you could even argue that [...] building more luxury housing in SF would actually increase rents locally
You can argue a lot of things.
But the relationship between supply, demand and prices is very thoroughly studied. Facts are known!
I have never heard of such an effect happening in the real world, but then again I'm no expert. If anyone can provide a reference to an example, I am willing to be enlightened.
Increasing supply lowers the mean price for the market as a whole. The laws of supply and demand do not rule out local changes that run contrary to the overall market depending on the nature of the new supply.
To pick one particular example, Facebook's construction of 394 apartments next to its campus is actually driving up home prices in that part of Menlo Park because the apartments are nowhere near sufficient to meet the demands of Facebook employees but are accompanied by new commercial developments that make the surrounding property more attractive to other Facebook employees.
But I think the data can be interpreted in several ways.
If home prices are rising while apartments are being constructed, that doesn't have mean the price increase is caused by the construction.
For one thing, these units won't exist until 2016¹, so supply hasn't actually increased. It could also be that the area needs 1000 units to offset the increased demand. Or, as you imply, that the higher level of services make the area more attractive, rather than the added units themselves.
I would like to see actual studies by real economists to change my thoughts on this.
There are numerous known exceptions to simplistic supply/demand arguments, including Giffen goods, Veblen status, lack of insight on either side, information arbitrage, and so on.
It's not impossible some of them apply to city housing markets.
What annoys me about arguments about housing is that housing is clearly a systems problem, not a one-or-two-variable optimisation problem.
Availability and rental prices depend on a complex network of interacting drivers, not all of which are purely economic, and some of which aren't even local.
Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
It's not impossible some of them apply to city housing markets.
Yeah, that's why I asked for real world examples.
But I still haven't seen any. If this actually happens, there should be real world examples that people would bring up in these arguments, right?
Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
I don't want to be rude, but isn't this just this standard anti science handwaving? "The world is far more complex than western civilization can grasp, therefore my gut feel must be the real truth!"
I mean, it's fine to say a model isn't perfect, but unless you have a better one to replace it with, or at least a clear example of something wrong, you're not really helping.
To me the SF housing market conforms perfectly with the supply and demand model: With a huge rise in demand, and supply being kept almost constant, it predicts the kind of strong price rises we've seen last few years.
There are numerous known exceptions to simplistic supply/demand arguments, including Giffen goods, Veblen status, lack of insight on either side, information arbitrage, and so on.
It's not impossible some of them apply to city housing
markets.
If you think there is such effects you should make the case, rather than hint that they might exist.
Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
I think 95% of economists would take issue with that statement
Comments
You can argue a lot of things.
But the relationship between supply, demand and prices is very thoroughly studied. Facts are known!
I have never heard of such an effect happening in the real world, but then again I'm no expert. If anyone can provide a reference to an example, I am willing to be enlightened.
Increasing supply lowers the mean price for the market as a whole. The laws of supply and demand do not rule out local changes that run contrary to the overall market depending on the nature of the new supply.
To pick one particular example, Facebook's construction of 394 apartments next to its campus is actually driving up home prices in that part of Menlo Park because the apartments are nowhere near sufficient to meet the demands of Facebook employees but are accompanied by new commercial developments that make the surrounding property more attractive to other Facebook employees.
Thanks for providing a real world example!
But I think the data can be interpreted in several ways.
If home prices are rising while apartments are being constructed, that doesn't have mean the price increase is caused by the construction.
For one thing, these units won't exist until 2016¹, so supply hasn't actually increased. It could also be that the area needs 1000 units to offset the increased demand. Or, as you imply, that the higher level of services make the area more attractive, rather than the added units themselves.
I would like to see actual studies by real economists to change my thoughts on this.
¹ http://www.mercurynews.com/business/ci_27717752/facebook-flo...
because the apartments are nowhere near sufficient to meet the demands of Facebook employees
That's all you needed to say. Supply and demand works.
Facts are only facts if they're actually factual.
There are numerous known exceptions to simplistic supply/demand arguments, including Giffen goods, Veblen status, lack of insight on either side, information arbitrage, and so on.
It's not impossible some of them apply to city housing markets.
What annoys me about arguments about housing is that housing is clearly a systems problem, not a one-or-two-variable optimisation problem.
Availability and rental prices depend on a complex network of interacting drivers, not all of which are purely economic, and some of which aren't even local.
Supply and demand storytelling doesn't even begin to come close to providing a useful model of that network.
Yeah, that's why I asked for real world examples.
But I still haven't seen any. If this actually happens, there should be real world examples that people would bring up in these arguments, right?
I don't want to be rude, but isn't this just this standard anti science handwaving? "The world is far more complex than western civilization can grasp, therefore my gut feel must be the real truth!"
I mean, it's fine to say a model isn't perfect, but unless you have a better one to replace it with, or at least a clear example of something wrong, you're not really helping.
To me the SF housing market conforms perfectly with the supply and demand model: With a huge rise in demand, and supply being kept almost constant, it predicts the kind of strong price rises we've seen last few years.
If you think there is such effects you should make the case, rather than hint that they might exist.
I think 95% of economists would take issue with that statement