I disagree.
The root problem that causes high prices of food/housing/healthcare is the lack of supply for food/housing/healthcare. The root problem that causes low supply of food/housing/healthcare is government regulation. There is enormous market incentive to provide more food/housing/healthcare, increase supply, and decrease prices. However, governments have made it difficult or impossible for the market to provide more food/housing/healthcare.
Even if someone's paycheck is the same over 30 years, if the prices of things go down (as they have for nearly all products and services except food/housing/healthcare), their purchasing power would increase and they are by definition wealthier.
You can't discount Baumol's cost disease. While it's true that government regulation is some part of it, like real declines in home building productivity in the previous decade or two, that certainly is not the root of the problem.
Beyond limits to theoretical growth in productivity for these areas, there absolutely are perverse incentives in all of those industries.
For example, 40% of corn in the US goes towards <10% of of gas via ethanol. Even without subsidies, refiners would likely use some ethanol because it's a cheap octane booster.
Insurers weren't regulating healthcare prices before the ACA and now face a profit limit tied to payouts -- which creates another perverse incentive. Doctors are incentivized to specialize instead of entering family medicine. They're also incentivized to run more tests defensively because they charge more and it reduces liability for malpractice.
Even in areas that are more builder-friendly, there is still incentive to build denser housing (which is more efficient) that maximizes return per sq ft. So you get studios, 1 bedroom, and 2 bedroom homes. And larger homes (built outside of onerous zoning areas) that more amenable to raising families end up creating unsustainable costs for local municipalities through sprawl.
Some of these areas can be addressed by a free market but maintaining a healthy market that minimizes perverse incentives requires significant tweaking (i.e. regulations)
I don't think building homes is really prohibitive due to regulations. I know it varies a lot by region of course. But I'm in an area that isn't really effected by earthquakes and has no frost line/need for basement/etc. I've built a few houses as a GC. It's land more than anything that's gone up in the past ~15 years since I first started in it. That's purely a market force. Second is skilled labor, even unskilled labor honestly. There's just a massive shortage of people doing manual labor/sweaty work, and I typically have access to a major pool of immigrants as we border Mexico. In terms of materials, there's some regulated things we have to do more of now, like insulation and other energy efficiency things but it's rather small in the scope of things. I currently own a 1950s built mid-century modern that was built in a time of low regs here. If I were to build it exactly as it is (to past codes) and simultaneously build it again (to current codes), the current code version would only be about 10% more. Likewise, if I demolished it and just sold the land, I'd still get about 90-100% of what it's market rate is right now. That market rate has ~quadrupled in the 15 years I've owned that house and to reiterate, the home itself is nearly worthless. I'm not in a fastly gentrifying area either. I'd say it's affluent but it always has been since I owned it, it's become more common to just knock down the original homes and build new.
This is the case because government regulation makes it difficult, illegal, or impossible to increase supply of food/housing/healthcare and drive down prices.
I'd like to advertise deregulating housing construction as a very clear way to help solve desperate housing problems in many countries (such as in the USA and much of Europe). You can check out more about it here.
https://www.econlib.org/build-baby-build-now-under-construct...
If market forces were allowed to operate, these needs would be fulfilled. Instead, the usa and a lot of europe have an enormous amount of regulation and government involvement in housing, healthcare, and food.
Those of us who want progress and the world to be a better place to live should politically push for deregulation in these three markets/industries.
An unregulated (or just less-regulated) free market is not going to fix health care cost. The problem is we treat it as a market, full of middle-men spooning away profit, and where people get care generally proportional to the amount they spend.
This is a No True Scotsman fallacy. If America, the #1 champion of free market capitalism cannot get it right, then it may be impossible. Communists claimed the same: they say it didn't work because we haven't tried "true communism" yet.
Housing and health care are really expensive and are increasing in price in the usa. And yet, the prices of almost everything else (entertainment, clothes, cosmetic surgery, etc) is going down over time in the usa. I wonder if it has something to do with how much the local, state, and federal governments involves themselves and regulate housing and healthcare? (hint: it does)
I share your frustration with only overpriced, luxury housing being built. However, I think you are misattributing the blame here.
The reason why only expensive luxury housing gets built in so many areas is almost always because the local government only allows developers to build luxury apartments. If housing construction was deregulated, then actual rampant capitalism would see profit in building affordable housing and then build affordable housing. Take a look at things like ibuprofen. Ibuprofen is a pretty awesome medicine, but it isn't only for rich people now. It is very cheap and affordable. Same with cell phones.
Not talking about luxury. It is about raising prices on what was affordable 5 years ago. Companies/Corporations purchasing the rentals in the area and doubling the rent because a website told them they should.
I feel you there with only luxury housing being the only kind of housing being built in many areas. Honestly, a lot of it is damn ugly too. Allowing developers to construct non-luxury housing would help much more than only allowing them to build luxury housing.
I'm not even sure it's entirely a matter of being blocked from doing so as much as the incentives merely not being there. What is the incentive for a developer to build affordable housing? The margins are surely much lower.
The city could set rent restrictions on new development and all that, but that removes the incentive for developers to actually build in that area at all, especially when they can just find an unrestricted space to develop a couple miles away in the next town.
>What is the incentive for a developer to build affordable housing? The margins are surely much lower.
This makes sense to me, and I hear it all the time, but when was it ever in a builder's interest to make affordable housing? Why does this perverse incentive seem like a recent thing?
My wild guess would be urban renewal grants and drastically lower land costs made it easier to recoup investments. I'm sure that's only part of the equation though. Part of it is probably also just the realization they could be making more money.
where i live (Boston) it is impossible to build anything new that is not qualified as "luxury" because its competing with a 150 year old tenement with 20year old appliances.
i dont even know what it would mean to build a new non-luxury apartment. No one has ever explained this to me. New housing is always lampooned as being shit quality yet luxury at the same time just because it has.... cabinets that arent falling off the walls and a floor that isnt slanted so badly that i roll away from my desk?
When the existing current housing stock is so old and bad you just need to build to bring up the average quality of an apartment. Rich people will go to the new stuff and it brings up the floor of housing quality.
Same here. I am in a small midwestern USA city of less than 100k people. Someone got a grant to build some housing. Instead of building affordable housing they tried to build a huge "luxury" apartment complex with rent way above average for the city.
Ithaca built a lot of housing in the last few years but is still said to be the most expensive small city in the US. Some of these buildings have a high fraction of "affordable" units, but one "luxury development for seniors" is about as late as a nuclear reactor and hasn't found any tenants because... seniors who have money go to Florida and don't stay in upstate NY.
where i live (Boston) it is impossible to build anything new that is not qualified as "luxury" because its competing with a 150 year old tenement with 20year old appliances.
i dont even know what it would mean to build a new non-luxury apartment. No one has ever explained this to me. New housing is always lampooned as being shit quality yet luxury at the same time just because it has.... cabinets that arent falling off the walls and a floor that isnt slanted so badly that i roll away from my desk?
When the existing current housing stock is so old and bad you just need to build to bring up the average quality of an apartment. Rich people will go to the new stuff and it brings up the floor of housing quality.
I'd like to advertise deregulating housing construction as a very clear way to help solve desperate housing problems in many countries (such as in the USA). You can check out more about it here https://www.econlib.org/build-baby-build-now-under-construct...
Yes it does. Every new home adds supply and lowers the price of homes along the demand curve. Not to mention increasing the tax base to fund public housing.
Is this the real estate version of the "trickle down" theory?
You take half the land left in the county for construction and build 5 mil mansions with ridiculous garden acrage instead of more affordable houses. You've now constrained yourself in the number of affordable homes you can build in your county in the future, as land is finite. Maybe you took a few k's off the 10 mil mansions for a short while. Congratulations.
I don't think building high-end housing will completely solve homelessness, no, but it is a non-trivial improvement especially when it comes to tax revenues that can be used to build public housing.
We only build high-end housing in CA because it's wildly expensive to build housing at all. It's especially expensive exactly because the cost of the "affordable" (subsidized) housing that is required for most of these developments has to be passed to the home buyers, not the general public (who should be funding subsidized housing), which means the housing will be wildly expensive regardless.
Again, the idea that building "high end" (market rate) housing does nothing is just wrong. It's part of an approach that honestly deals with the problem of public housing funding, as will as market rates. The if we want the market to start producing housing for the middle class (and we should want that), we'll need to make it inexpensive and accessible to build so that normal people can redevelop their homes, we take the delta in property values, and use that money to fund public housing for those people most in need.
>the idea that building "high-end" housing does nothing is just wrong.
Not sure anyone said this. The parent said it does nothing to solve homelessness and unless the homeowners are housing homeless people in their mansions, I think they're by and large correct.
And you still have to contend with the luxury homes taking away future building potential by occupying a ridiculous amount of finite land that a county has available.
People call it a housing crisis for a reason. You don't solve a crisis by championing something by arguing "hey, it's not nothing" anymore than you would attempt to solve a famine crisis by dripping a couple of drops of water in a few malnourished kids' mouthes.
It's literally what the person I was responding to said:
>>But here in California every state law deregulating real estate development has been abused by developers to build more $2M-$3M houses.
>>This does NOTHING to help homelessness...
Given the Prop 13 tax environment. Building expensive homes is a necessary condition to facilitate local tax revenues necessary to build public housing.
I would never argue that just allowing high-end homes is enough. I'm saying that allowing high-end homes is also part of the holistic solution. OP is the one saying that it does nothing. It does not do nothing. It's not a "one or another" thing... we need to build more homes at every income level, and there is no way to do that without largely deregulating the housing environment so that developers cannot simply all target the luxury market.
>It's literally what the person I was responding to saidz
This is funny, I literally quoted the exact line you quoted.
In good faith, let me perfectly clear:
As I said in my previous comment and you requoted: Their original comment said it does nothing to help homelessness (my emphasis, again).
They did not claim it does absolutely nothing at all to help the housing pool in some little way, which I believe are the words your are putting in their mouth.
You implied in your original comment that they were also saying the latter, and by doing so, you moved the discussion from homelessness to whether or not an action helps in some small way to bring home prices down. The latter may help the upper middle class housing situation perhaps but is not guarenteed to allieviate homelessness in anyway and may in fact do nothing to help it, or at least, that point still has to be argued.
That is the distinction.
>I'm saying allowing high-end homes is part of the solution.
Yes I understand that. Somehow though the luxury homes that were promised are always built, but if anything fails to materialize it's the affordable housing that was promised--the very thing the high-end homes were supposed to finance.
Also in good faith. My entire point is that housing is an ecosystem. To say that "homelessness" is somehow independent of this housing ecosystem is to focus on the blemish, not the disease.
If we literally build enough houses to house the current homeless people and did nothing else, in a few years time we would have more homeless people to house.
>Somehow though the luxury homes that were promised are always built, but if anything fails to materialize it's the affordable housing that was promised--the very thing the high-end homes were supposed to finance.
I mean, this is an easy thing to say, but is a very complicated in actuality, and I go to the meetings in SF and I know exactly what is happening.
The "luxury homes", really, mostly just market-rate homes (if you want real luxury homes in San Francisco, go to Pacific Heights where you will bay $10M, not $1.5M), they are allowed to be built, and the vast majority of the do have deed restricted "affordable" homes attached, these are quickly distributed via lottery. However, one of the reason why these "luxury" homes are so expensive as that the costs of those deed restricted homes must be included in the market rate homes. This is just how it's done in CA.
The public housing in SF is constantly plagued by both funding problems and political problems. The funding problems are mainly that (1) for the reasons in Ezra Klein's Abundance, since they are public projects, the cost at least twice as much to build as private developments, and (2) the cities promising these homes have not secured funding when the promises are made, and finally (3) while financing is being secured, the spaces get put to alternative use that local residence value and then when it comes time to actually build the housing, it is not politically viable because they residents will lose the fun thing they have had since the project started.
I feel I don't need to explain point (1) because Ezra Klein literally just wrote a book about it.
Point (2) is just a regular part of politics, and in SF it's an insane political position, where the Progressive candidates both promise housing without securing financing and then blame Moderate politicians (especially at the state level) for not carving out state funding for SF specific projects. This is just good politics when you're looking for a villain, because you get to win both with the promises, and the broken promises. It's also the reason I kick and scream so much about how actual luxury housing is extremely effective at bringing in new revenues for public housing because even with insane laws like Prop 13 that are slowly starving our cities of tax revenue, building new, dense high cost housing dramatically increases revenues that can be used to develop public housing that can otherwise not be built. Talk is cheap, tying new property tax revenue to public housing development actually gets things done.
Point (3) refers to the iconic failure that is San Francisco's "Biergarten" housing site. The city delayed development of the housing site, and leased the land for alternative use, in this case, the Biergarten outdoor bar was started and became successful. Fifteen years later there is no housing and the bar is still there. Why? Because closing the bar to build housing, public or otherwise, is too politically unpopular now because while the housing is needed, it is effectively a net loss for existing residents. I specifically fought against a similar proposal for 730 Stanyan public housing project at neighborhood meetings where residents were kicking and screaming that we should put the land to "good use" while the development stalled, specifically because the site was promised for housing without any financing in place. Thankfully the proposals were rejected, and the public housing project will soon be open to the public.
I'm extremely passionate about housing policy. Housing should be approaching the cost of production of housing, like in Vienna. Instead, because we treat housing as a kind of piecemeal project where the whole goal is to solve some specific need, we miss the point entirely. We should be building as much housing as is practically possible, specifically to drive the cost of housing as close to the cost of production. We can have aesthetic concerns here, but folks who want low density should not be rent-seeking in major cities. That's exactly what suburban environments are there to serve. If we care about the welfare of our middle-class, lower-classes, and homeless, we need to prioritize every aspect of the housing ecosystem, and the means we must build luxury housing to fund public housing. We should be approving every single luxury housing project.
When you have moderate Democrats (who say they want to solve the housing crisis for the poor and lower middle class) and fiscal conservative Republicans both championing "deregulation" and "abundance"(?) in the abstract while being cheerled by the same group of billionaires and private equity firms, you know one of them is the sucker.
hint: its not the fiscal conservatives, billionaires or private equity firms.
Those guys will say, "Hey, thanks for getting these poor folk to vote against their interest. We'll take it from here and proceed to build the luxury buildings that were too annoying to build before instead of those unseemly affordable housing projects."
