> If you’re going to argue that supply will only go up if you allow price to rise infinitely, you’re getting it backwards- the increase in supply is supposed to make the price go back down, that’s the whole idea. There is supposed to be a balance that develops that holds the price down to an affordable level.
The article argues that the people who construct apartment buildings operate on incentives. Their incentives are the revenue generated by the apartment over, say, 30 years and the cost of constructing the apartment (in materials, regulations, time, ...).
Decreasing the expected rents and/or increasing cost of construction should result in less new apartments (supply increase is slow or nonresistant).
Conversely, increasing the expected rents and/or decreasing cost of construction should result in more new apartments (supply increases quickly).
The article does not suggest:
>supply will only go up if you allow price to rise infinitely
but instead:
>> The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction.
Right, that works in theory, but in the real world it’s not happening. Once supply is increased, the price should go back to a lower equilibrium, right? So why isn’t that happening anywhere in the world? Because it’s a real estate bubble and speculators are buying because the price is high. Real estate prices drive rents not the other way around. They don’t care if the buildings are half vacant as long as they can sell them later for an even higher price. Demand by renters is irrelevant.
> Right, that works in theory, but in the real world it’s not happening.
This is a fair reasonable and response to the article. In essence you are arguing: the housing market can act irrationally and is seemingly disconnected from the underlying asset. Furthermore, people get hurt by these spikes in prices.
The reason I responded to your original comment was not to pick apart who is right but because you seemed to be attacking a point that the article didn't make.
> If you’re going to argue that supply will only go up if you allow price to rise infinitely, you’re getting it backwards- the increase in supply is supposed to make the price go back down, that’s the whole idea. There is supposed to be a balance that develops that holds the price down to an affordable level.
The article argues that the people who construct apartment buildings operate on incentives. Their incentives are the revenue generated by the apartment over, say, 30 years and the cost of constructing the apartment (in materials, regulations, time, ...).
Decreasing the expected rents and/or increasing cost of construction should result in less new apartments (supply increase is slow or nonresistant).
Conversely, increasing the expected rents and/or decreasing cost of construction should result in more new apartments (supply increases quickly).
The article does not suggest: >supply will only go up if you allow price to rise infinitely
but instead: >> The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction.