Free markets for housing are likely to settle into an "optimum" where some percentage of people cannot afford housing at all, because while construction of housing for them would net a return, it's not worth the opportunity cost.

Markets don't optimize for "everyone gets some", yet that's precisely what you need for housing. You'll always need the government to come in at some point to provide for those left behind by the free market.

I have struggled to understand why houses don't get built and land sits idle for years. I can only assume that it's significantly more complicated. I'm not trying to excuse the complications. I guess if the house prices are forecast to go up, you build some houses, but not all that you can because the longer you wait, the higher the profit will be on the ones you start later. If house prices are going down, even if it's profitable when you start, you're not likely to build houses because you might be left holding houses that will sell at a lower margin. If there was a tax on unused land, that might skew things towards building more even if prices are declining, but I'm sure there are lots of views on that.

Some would say that housing is a right (while acknowledging the need for housing construction and its workers and supplies to be paid for) and that it should be funded somehow, even if the free marker profit becomes negative during certain periods. Like any market manipulation, the question then would be how to intervene to keep housing construction going when construction isn't profitable, while not fomenting corruption in the industry.

If a minority has most of the wealth then the equilibrium supply may include a lot of supply of second homes, very large homes on large plots for the rich, properties sold at a premium based on how much they can extract from renters, and even investment properties occupied by nobody whilst still having insufficient small basic homes and dense housing.

Capital that could be invested in better serving the bottom half has to compete not only with the use of those resources to further enrich the rich but other investment opportunities.

What do you do when that equilibrium point is hopelessly above what the average person can afford?

Sure, so long as the balance involves not housing people which is pretty sick and twisted

This 1000x. Folks don’t get that the primary market != secondary market. Same as pre-IPO stock holder != IPO time buyer.

And... how is this relevant?

I'm not sure what you're trying to imply here. You should spell it out explicitly.

But building cost > sale value is possible.

Or land ends up better value left as suburban house than developing up.

Or they build where sale cost - build cost is maximized. I.e. different city.

Governments need to build more housing. Make it bland so snobs can price discrimnate themselves to buy builders' homes. Why thrifts by the government home for value for money (and quality).

> Like if prices fall 10% but demand rises 20%

Not as a developer you wouldn't...

You already have razor thin margins. Prices going down 10% means you cannot get financing for your project.

Holding real estate is generally a good investment. Developing real estate actually is not.

> Real estate developers and construction are solid, safe businesses with great unit economics

No they are not lol

It seems to me that the market will select for urban sprawl though which is a negative for society but has the highest margin. E.g. Houston suburbs, miles and miles of cheap to fab single family homes that turn it into a suburban hell scape where you have to drive everywhere.

I don't think the free market is giving the promises you say it is - supply isn't elastic for real estate if nobody's building because there's no margins. Demand can be anywhere really.

I like to look to Tokyo for an example. Small lots, extremely predictable regulations (that are still strict enough to ensure a safe living situation), fast approvals, mean it's much faster and easier to throw up an 8-10 story apartment than say downtown Austin, and so even today they keep doing it despite land in Tokyo being very expensive. And, no sprawl.

> [1] Real estate is generally a good investment and will hold value or appreciate in the long term, because supply will adjust to demand shocks to rescue values

Real estate is NOT supposed to be a good "investment" and only became so because the government started propping it up with bank bankstops, zoning, NIMBY, redlining, etc. If your pricing is working correctly, real-estate should be close to zero-sum.

Austin, in particular, had several nasty bust cycles where real estate prices tanked after overbuilding which is precisely what kept the cost of living under control. Alas, that is a thing of the past after 2008 when everybody realized that the federal government will backstop the banks "Real estate number must always go up! Brrrrr!"

No, not really.

It matters whether the margin is higher than other investment opportunities of similar scale and risk profile.

Already, the answer is very often no. In Austin, the answer will increasingly be no. That means people will not finance new construction, so if demand continues to grow it will outstrip supply and prices will go back up until the margin on new construction exceeds that of alternative investment opportunities of similar scale and risk profile.

That only makes sense if there is a positive externality from housing. Is there?

Because they don’t care about profits, they always end up overpaying and taking way longer time than necessary.

And who pays for that? The whole society: Either the government raises taxes, gets more in debt, or they print more money driving inflation up.

The most basic commodity, food, is a great example. The moment the government has ever step into controlling production of food, we’ve only seen subpar performance and starving people as a consequence. Ultimately killing millions (USRR, China, Korea…)

That is a good idea that requires careful attention to make sure it has near-perfect execution. Because we do that, and they are called 'the projects'.

> it doesn't matter if prices are falling or rising, it only matters how the ROI of building compares to other investment opportunities

Correct, which it basically doesn't in Austin, which is why construction is decelerating.

> we can also make it cheaper to build

Yep, this is the only structural solution. The "just add supply" runs into the problem of price equilibriums. The reality is the input costs of building housing basically guarantees that housing is hard-to-attain for any local market. We need to address the cost of inputs. Temporary reductions in price are temporary and the market will self-correct back to restrict supply (as we're seeing in Austin) until prices go back up to being hard-to-attain.

To create artificial scarcity on a free market, it should be either a direct monopoly, or a giant cartel that includes every single developer and has mechanisms of punishing the outliers.

How so?

Not to mention, Austin could just make it cheaper to build to offset lower sell prices. Gruber et al estimate permits are 50% of an LA home's price. Fix permitting and rent goes down 50% by your assumptions that developers build until margins are 0.

Assume austin is only half as bad as LA, a 25% rent decrease would be incredible

Gruber's paper: https://evansoltas.com/papers/Permitting_SoltasGruber2026.pd...

Highly restrictive development rules, often sold as ways to stick it to those very rich developers, are precisely what make them so rich. Only those with huge amounts of capital to spend can make it through the gauntlet of the rules and have big enough asset portfolios to stay in the game. They can bank land for decades, speculating on the best time to take their profits, all while others live through shortages of housing and do not have access to that land.

Those very processes that make it hard to develop keep out the scrappy up-start competition, the contractors that could be building houses all over if they had enough lawyers/planners/specialists to help them get through the system.

Look, for example, at LA, which has super super restrictive rules on what can be developed where, and has huge amounts of discretion at the political level, so that NIMBYs can block what they want. The only people who can build housing are developers who bribe the politicians (there was a somewhat recent arrest in LA on this, involving literal bags of cash, by the FBI).

Having simple, straightforward rules that are completely objective is the only way to try to flatten out the playing field. However such rules get shot down by NIMBYs precisely because they don't want the shady developers profiting off apartments! It's all highly ironic.

Well you see, we clearly need to armor the parts of the planes that have bullet holes in them upon return!

> As long as construction costs remain below the value of the units all-in, there's profit motive for developers to build.

Not true

Real estate development is extremely capital intensive and therefore it's a question of all-in cost of capital compared to other investment opportunities.

There's a big difference between land prices and the building prices. When costs rise 5% per year for a house that's untouched, that's almost entirely the land price going up.

You can make housing cheaper by putting more houses on the same amount of land. In high cost areas, the price of land dominates the cost of housing.

Political pressure to change the investment nature of housing can come from various directions, for example establishing a land value tax, which eliminates the financial incentive to speculate on rising land prices by keeping people out of your area, redistributes all those unearned land rents to the population equally, as is only fair, and also results in a lot of people selling land to be redeveloped taht are otherwise hoarding it when the rest of society would be using it a lot better. Of course, in societies with high levels of land ownership, the voting public usually tries to vote away such extremely fair taxes.

Politically, we must stop prioritizing the views of homeowners at the local level. They already got their reward, massive unearned capital gains on their residence, there's no need to give them priority on land use over the general needs of society.

#1 is the symptom, #2 is the problem.

High levels of home ownership combined with "local control" and "democracy" enables the "haves" who already own homes to weaponize government to keep supply low and home values high. Zoning restrictions, building codes, taxes, and other government tools are brought to bear to support this. The "have nots" don't have a chance.

Austin seems to be a counter-example when they "instituted an array of policy reforms" in 2015 that showed great results. Sadly the key may be appealing to the greed of existing homeowners. Changing zoning to allow tall apartment buildings where single family dwellings once stood lets existing home owners make even more money by selling than they'd make by continuing to restrict supply. While it's sad if that's the only path to success, we'll have to take small successes where we can find them.

I'd also rethink these questions under the assumption that incomes rise over time as the dollar reduces in purchasing power. The original premise was that due to inflation the cost you paid for a home would reduce your economic burden for housing. The slow and steady rise of inflation along with income would guarantee your loan to income ratio would improve.

The last few years have distorted this promise and I think some people have taken a more extreme view of the time window in the name of increased short-term profits.

All said the price you pay today being less of a burden over time was never meant to be a short-term profit motive in the discussion of homes as a economic safe haven.