Discussing housing policy in left-wing spaces I often run into an
argument which is, essentially “building more units doesn’t help with
the housing shortage because so many will be bought by speculators
with no intention of living there.” This view, however, implies
there’s an excellent opportunity to get a ton of housing built at the
expense of these speculators, enough to bring down the cost of housing
and transfer enormous wealth from speculators to everyone else.
There is no necessary economic reason why increasing the total number
of housing units in a city helps make housing more affordable for poor
residents. Consider the pencil towers. Let’s say that in order to
build one, an early 20th century building full of lower-middle class
residents was purchased, the residents evicted, the building
flattened. There were 30 single-family units in the old building. Our
new pencil tower is 100 floors high and has 100 units. All of our
pencil tower’s units are full of state-of-the-art appliances and
high-end fixtures, and cost $2,000,000 each. They are swiftly bought
up, 20 by rich people who live in the city, 30 by rich people lured to
the city by its new pencil tower, and 50 by rich people who have no
intention of living in the city but think pencil tower condos are an
asset worth owning in a swiftly-gentrifying city.
While I don’t think this hypothetical is realistic, especially in its
proportions, I want to dig deeper into its implications. Let’s say
we build this tower of 100 units, funded by rich people. Then we let
developers keep building, and get dozens or hundreds of towers like
this, each one with 3x the units there were before, and all at no
expense to the public. At some point, these “rich people who have no
intention of living in the city” will realize that their investment
units aren’t so special after all, and the bubble will pop. Costs
will fall dramatically, since there will be far more “luxury” units
than people who can afford luxury prices.
What about the people who were living in the buildings before they
get rebuilt 3x bigger? Unfortunately, we are already losing cheap
housing quickly. Developers buy old cheap housing, gut it, and turn it
into fancy condos, all without increasing capacity. Building taller
is much more profitable, however, so if we let developers build towers
they’d do that instead.
Speculators who buy housing with no intention of living in it are
betting that we will continue to keep the supply of new housing
highly constrained and that housing prices will continue to
climb. Let’s prove them wrong and take their money.
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Discussing housing policy in left-wing spaces I often run into an argument which is, essentially “building more units doesn’t help with the housing shortage because so many will be bought by speculators with no intention of living there.” This view, however, implies there’s an excellent opportunity to get a ton of housing built at the expense of these speculators, enough to bring down the cost of housing and transfer enormous wealth from speculators to everyone else.
Here’s a recent example, Nathan Robinson writing in Current Affairs:
While I don’t think this hypothetical is realistic, especially in its proportions, I want to dig deeper into its implications. Let’s say we build this tower of 100 units, funded by rich people. Then we let developers keep building, and get dozens or hundreds of towers like this, each one with 3x the units there were before, and all at no expense to the public. At some point, these “rich people who have no intention of living in the city” will realize that their investment units aren’t so special after all, and the bubble will pop. Costs will fall dramatically, since there will be far more “luxury” units than people who can afford luxury prices.
What about the people who were living in the buildings before they get rebuilt 3x bigger? Unfortunately, we are already losing cheap housing quickly. Developers buy old cheap housing, gut it, and turn it into fancy condos, all without increasing capacity. Building taller is much more profitable, however, so if we let developers build towers they’d do that instead.
Speculators who buy housing with no intention of living in it are betting that we will continue to keep the supply of new housing highly constrained and that housing prices will continue to climb. Let’s prove them wrong and take their money.
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