Quote:
Originally Posted by LouisVanDerWright
Supply induced demand? You actually think people are moving to Logan Square because they are building TOD there? Lol...
Listen, nobody moves places because big new buildings are being built, big new buildings are built because people want to live there. All this is going to do is massively accelerate price gains. I'm already seeing $800k+ SFH sales in Avondale where there has been categorically no large scale new construction. At this rate I expect to start seeing $1mil+ sales in the next couple of years.
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Wait....what now? Are you serious? You authentically do not believe in a supply-induced demand effect?
That's crazy.
Of course it's a real phenomenon. Happens across real estate markets, be they office space, apartments, hotels, retail, logistics...what have you.
In some cases it may only be at the margin. In other cases, it's more significant in terms of overall market impact. There will typically be somewhat greater absorption, all else being equal, with incrementally larger amounts of new supply.
I'm not by any means a supply-sider in terms of my economic worldview, but I don't deny the existence of legitimate supply-side phenomena.
Again, in a lot of cases, this can be more at the margin.
It's interesting though that you gave such a great example, that I can use to illustrate my point. Logan Square - and all the new TOD, smaller-unit apartment developments. The fact that all those new units are coming online has absolutely pushed up unit absorption in recent years in that neighborhood. Unquestionably. This one isn't even at the margin....this is somewhat more substantial. Just think about it for two minutes. These options now exist in considerably larger numbers than they did just 4 or 5 years ago. And, they are attracting a lot more of certain demographic slices of the population, significant proportion of which previously wouldn't have considered - or would have given much less weight in search for housing to the neighborhood. These added choices in the form of this new product induces an absorption level in Logan Square that is somewhat above and beyond what it would be without them - hands down.
In the long-term, supply constraints (whatever form they take - physical, political, etc) certainly help to drive up price appreciation faster than would otherwise be the case - however, in the short-to even the-medium term, new construction itself (through this supply-induced demand effect) can sometimes actually play a role (again varies widely depending on a large number of variables) in driving up rent growth even faster - believe it or not. Again, back to your Logan Square example - this new type of construction is adding Milwaukee corridor buzz and foot traffic, and with it additional retail and restaurant options, thus helping to drive up overall Logan Square housing prices in the near-to-medium term above and beyond what the already strong appreciation would have been absent this new TOD investment. Again, long-term, perhaps a different story. But, this is one example of demand inducement from new supply at work.