Two facts should slap you in the face when you see the supposed puzzle of housing shortages alongside slowing development.
First, like you say, that developers have no incentive to eat their own profit.
Second, that the problem is fundamentally one of income distribution, not housing market policy. If people (e.g. the homeless) need homes, and developers don't want to build them, it can only be because those people lack the purchasing power to draw those resources into use.
Nice clean example: NZ. The lowest disposable incomes here (for a single beneficiary) are $16,000 per annum. Housing affordability at the 30% benchmark would mean these people spend $5,000 on rent. That amount could service a $100,000 mortgage for the landlord. Which is about half what is needed to construct the cheapest unit imaginable, assuming free land. Even a full-time minimum wage earner has only $32,000 disposable, barely enough at the 30% benchmark to finance construction of the cheapest home.
If people aren't earning enough to finance the bricks and mortar (let alone land acquisition) for the cheapest housing possible then no housing market policy settings can fix that. If the problem can't be fixed in the housing market, but can be fixed by redistribution, it's an inequality problem, not a housing problem.
I suppose it makes for sexier careers and better headlines to pretend it's all about housing.
And it's certainly a nice bait-and-switch to blame the results of the neoliberal revolution on the neoliberal revolution not going far enough.
You make a compelling point... I hadn't considered the capitalised rent for low incomes vs construction cost. It's a bit surprising actually to see that these numbers don't stack up. Sort of makes you wonder why it's so expensive to build a home. I guess modern housing is a bit more sophisticated than a mud hut....
$100k could buy you a tiny home I guess. The hypothetical high density equivalent of that is probably buying a private room in a rooming-house with common facilities. Given income is the issue, then either we need to resolve the income side, subsidise the cost side, or promote rooming or share houses which can match that income level.
There's certainly a role for subsidised public housing for the poorest, but if 30% of even a full-time minimum wage salary can barely finance construction costs, then your public housing would have to extend a long way up the income ladder to solve the problem. The more direct solution is redistribution.
Why can't poor people afford construction costs? The cause isn't just low income per se, but inequality. Construction resources (skilled labour) are expensive because the wealthy have oodles of cash to spare for renovations and are sucking resources into high-end housing.
Some commentators in NZ have highlighted this point in advocating for a real estate wealth tax. Their goal isn't just redistribution of wealth, but of building sector resources.
Wealth inequality obviously makes scarce not only building resources, but more significantly, land.
The limitations in supply of both resources needed for housing creates a channel by which the wealth effect of stimulatory monetary policy makes the cost of living higher in absolute terms for the poor. Low interest rates, in other words, are good for asset owners but actually harmful (not neutral) for the rest.
I think the main way in which planning decision-making, which itself is affected by the 'Nimby' syndrome, affects the economics and viability of housing supply, and potentially the quantum of housing supplied, is by increasing costs and risks associated with projects.
For example, if you have fewer parcels of land that are planned for a particle type of housing that is in demand then developer's may end up paying more for those parcels due to greater competition in the market, i.e. ultimately developers need land to have projects and a business. Project delays due to planning decision-making also increase costs, e.g. holding costs for the land and costs for development consultants needed to navigate through the planning system.
Infrastructure costs are also big factor in both the viability of individual projects and in the real availability of land for development, i.e. high infrastructure headworks costs constrain the real availability of land for development and hence the level of competition for the available land, increasing the costs of acquisition.
Two facts should slap you in the face when you see the supposed puzzle of housing shortages alongside slowing development.
First, like you say, that developers have no incentive to eat their own profit.
Second, that the problem is fundamentally one of income distribution, not housing market policy. If people (e.g. the homeless) need homes, and developers don't want to build them, it can only be because those people lack the purchasing power to draw those resources into use.
Nice clean example: NZ. The lowest disposable incomes here (for a single beneficiary) are $16,000 per annum. Housing affordability at the 30% benchmark would mean these people spend $5,000 on rent. That amount could service a $100,000 mortgage for the landlord. Which is about half what is needed to construct the cheapest unit imaginable, assuming free land. Even a full-time minimum wage earner has only $32,000 disposable, barely enough at the 30% benchmark to finance construction of the cheapest home.
If people aren't earning enough to finance the bricks and mortar (let alone land acquisition) for the cheapest housing possible then no housing market policy settings can fix that. If the problem can't be fixed in the housing market, but can be fixed by redistribution, it's an inequality problem, not a housing problem.
I suppose it makes for sexier careers and better headlines to pretend it's all about housing.
And it's certainly a nice bait-and-switch to blame the results of the neoliberal revolution on the neoliberal revolution not going far enough.
You make a compelling point... I hadn't considered the capitalised rent for low incomes vs construction cost. It's a bit surprising actually to see that these numbers don't stack up. Sort of makes you wonder why it's so expensive to build a home. I guess modern housing is a bit more sophisticated than a mud hut....
$100k could buy you a tiny home I guess. The hypothetical high density equivalent of that is probably buying a private room in a rooming-house with common facilities. Given income is the issue, then either we need to resolve the income side, subsidise the cost side, or promote rooming or share houses which can match that income level.
There's certainly a role for subsidised public housing for the poorest, but if 30% of even a full-time minimum wage salary can barely finance construction costs, then your public housing would have to extend a long way up the income ladder to solve the problem. The more direct solution is redistribution.
Why can't poor people afford construction costs? The cause isn't just low income per se, but inequality. Construction resources (skilled labour) are expensive because the wealthy have oodles of cash to spare for renovations and are sucking resources into high-end housing.
Some commentators in NZ have highlighted this point in advocating for a real estate wealth tax. Their goal isn't just redistribution of wealth, but of building sector resources.
https://cdn.auckland.ac.nz/assets/business/about/our-research/research-institutes-and-centres/RPRC/publications/WP%202021-1%20Fair%20Economic%20Return%20St%20John%20and%20Baucher.pdf
Wealth inequality obviously makes scarce not only building resources, but more significantly, land.
The limitations in supply of both resources needed for housing creates a channel by which the wealth effect of stimulatory monetary policy makes the cost of living higher in absolute terms for the poor. Low interest rates, in other words, are good for asset owners but actually harmful (not neutral) for the rest.
Of course, in countries that don't have a housing crisis, public (or non-market) housing does in fact "extend a long way up the income ladder".
I think the main way in which planning decision-making, which itself is affected by the 'Nimby' syndrome, affects the economics and viability of housing supply, and potentially the quantum of housing supplied, is by increasing costs and risks associated with projects.
For example, if you have fewer parcels of land that are planned for a particle type of housing that is in demand then developer's may end up paying more for those parcels due to greater competition in the market, i.e. ultimately developers need land to have projects and a business. Project delays due to planning decision-making also increase costs, e.g. holding costs for the land and costs for development consultants needed to navigate through the planning system.
Infrastructure costs are also big factor in both the viability of individual projects and in the real availability of land for development, i.e. high infrastructure headworks costs constrain the real availability of land for development and hence the level of competition for the available land, increasing the costs of acquisition.