Quote:
Originally Posted by mhays
Of course it's true. And it has no similarities at all to the trickle down theory.
Look at the apartments we have today. Compare units from the 1970s to ones from the 1990s or 2000s. Guess which ones have lower rents per square foot.
But more importantly it's about supply staying ahead of demand. That keeps the landlords competing with each other vs. renters competing.
Apartment developers know this, and try to predict overbuilding, because that means rents flatten or even drop (concessions more than base rents). The development curve and the rent curve tend to follow each other...booms end with stagnant rents.
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I agree with this basic school of thought. All things being equal, more supply equals prices being lower than they otherwise would be.
As a general rule, I tend to discount those who argue that more construction leads to higher prices. IMO, they are often conflating demand with supply and tend to view the issue through a prisim of distrust toward developers/market-based approaches.
But, I do think there is an argument to be made in limited circumstances for "development inducing supply." The basic idea is that an increased residential base makes an localized area more desirable to live. It can sustain more ammenties and generally becomes more interesting. This drives more people to move to the area, etc. But, I tend to think this is limted to a particular area of the regional housing market and not the market as a whole. For example, in many sunbelt/rust belt cities living in the urban core simply isn't that desirable. There isn't the critical mass of core urban ammenities you find in SF, Chi, Bos, etc. As development takes off these ammenities grow and it attracts more and more of the region's affluent people who might otherwise chose an upscale suburb. So in this case, increased development would probably make urban living more desirable and therefore more expensive. But, it would make the previously desirable suburbs less expensive and lower housing prices across the region.
However, in the already desirable urban cities, I don't think this rule applys as much. Adding 10,000 new units to core SF is going to have less marginal impact on the ammenity base than adding 10,000 units to Cleveland. Here development in lower income areas may accentuate the gentrification of these specific neighborhoods, but the added development will take prices presure off prices across the urban core.
So while I don't think it is possible for additional housing development to make a regional housing market more expensive, it may make certain parts of it more expensive.