midsize sedan didn't increase in price (in real term) over time, while new cars improved.

New houses don't really improve that much over time, yet are getting more more and more expensive.

Why is that?

Building codes also push prices higher. In the EU, the recent regulations force developers to build luxury buildings as a baseline, at a high cost.

Not all buildings require elevators, intelligent thermostats, triple-panel windows or electric car plugs. Especially when you are experiencing a housing crisis.

It's not necessarily prices falling here but the profitability of [demand] at [price]. Like if prices fall 10% but demand rises 20%, you would want to build more housing.

This is the beauty of the free market because it guarantees three things:

[1] Real estate is generally a good investment and will hold value or appreciate in the long term, because supply will adjust to demand shocks to rescue values

[2] If people want to live somewhere, houses will be built for them to live there

[3] Real estate developers and construction are solid, safe businesses with great unit economics because building may decrease prices, but may still increase demand

It's when you constrain and restrict a market that players have to adjust and then you get crazy scenarios

There is the possibility that the government builds housing, since the government doesn't have to care about direct profits and can include the overall economic effects of affordable housing in its calculations. We don't expect much direct profits from roads either, but we keep building more and more of them.

Of its still profitable to do so, considering opportunity costs for the capital, firms will continue to build. However, it's so expensive to build that these project wind up not becoming bankable very quickly. I think that's the underlying issue that needs to be addressed.

As long as the cost to build housing is less than the revenue from selling it, why wouldn't you?

It's not like homebuilders in Austin flee for North Carolina when the margins shift slightly.

It doesn't matter whether prices are going up or down, it matters if the price is more than the cost to build.

Thats how supply demand works right? Its a stable equilibrium. When supply is low, prices rises to entice supply, supply increases to match demand, prices fall, the rate of increase of supply falls as well until supply approaches to meet demand. It prevents oversupply. If supply slips below demand again prices will rise to pull it back up

Theres no problem here. Thats how the system should work

it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities

we can also make it cheaper to build. easing taxes on imported materials, bringing in more skilled labor, expediting permits, and even direct subsidies like tax breaks

This is how markets balance. When there is under supply prices go up and incentivize production. When there is oversupply production goes down. Prices converge on a small premium to the price of production.

>The problem is: why would you build more housing as prices fall?

So human beings with thoughts and feelings can live indoors. It's not hard.

To house people. Shelter is a basic need.

> already-near-zero margin on real estate development

Why is the margin so low when the prices are so high? Is it because the value of housing is already priced into the value of land?

> The problem is: why would you build more housing as prices fall?

Why would you want to? When you stop being able to sell more houses, that's the sign that you've built enough.

    > already-near-zero margin on real estate development

The prices may be falling, but if you can still make more profit (per unit time) building in Austin than elsewhere (due to less red tape or more local builders or whatever), building will occur.

Why let private developers build at all? The market provides perverse incentive to not house everyone.

That sounds like they could use some deregulation to keep margins healthy.

Supply increases until the market reaches saturation. The question is why build more housing if the current supply is sufficient?

This is an empirical claim. It looks like new monthly permits are down from ~4k a month in 2021-2022 to ~3k a month. They're still up significantly from before 2020. The building boom has slowed but it's still elevated. Not particularly close to zeroing out.

The data is here: https://fred.stlouisfed.org/series/AUST448BPPRIVSA.

In my state, or in my capital city, you say this, but the real estate developers are generally the top 1% in town. If they're running on razor-thin margins, I'm not seeing it - I am seeing them on my Facebook (being friends with the wife of the mayor) doing things like taking their kids on vacation to the French Riviera, Switzerland, Tokyo, the Maldives... well, alongside the City's Planning Committee commisioners and their families...

The point is that housing would be cheaper, not that it would become dirt cheap.

There are some inherent costs to new housing. Work of professionals involved, cost of materials, compliance with all technical regulations, some profit for the developer, connection to infrastructure. Let us mark this unavoidable cost by C. It is a component of the current prices.

Then there is the component N, which is deadweight cost caused by zoning and non-technical regulations. I am not saying that it should be 0, but it is in our interest that it is kept in check, maybe 20 per cent of C. As of now, in some places, it well may be 120 per cent of C, even though it is really hard to calculate.

This component of the final price directly enriches no one, it is pure friction caused by special interests of various parties that don't want to see any new housing either near them, or anywhere (landlord cartels that hate competition - indirect enrichment).

Even C is now a formidable figure. Modern homes are basically industrial robots, they are much more complicated from the inside than they were 100 years ago. But there isn't really a reason why they should be horribly expensive.

If as a regular office person you can buy a home for, say, 5x your annual income, it is not unaffordable. That is well, just normal. Not completely everyone is expected to own their home.

The problem is that nowadays, the multiplier in many places isn't 5x, but 10x or 12x. That is just way too much. And given that C cannot be easily massively reduced (unless some sort of massive robotization of construction work happens), you really need to attack N.

Construction costs don't scale linearly with rent prices, it's a different market altogether that depends on regulation/worker supply/material costs/equipment/etc.

As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build.

Huh? In Silicon Valley the objection is usually: even if we build more housing, prices won't fall.

So which way is it now?

> The problem is: why would you build more housing as prices fall?

Profitability is not black-and-white. Real estate investments can still be profitable if prices fall.

There are different types of real estate markets too. Working class homes in suburbs are not the same market as upper middle class apartments in an urban center.

A very interesting type of investment is high-density housing in catchment areas of new public transportation hubs. Those tend to be so profitable that they can even finance the investment in the public transportation service.

All you need is willingness to invest.

Maybe other real estate savvy people can help me understand this plus two other things I'm confused about in the housing crisis:

1. Houses are unaffordable for many Americans. To get houses to prices where they'd be affordable again would require a housing prices drop that would likely be, market-wide, significantly low enough to put a ton of people underwater on their mortgages. What is society/the government meant to do about that? Is it an insurmountable floor on how low we can get housing prices? That floor feels very close if so.

2. We've been promising the last five generations (or more) of Americans that a house is an Investment, capital I, an excellent place to keep your money. How do we overcome the political pressure to turn a house into a depreciating investment for the length of time required to get housing to be affordable again? What kind of politician would put their neck on the line to piss off every boomer and 75% of gen X and 30% of millennials, or whatever the house ownership distribution is?

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That gets automatically decided by the market. That's the beauty of markets. They automatically solve the local knowledge problem. It takes a government to create a lack of housing.