My question is more about adding new middle class and lower middle class homes (2000 sq ft homes, 800 sq ft apartments) and not tearing down the old ones. Also it includes the suburbs.
If you increase supply by X%, does price go down by Y%?
I don’t know to what degree housing demand is inelastic. A lot of people in high cost of living areas live with roommates, if costs go down enough then they will choose to get their own apartment or home. Also people who aren’t living in that city due to cost may move there if housing becomes affordable. So demand has some elasticity to it.
Also as prices go down, people upgrade. People in studios move into 1-2 bedroom apts. People in apartments buy homes, etc. I don’t know how that affects prices though. That sounds like a crab shell exchange where a lot of people just move up a bit, but the overall number of places doesn’t necessarily go up.
I recently heard the following quip: “You’d have to build another San Francisco on top of San Francisco to make a dent in the cost of housing.” Said by one of the people in charge of housing there, I think.
NY and London are not at all typical of most places, but somewhat more typical of places where there is a perceived ‘affordable housing crisis’. That generally has some element of a demographic change/stratification of richer people moving in. For example Hawaii was mentioned, and it’s often true in resortish type places. It’s also true of other magnets for high paid/wealthy people, like San Francisco and Seattle in the US, although those don’t have as much of the particular NY/London aspect of the international super wealthy wanting to own a home there, even if they don’t live there full time. But NY’s dynamics are also driven people who come to NY to live and work in very high paying jobs that are especially available in NY and more than they used to be, which is pretty much the story in the San Francisco Bay area.
It doesn’t seem there are many places which lack a demographic change toward more high paid/wealth people moving in yet have a perceived crisis in affordable housing. But part of the perception I think is the flip side of not immediately thinking about it in terms of the new influx, the flip side being to assume that if somebody could afford to live in NY or SF once, there must be policies to insure they always will be able to. But that’s not necessarily achievable consistent with any kind of economic efficiency or even fairness. It’s pretty clearly unfair to spend national taxes of people who live in low cost areas to subsidize people to live in NY, and there are limits to productive policies at a city level, if you also want the city to remain a magnet for advanced economic activity.
SamuelA mentioned rent control as a negative policy which it certainly is IMO. The only way you can get a true shortage of housing (people who simply move out of a place they can’t afford to live isn’t a shortage) is to control prices, which NY does on a massive scale. But realistically NY isn’t going to change that policy. If anything it will double down on it now with unified Democratic control of the NY state legislature since the last election (somewhat strangely, NY state controls the City of New York’s rent policy, not the city govt, though rent control [‘stabilization’ in the City] is basically limited to the City and a few surrounding counties).
Did you actually read the article linked above on Tokyo? It pretty much disproves everything you have said.
Since you are not going to read it, let me summarize :
Tokyo doesn’t suffer from NIMBYism because Japan uses national building codes, a shall-issue permitting system (you always get a building permit if you meet written guidelines, in a prompt manner), and national zoning laws and density zones.
These laws specifically permit very high density. So there are homes that are in the suburbs of Tokyo, where the land is extremely expensive, but the homes are only about 10-15 feet wide and 3-4 stories. They are perfectly livable surburban homes, and are available for 300-400k, a price affordable for most families.
There are also large apartment buildings. The city permits and encourages housing to be added faster than newcomers move to Tokyo, which is still growing despite Japan as a whole shrinking in population.
Weirdly, prices stay affordable with such a substantial supply of housing. Also there is a tremendous amount of renewal, with many of the homes being new or only a few years old, because among other things the national permitting system doesn’t let your neighbors say you can’t gut and rebuild whenever you want, and you also do not have to adhere to some archaic “look”. Because of this huge supply of new homes, sellers are forced to replace older homes or they won’t be able to sell at all.
Also, the earthquake resistance doesn’t seem to make the prices unaffordable, despite this being used as a common excuse in California.
The example of Tokyo proves nothing about the point you misunderstood before. Which was the a change in the demand curve for NY/London real estate is big reason that new construction there does not bring down prices. Tokyo though slowly growing compared to overall slow shrinking of the population of Japan, does not have anything like the flow of people and wealth into it from all the over the world like NY or London. It’s the fundamentally more insular center of a fundamentally more insular country.
And in fact the article itself is speaking of the construction of moderate cost units. Most construction in NY/London is high cost units, not just higher cost for a given unit, but bigger, better units to satisfy new demand a lot of which comes from those cities, including outside the US or UK; that just isn’t as true of Tokyo.
Zoning (and rent control in NY) are aggravating problems, but that doesn’t mean that new construction will always bring down prices ‘according to the laws of economics’, which is the point I corrected you on. You have to also consider if/how the demand curve is shifting. All I said was that NY shows how you can have lots of new construction that raises average prices. That’s obviously true in NY, so not ‘disproven’ but citing something else in Tokyo.
Lots of US cities also don’t major affordable housing issues. But again they uniformly also don’t have NY/London’s issue of influx of foreign wealth to anything like the same degree. And the US cities without perceived affordability problems also don’t have a comparable high wage mecca like NY or SF/Silicon Valley. Though it’s true almost no other major cities have NY’s and SF’ aggravating factor of rent control. And many US cities without perceived ‘affordable housing crises’ have the safety valve of room to build at lost cost in reasonably accessible suburbs (which Tokyo as well as NY does not have).
NY’s issue could certainly be ameliorated by phasing out rent stabilization, as I already said. But that’s not going to happen. Its problem could be ameliorated somewhat by zoning changes, no need for them to be national. But as long as there is a continuing inflow of international money and growth in big highly income stratified industries in NY, there’s a real limit to how much the ‘problem’ can be ‘fixed’ there. Especially when the ‘problem’ is artificially specified as it often is, as including it being necessarily for people who happen to live in NY, even if they aren’t in the workforce, to keep living there.
And in fact the article itself is speaking of the construction of moderate cost units. Most construction in NY/London is high cost units, not just higher cost for a given unit, but bigger, better units to satisfy new demand a lot of which comes from outside those cities, including outside the US or UK; that just isn’t as true of Tokyo.
