Thursday, April 21, 2005

Building Our Way Out Of The Bubble Won't Work

Often when the subject of affordable housing comes up, the knee-jerk reaction is "build more houses". In this Voice of San Diego piece, a veteran of the housing scene discusses why that's not working.

"The developers have learned a new trick after the last local real estate price bubble popped in 1989. It's called controlling the 'absorption rate.' It goes like this: A builder gets the land and zoning approvals to build new housing subdivisions, but only builds in small numbers of new homes. That is done for two reasons. One is to make sure that housing prices remain high by limiting the supply of new homes, and the other is to ensure that they can sell all the homes in each partial release of homes before they invest in the next."

"The San Diego Building Industry Association has done a very slick public relations job of linking the problem of a lack of affordable housing and regulatory restraints on unlimited homebuilding in the public's mind. The argument is that we could build a lot more homes if the regulations didn't get in the way."

"The truth is that builder actions to limit the number of homes they release into the market at any one time is a key factor driving up home prices, along with all the young speculators who are getting in with nothing down. Many of the speculators are going to go bust when the price bubble bursts, but the builders will continue to profit as much as they can."

5 Comments:

At 8:53 AM, Anonymous Anonymous said...

The problem with the whole home supply situation is that the builders control the land.

What the government should do is let the land developer develop the land, but then make them offer it to the public via public auction. Then people could buy land and sit on it and build at their convenience. Furthermore, it would get rid of the coersion between the land developers and the builders.

Everyone talks about how bad the Fed is during the bubble build up, but the land developers and builders are worse as far as I am concerned.

 
At 9:03 AM, Anonymous Anonymous said...

Wow, San Diego is in worse shape than I thought. I live here and I can't believe how bad things are getting in so short a time.

Two very large condo projects (affordable housing, yeah, right) are underway here in North Park, both right on bus lines. I have a feeling (if the builders don't go broke first) that by the time the units are ready to sell, the RE market as we know it now, will be long gone.

I have never seen such a corrupt city government. I'm afraid San diego is going to get what it deserves...........

 
At 9:10 AM, Anonymous LV_realprop said...

This is exactly what I've seen happening in las vegas over the past year from the local gov side. Subdivisions are being "unitized" rather than been processed as one or two large developments. The developers break the sub in several smaller "units" rather than one large development. This trend has has happened mainly over the past 6-9 months making my job all the more tedious dealing with 8 units of 50 lots rather than 4 units of 100. My original assumption was that this was done to minimize risk in an environment of rising interest rates but pealing away the surface one can gleem the real reason: greed. Thnx for the link Ben.

 
At 9:50 AM, Blogger Ben Jones said...

Thanks for the local info.

 
At 9:58 AM, Blogger John Law said...

don't they wanna do a land swap with the Fed gov at there in LV? if they create the illusion of not enough land, they can get that gov't land in a swap.

 

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