Housing builders don't want prices to fall. Nor do the investors who fund new construction and buy existing houses. In other words, the general public are not the ones you need to convince.
EDIT: Nor do existing homeowners want to see their house prices fall. So anything that relies upon them voting to change the value of their homes is a non-starter too.
Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.
No, but they want to profit from the existing prices, which they do by building new ones. Builders earn their money by building, not by gloating over the prices.
You're making a lot of bold claims in this thread based on this 10% figure. But what's the evidence that builders are doing this as part of some sort of strategy to keep prices high and not a normal level of vacancy due to turnover and general market inefficiency? (Some assets in all markets will be overpriced and not sell immediately. How do we know that 10% is too high?)
Your theory also ignores the fact that builders have other ways of investing their money. Why build a house and let it sit vacant when you could have just not built that house and invested the money elsewhere?
builders would always prefer to build more and sell more, if a home costs me 200k to build and it currently sells for 500k but current regulations only allow me to build 100 of them then that's $3m profit (actual margins aren't this high).
if a law comes along that suddenly gives me the power to build 200 but the asking price drops to 400k i'd rather build 200 homes and net $4m
All things being equal, companies want to sell as little as possible for as much as possible. We all want to make the most amount of money with the least amount of work.
You also need to factor in the time it takes to build a home. If I can build 100 homes a year I'd rather take $3m profit each year than build the cheaper homes for $2m profit. Sure, if I can scale up infinitely, then I'll go ahead and build infinite homes for infinite profit. But in the real world there is significant risk in scaling up. If I build too many homes and the prices go down, then I'm now hurting my own profits. It can be better for me to do the lower effort thing and build less for a higher profit margin.
Not to sound too much like a marxist, but @falcolas has a point here. If builders were offering a public service, they would likely sell their new homes (condos, townhomes, high-rises, etc.) for cost plus a reasonable percentage. But new homes go into a speculation market where the exchange value of the home factors in profit by the rentier class who add nothing to the value of the transaction.
> the rentier class who add nothing to the value of the transaction
I lived in one of the most expensive rental markets in the US for a while, so believe me, I'm not inclined to defend landlords, but the availability of rental units do serve a function. Even if we make the crazy assumption that a law forbidding the ownership of more than one residence would have resulted in a median home price one-third of what it actually was in my market, for half the time I lived there, I couldn't have afforded a down payment and a mortgage, and for the other half, I wouldn't have wanted to. There's a risk in tying up a significant chunk of your net worth in an illiquid asset.
For what it's worth, I believe rent-seeking (in the economic sense) behavior should be heavily discouraged as a matter of public policy, and believe that a system of taxation that is centered around land-value tax is the best way to achieve that, at least for residences.
> a public service [...] for cost plus a reasonable percentage
This type of regulation only makes sense for natural monopolies like utilities and whatnot.
The only parallel is that Marx also reasoned with a simplified, “armchair-economist” understanding that failed to account for credit, innovation, competition, risk, and return, among other things. Each of these are fundamentally critical aspects of the real economy, far better understood and articulated since his work. In modern times, we recognize Marxist principles are primarily designed to create disruptive but centralized authoritarian systems.
Marx's Das Kapital third volume is about the effect of credit and competition in a capitalist economy. Innovation and why it develops so much more in capitalist economies than in previous systems was something considered already in the first volume, like risk and return and how these are not the things that justify the capitalist profit. Marx also wrote very little about creating any system, only pointed general tendencies as part of his dialectics. Marx work is the culmination of classical economy, so much that is very hard to find a third option besides either abandon the core classical economy principles or becoming at least partially Marxist. While one could always disagree with the tenets of classical economy, and nowadays the great majority of economists are from other schools of thought, most attacks against Marx reverberated over the Internet are very unjust, originally formulated more based on political bias than on a real understanding; and then, they are inadvertently repeated by the dynamics of the Internet.
“Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.”
That’s a big problem. A lot of peoples retirement plans rely on the value of their house. I am one of them.
Builders don't make money on the resale of existing homes. They want new homes to fetch the highest price, but they can also earn money on volume. Nothing built, nothing sold. Existing homeowners are the blocker.
And increased construction doesn't mean home owner go underwater. That's a pretty extreme situation. Housing prices are unlikely to drop barring a disaster like 2007. Houses will become affordable even if the prices rise more slowly. Encouraging home ownership as a means to increase wealth really has to go away. It's the major contributing factor to the aforementioned reluctance of existing home owners.
Seriously. So many people have a low-information understanding of the housing market, and think that homebuilders somehow aren't rational actors. Why would people who make their money building houses be into lowering their profit margins and causing pricing shocks for their existing stock of houses that are in construction? Developers are incentivized to charge what the market will bear. It is public policy's job to reform the incentives so other market players see opportunities to build lower-priced and lower-margin housing stock - I think the best way to do this is to make public lending corporations that will provide 3% construction loans, which are far more attractive than the 8% to 10% presently charged by institutional lenders. Couple that with expedited permitting for these projects, and tie them to affordability standards, and that's a market disruption that makes sense for most people. But simply deregulating and hoping that prices will fall never, ever works.
> Nor do existing homeowners want to see their house prices fall.
In my area, people who own homes to live in (rather than as investments) love to see their house value fall because it reduces the amount they pay in property tax.
If my house value falls, broadly speaking, other ones fall. If my house value raises, broadly speaking, other ones raise.
Buying a house means, generally speaking, I can kinda "guarantee" I can afford that "quality" of house. It's like having a housing share that I can exchange for another similar house.
Starting homeowners who might want to move into a bigger home do want prices to fall as well. The loss in return of your current home is being royally offset by reduction in price when buying.
A lot of US cities are already spread out a lot. But businesses don’t spread very much but concentrate in a few hot spots. That leads to very long commutes. If remote work doesn’t become much more common people can’t move into that empty space because there is no way to earn a living there.
Certain social circles wants to live near each other. Moving away simply isn't an option in their head space. It would mean abandoning what they consider their family.
A vacant 2 bed room 1 bath house in Mansfield Ohio does not help the family of 5 in San Francisco let alone Cleveland. Where the vacancy is and the “quality” so to speak matters a lot.
Additionally, some percentage of homes have to be vacant to allow someone to move into it. You will need to provide evidence that the vacancy rate of a specific market is causing prices to go higher. Citing national statistics when talking about a local issue does not help.
Look at my post immediately previous to yours. It links to a Lending Tree study that indicates an inverse relationship between vacancy rate and median home price. Hawaii is an obvious outlier, but interestingly, so is New Jersey. (What's going on in Jersey?) The data in this study is broken down by state; SMSA would probably be better, but I didn't spend a lot of time digging up data.
That data backs up what I am saying though. The national average means nothing, even state averages means nothing if where you are looking for housing, the vacancies are either not high enough to facilitate moving people around or are in conditions or floor plans that do not fit your needs. Not every vacant unit of housing is equally fungible.
California having one of the lowest vacancy rates and one of the highest median housing rates means there potentially needs to be a much higher rate of vacant units to lower housing prices if they are as inversely related as you describe.
If you trust the data (some of which comes from the 2020 census), it implies a nation-wide vacancy rate of 11.67%. Which was lower than I suspected, but higher than @falcolas' guess at 10%.
Also... I think I saw something go by indicating prices were still falling, at least in some markets.
Though that last one is a little confusing, citing data from the last three months in one section and data over 2 years in another. But it does (at least) make a nod towards explaining pricing in terms of supply and demand. I assert, and I think this is similar to @falcolas' point, that participation in the market by builders, foreign and domestic investors and banks has veered US house pricing noticeably away from true elasticity.
I do not damn builders for trying to increase their profits. We're a "wealth creation" economy, after all. But there does seem to be some conflict between stated national policy objectives of "affordable housing" and "profitable housing market." Alas, I bemoan the erosion of sensible policy-making in Washington. In the old days we would have just come out and said something like "we have affordable housing targets and will manipulate the market to achieve them." Now we're too spooked to say anything lest we upset the markets; or at least it seems.
Necessary for someone to move into that city, for one thing.
In practical terms, also necessary to facilitate the functioning of the market. Most homes are sold by living people (rather than by their estates). They can't sell their house without someplace else lined up to move into.
Ah. I thought we were talking about new homes, which are sold by builders (or the bank if the builder goes bust.) On the secondary market, opportunities for weirdness certainly exists. Investors buy older homes as well as new. And my sense is fewer people are looking to buy homes in this market with mortgage rates having gone up recently. I think people who don't HAVE to sell their homes are waiting it out until rates go down and they think they can get more for their home. I have no data to back that up, it's just anecdata from talking to a few realtors and noticing there are fewer homes listed on zillow in areas I've been looking at for the last several years.
Which is to say... I think there's less inventory than we would have seen had rates remained lower. But that's sort of unrelated to the issue of builders manipulating their rates of inventory creation (which I can't imagine they don't do, at least in response to macro-economic conditions.) The reason I think they should be treated differently is it takes a noticeable amount of time for a builder to build a house. First they have to negotiate financing and insurance, negotiate plans with the county, recruit a construction crew, etc. Home owners in the secondary market can respond to market conditions much faster.
EDIT: Nor do existing homeowners want to see their house prices fall. So anything that relies upon them voting to change the value of their homes is a non-starter too.
Plus, houses are touted as a major investment vehicle for the average citizen. If they all go underwater due to lowered prices, it'll result in a pretty big economic crisis. So most government agencies won't want to see house prices go down too much either.