In theory, when there is demand for something capitalists rush to satisfy that demand, competition among sharks results in all decreasing prices of that something, eventually everybody gets that something and start to want something else. So everybody is happy. Even a bum can buy a VCR or PC these days. Why housing market is different? Why capitalism can't satisfy stable housing demand through mass production, innovations, etc. etc. What went wrong? Suppose there is a burb with 250K houses on sale, why competitors don't build cheaper burb with 100k houses 10 miles away (there is plenty of land no matter what you'll say). Or we are witnessing the end of history in the construction industry and houses can't be built cheaper. Seems market economy is working in misterious ways as far as housing market concerned. It looks like a monopoly.

Well, your assertion is false. Sure there is plenty of land in Kansas and North Dakota, but who wants to live there? If you want to live in NYC, the land is pretty fucking limited.
Also if you want to live in a nice neigbourhood, you might just have to pay that 250K instead of buying a 100K house 10 miles away. Location,location,location.

There are certain differences in real estate that doesn't apply to other type of businesses:

1. Everyone has to live someone. You can live without a car or big screen TV, but you do have to live somewhere. And even renting effects houseprices...

2. RE market is affected very much by interest rates. One reason for the big runup in housing cost was the Fed's lowering of the interestrate in the last 3 years, so people could get very low mortgage rates.

3. It is not that easy to turn over an investment in housing. You can sell a car really fast if you decide to, that is not true in the RE industry, even if you are willing to take a big hit.

Also, it is not in the interest of the housebuilder to build cheap houses. The trouble and energy going into building a cheap house is not as much less as the cost, so they might just build a more expensive house with bigger profit. Just the same like with cars...

Well, your assertion is false. Sure there is plenty of land in Kansas and North Dakota, but who wants to live there?
Many people live there, and from what I know housing prices don't go down even there.


If you want to live in NYC, the land is pretty fucking limited.
Yup, land is so limited that blocks of ruins embelish NYC for many decades.


Also if you want to live in a nice neigbourhood, you might just have to pay that 250K instead of buying a 100K house 10 miles away.
It doesn't really matter. Lots of people would choose 100K homes over having no home. Besides, what if one will buy a $5k/acre of land and will decide to build a house? Then arguments about expensive land and location doesn't hold. Nevertherless, building a house is getting more expensive every year (inflation considered). Actually, most likely it will be more expensive to build a house than to buy one. Why building a PC is getting cheaper while building a house (of more and more dubious quality) is getting more expensive every year? What's the difference? That's not how mass production capitalism is supposed to work.

Location,location,location.

There are certain differences in real estate that doesn't apply to other type of businesses:

1. Everyone has to live someone. You can live without a car or big screen TV, but you do have to live somewhere. And even renting effects houseprices...
Everybody got to eat too (it's even more critical than shelter), but food prices got cheaper(at least frankenstein foods). And droughts&hurricanes effects foodprices too.

2. RE market is affected very much by interest rates. One reason for the big runup in housing cost was the Fed's lowering of the interestrate in the last 3 years, so people could get very low mortgage rates.
I'm more than sure that people were/are getting loans to buy VCRs (in 70th it was really expensive) and PCs, but PCs prices were dropping. If larger supply of money just run up prices it means little or no competition in this biz. One can just sit and wait until a buyer, having no choice, will pay whatever is asked.


3. It is not that easy to turn over an investment in housing. You can sell a car really fast if you decide to, that is not true in the RE industry, even if you are willing to take a big hit.

Also, it is not in the interest of the housebuilder to build cheap houses. The trouble and energy going into building a cheap house is not as much less as the cost, so they might just build a more expensive house with bigger profit. Just the same like with cars...
That's another sign of quasi monopoly and lack of competition. I don't imagine how something like that would be possible in home PC biz. The trouble and energy going into building an affordable PC is not as much less as the cost, so they might just build a more expensive $10k PC with bigger profit and wait until it would be sold at handsome profit as RE biz does.

In theory, when there is demand for something capitalists rush to satisfy that demand, competition among sharks results in all decreasing prices of that something, eventually everybody gets that something and start to want something else. So everybody is happy. Even a bum can buy a VCR or PC these days. Why housing market is different? Why capitalism can't satisfy stable housing demand through mass production, innovations, etc. etc. What went wrong? Suppose there is a burb with 250K houses on sale, why competitors don't build cheaper burb with 100k houses 10 miles away (there is plenty of land no matter what you'll say). Or we are witnessing the end of history in the construction industry and houses can't be built cheaper. Seems market economy is working in misterious ways as far as housing market concerned. It looks like a monopoly.

Syzygys' points are all in alignment. ;)

I would just add that the size and quality of houses keeps going up, which keeps adjusted prices constant as well. You see the same thing in some consumer electronics, where the top-end PC will always cost between 3K and 4K, and the best graphics cards are always around $500. Your bang-for-the-buck is going through the roof, even if the price is constant.

Houses now are not like houses 100 years ago. They now have internal plumbing, wiring (outlets keep getting more numerous every year), HVAC, and more. The quality is much greater, as roofs are now designed to last 30 years, and laminate beams give more strength to multiple floors. And the space we seem to "need" keeps expanding. Appliances and cabinetry are more advanced. We have garages for our vehicles, and paved driveways and landscaping.

The wonder of it all is what you can get for your money these days. I am a low-income worker and I live in what my grandparents would have seen as a castle. Three stories of spacious rooms, walk-in closets, entertainment systems, a view of a river, all perched on top of a forested hill. So I'm not so sure I agree with your assessment. Unless you are judging the entire market by looking at the worst-case scenarios, like NYC, San Francisco, Chicago and Miami. If so, that isn't quite a fair cross section of the RE market.



Edit: Competition will not allow your PC example. Nobody would buy the 10K PC because other manufacturers would come to market with a more reasonable price, and people would buy that one. This is why monopolies don't work in Capitalism. The reason people tore apart Standard Oil was because they were making oil TOO CHEAP! Shocking, I know. Not the history everyone learns. Pressure was brought to bear on Standard Oil by the inefficient competitors that couldn't offer the same product as cheaply as Standard Oil could. So these competitors lobbied congress in order to harm SO, and the consumer in return.

Producers do not determine the cost of what they sell, consumers do.

I'd like to add one factor that no one has mentioned. Being an architect, I know that affordable homes (cheap, but usable!) could be built easily. But the main problem is that, believe it or not, no one wants those "cheap" homes! Even people who can't afford the damned homes, want big, two-story, large, spacious rooms, etc!

So in addition to a builder or developer trying to make a profit, he must also be in touch with his market. He could build affordable housing, comfortable and adequate, but he has virtually no market. To see this trend, at least in the USA, check out the number of bank/mortgage foreclosures in the past few years.

Are we trying to keep up with the Joneses? Or has the Joneses now become something like the Trumps or the Hiltons??? :D

Baron Max

Baron Max

Good point Baron.

It seems that government doesn't have much of an incentive to allow cheap housing, since the property taxes would be lower. The government's incentive is to let be built only the most expensive mix of housing that the market can support. I disagree that cheap housing that is "comfortable and adequate" would not fly off the market.

Baron, if I wanted to build the cheapest possible "comfortable and adequate" shelter, like a glorified bunker or cave, what are the odds a typical city would approve the building permit, assuming there are no other impediments? Maybe typical building codes require relatively expensive building materials, even when cheaper materials will do. Can a quonset hut even meet the codes?

Part of the reason people want big houses now is because the appreciation has been above average in the past five years.

I disagree that cheap housing that is "comfortable and adequate" would not fly off the market.

Well, you can disagree all you want, but the fact is that it's not being done because it's not economically feasible for developers or builders.

As to the type of building ...if you follow all of the appropriate building codes, and zoning ordinances, etc., then you can build most anything that you want. Although I'll say that any city would NOT allow you to build a "cave", regardless of it following all the codes.

No, I think you're wrong about big houses ....and it's evidenced by the facts of all the foreclosures that are happening. People just simply buy what they WANT rather than what they can actually afford. And again, that's exactly, precisely, why the ARM (adjustable rate mortgages) were so popular ....Joe and Mary Poor-Folk could qualify for the mortgage based on the hope n' pray that the rate would go down! They lost the gamble ....and the banks foreclosed on the homes, by the thousands!

Baron Max

... the fact is that it's not being done because it's not economically feasible for developers or builders.
I believe that, but maybe it's not economically feasible because there isn't much profit in it, and not because cheap houses wouldn't readily sell.

As to the type of building ...if you follow all of the appropriate building codes, and zoning ordinances, etc., then you can build most anything that you want. Although I'll say that any city would NOT allow you to build a "cave", regardless of it following all the codes.
Why not the cave? (seriously) Does a "cave" include a covered basement? How about a quonset hut?

People just simply buy what they WANT rather than what they can actually afford.
I agree for the majority of purchases. But I think thousands of more fiscally prudent people in my area would be interested in those 700 sq. ft. "Katrina cottages" for $35K. I'm no expert on the topic though.

I think the issue is also a function of land prices. The higher the cost of the land, the smaller the percentage you save by building cheaper.

an incentive to allow cheap housing, since the property taxes would be lower.
... Baron, if I wanted to build the cheapest possible "comfortable and adequate" shelter, like a glorified bunker or cave, what are the odds a typical city would approve the building permit, assuming there are no other impediments?

Which planet are you on?

Housing is expensive primarily because the land is expensive, no matter what they spend on the bricks and mortar, not to mention the cost of the bribe to persuade the planning authority to grant the permisson.

People pay the inflated prices becaue of location, not for the walls and carpet.

You can still get a decent plot of land for $75K in the Seattle suburbs. Put a Katrina Cottage on it, your total is $110K. Maybe $150K with hefty fees. But the same-sized condo is $200K.