I think the title is a correct statement, and probably there's some bad cycle of homeowners want to protect their investment → laws restricting development → it's hard to live.
BUT the economic reasoning that would back up that conclusion is like, absent? LIke the author seems to assume that the "natural" course of events is for home prices to increase at the same rate as inflation. But why would they?
Some of my family members bought apartments in Manhattan in the 80s and 90s. Now those apartments are worth a shit ton of money. IS that related the harsh restrictions on development in manhattan, probably. But it's also related to how Manhattan in the 90s was shitty and now it's nice. That's when Nas said "The city never sleeps, filled with villains and creeps. That's where I learned my hustle, had to scuffle with freaks." I hear a lot of stories about being mugged in central park and such from family members of that generation. So part of the reason those apartments are worth more is because they're more valuable in a real sense, because the location they're in is better.
How this article describes that:
And that reveals the true nature of housing prices. It’s not about the house, it’s about the location. Housing prices rise where more people want to move, but not enough houses are built to accommodate them. Aggregate housing prices do not rise because everyone’s retiling their bathrooms. They rise because the new demand outstrips the supply.
The current regime of “housing as an investment” rests on the idea that rising housing prices are good, because they generate wealth. And sure, a homeowner whose house value is rising fast enough is getting wealthier.
But it’s a fake version of wealth generation. The majority of the higher value comes from demand outstripping supply. Little actual value is being created, only transferred. Those who own houses gain wealth at the expense of the people who don’t, either through higher prices when buying or renting.
Real wealth generation should create value. It should create more goods, more services, more capabilities to do things we couldn’t before. But there’s minimal new value reflected in the rising house prices. Sure, there’s your sweat equity. But most of the house value is just “more people want in, and there’s nowhere to put them.”
OK, but why do more people want in? There's no increase in real value, but more people want it... for no reason? My brother lives in a rowhouse in Philadelphia, those are still quite affordable. What's the difference? The difference is the real increase in value of living in NYC, that it's actually nicer and there's better jobs there. That's why the population of philadelpha is the same as it was in 1990--"more people want in" isn't just some natural background process that has nothing to do with value.
Yes, development in manhattan hasn't been allowed to keep up with the increased demand for housing, but how big of a deal is that? Everyone gets so outraged, nobody seems to have an estimate of how much of a difference that made compared to other factors. The background assumption in this article seems to be not enough houses were built to accommodate the influx of people, and that's why housing works as an investment that rises in value faster than inflation. But what are the assumptions that imply it "should" have risen at the same rate as inflation, that if we hadn't been treating housing as an investment then the precise amount of development would have occurred so that the apartment prices keep pace with inflation?
It should increase at the level of inflation for the same thing everything else does
I think the title is a correct statement, and probably there's some bad cycle of homeowners want to protect their investment → laws restricting development → it's hard to live.
BUT the economic reasoning that would back up that conclusion is like, absent? LIke the author seems to assume that the "natural" course of events is for home prices to increase at the same rate as inflation. But why would they?
Some of my family members bought apartments in Manhattan in the 80s and 90s. Now those apartments are worth a shit ton of money. IS that related the harsh restrictions on development in manhattan, probably. But it's also related to how Manhattan in the 90s was shitty and now it's nice. That's when Nas said "The city never sleeps, filled with villains and creeps. That's where I learned my hustle, had to scuffle with freaks." I hear a lot of stories about being mugged in central park and such from family members of that generation. So part of the reason those apartments are worth more is because they're more valuable in a real sense, because the location they're in is better.
How this article describes that:
And that reveals the true nature of housing prices. It’s not about the house, it’s about the location. Housing prices rise where more people want to move, but not enough houses are built to accommodate them. Aggregate housing prices do not rise because everyone’s retiling their bathrooms. They rise because the new demand outstrips the supply.
The current regime of “housing as an investment” rests on the idea that rising housing prices are good, because they generate wealth. And sure, a homeowner whose house value is rising fast enough is getting wealthier.
But it’s a fake version of wealth generation. The majority of the higher value comes from demand outstripping supply. Little actual value is being created, only transferred. Those who own houses gain wealth at the expense of the people who don’t, either through higher prices when buying or renting.
Real wealth generation should create value. It should create more goods, more services, more capabilities to do things we couldn’t before. But there’s minimal new value reflected in the rising house prices. Sure, there’s your sweat equity. But most of the house value is just “more people want in, and there’s nowhere to put them.”
OK, but why do more people want in? There's no increase in real value, but more people want it... for no reason? My brother lives in a rowhouse in Philadelphia, those are still quite affordable. What's the difference? The difference is the real increase in value of living in NYC, that it's actually nicer and there's better jobs there. That's why the population of philadelpha is the same as it was in 1990--"more people want in" isn't just some natural background process that has nothing to do with value.
Yes, development in manhattan hasn't been allowed to keep up with the increased demand for housing, but how big of a deal is that? Everyone gets so outraged, nobody seems to have an estimate of how much of a difference that made compared to other factors. The background assumption in this article seems to be not enough houses were built to accommodate the influx of people, and that's why housing works as an investment that rises in value faster than inflation. But what are the assumptions that imply it "should" have risen at the same rate as inflation, that if we hadn't been treating housing as an investment then the precise amount of development would have occurred so that the apartment prices keep pace with inflation?
Because if housing supply isn't artificially constrained you should expect rising housing costs to lead to more building, which should lead to lower housing costs. Yes, there's an upper limit to this, in that you can only build so high and land is finite, but we're nowhere near that limit.
It should increase at the level of inflation for the same thing everything else does: Most other products do not have artificial scarcity legally mandated, so the rise in price reflects actual relative changes in the costs of making goods.
I would expect in a world without artificial constraints the price of housing in Manhattan would still have gone up, but nowhere near the levels it does in our world.
Except, as I already said, it's not the same product. A 2023 Manhattan apartment is actually better to live in than a 1995 Manhattan apartment, even if it's the same apartment. That's not true of a 2023 Manhattan loaf of bread. Where the city has stagnated, home prices often are low, but we tend to avoid those places.
Also, there's the fact that home prices depend on financing. That is, the money you actually pay is the nominal cost plus the interest paid. If I recall correctly, the rise in average home value, rather than in cities we want to live, seems to track pretty well the decrease in mortgage interest rates, so people are effectively paying a similar amount.
You're making a quantitative judgment without any quantitative knowledge to base it on. You don't know the relative contribution of artificial scarcity and other factors, and neither do I.
So to be clear, my point is not “housing should only ever increase by 2% per year and not a dime more”, but “In general, housing is like any other product and if it’s increasing in price in the long term, there are reasons for that other than demand shifts. If more people want to live in NYC, it’s not surprising that rent will go up in the short term. My point is: for any other market, you would not expect rising demand to lead to large permanent increased in cost, because if more people want e.g. surfboards, companies can just make more of the things. You don’t have to check with every surfboard rental place first.
Yes, since an apartment in Midtown Manhattan is not entirely substituteable for an apartment in Morningside heights, you might expect some increase in prices even if development is unchained.
Absent being able to look outside reality and compare all the universes where housing in NYC is restricted vs the ones that aren’t, we can’t exactly be certain. But in that absence, we say "For literally every other product, the long-term price is mostly correlated with the actual cost of making it, even as demand increases. Is there any reason to believe that the cost of building housing in NYC (not including extra costs from going through the various veto points) gone up as much as rent has?”










