alt Hacker NewsIt'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
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It seems to me that the market will select for urban sprawl though which is a negative for society but has the highest margin. E.g. Houston suburbs, miles and miles of cheap to fab single family homes that turn it into a suburban hell scape where you have to drive everywhere.
I don't think the free market is giving the promises you say it is - supply isn't elastic for real estate if nobody's building because there's no margins. Demand can be anywhere really.
I like to look to Tokyo for an example. Small lots, extremely predictable regulations (that are still strict enough to ensure a safe living situation), fast approvals, mean it's much faster and easier to throw up an 8-10 story apartment than say downtown Austin, and so even today they keep doing it despite land in Tokyo being very expensive. And, no sprawl.
> [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
Real estate is NOT supposed to be a good "investment" and only became so because the government started propping it up with bank bankstops, zoning, NIMBY, redlining, etc. If your pricing is working correctly, real-estate should be close to zero-sum.
Austin, in particular, had several nasty bust cycles where real estate prices tanked after overbuilding which is precisely what kept the cost of living under control. Alas, that is a thing of the past after 2008 when everybody realized that the federal government will backstop the banks "Real estate number must always go up! Brrrrr!"
> Like if prices fall 10% but demand rises 20%
Not as a developer you wouldn't...
You already have razor thin margins. Prices going down 10% means you cannot get financing for your project.
Holding real estate is generally a good investment. Developing real estate actually is not.
> Real estate developers and construction are solid, safe businesses with great unit economics
No they are not lol