Ask HN: Disrupt Housing?
11 comments
Several issues drive typical home prices. Among them are increases in buyer expectations and the cost of entitlement.
Before modern development regulations, the infrastructure costs of greenfield development such as roads, schools, parks, and emergency services could be passed on existing residents. There were few or no environmental regulations to deal with either.
As these costs are tied to entitlement upfront development costs rise, and thus the development of higher market segment products makes more economic sense - one feature of real-estate development is that it takes about the same amount of time money and effort to do a small budget project as a large budget one.
To see how far consumer expectations have changed imagine the 800 square foot Levittown floor plans being marketed for growing families today. http://tigger.uic.edu/~pbhales/Levittown/building.html
Of course the other piece of the puzzle is that housing in the US has been disrupted several times over the past 150 years, from balloon framing with dimensional lumber (factory production), the development of the mobile home (again, factory production), to modern large subdivision development such as the aforementioned Levittown (economies of scale using mobile production crews performing repetitive work).
The problem with robotic production is that the capital investment is high, the demand for the product cyclical, and the end product is not transportable in an assembled state (except for mobile or modular housing).
Before modern development regulations, the infrastructure costs of greenfield development such as roads, schools, parks, and emergency services could be passed on existing residents. There were few or no environmental regulations to deal with either.
As these costs are tied to entitlement upfront development costs rise, and thus the development of higher market segment products makes more economic sense - one feature of real-estate development is that it takes about the same amount of time money and effort to do a small budget project as a large budget one.
To see how far consumer expectations have changed imagine the 800 square foot Levittown floor plans being marketed for growing families today. http://tigger.uic.edu/~pbhales/Levittown/building.html
Of course the other piece of the puzzle is that housing in the US has been disrupted several times over the past 150 years, from balloon framing with dimensional lumber (factory production), the development of the mobile home (again, factory production), to modern large subdivision development such as the aforementioned Levittown (economies of scale using mobile production crews performing repetitive work).
The problem with robotic production is that the capital investment is high, the demand for the product cyclical, and the end product is not transportable in an assembled state (except for mobile or modular housing).
"Supply and demand" is the obvious answer, but it doesn't answer the follow-up questions: what's fueling the demand, or lowering the supply? The answer to those is: easy borrowing, and foreclosure stickiness. Actually, easy borrowing fueled the demand in the past, and the bubble is still deflating, slowly because of foreclosure stickiness. If people had to pay cash for houses I'm confident house prices would be half or less of what they are today, in most areas. If banks got rid of their non-performing mortgage loans in short order, I'm confident that would cut house prices in half in most areas.
House prices are also a hot political issue; namely, each generation wants future generations to pay excessively for their houses when they retire, so they support the gov't borrowing heavily to fuel house prices. (Of course they want future generations to pay for the gov't debt too.)
Improved robotics, materials and whatnot will have limited effect on house prices. A lot of the savings would be absorbed as greater profit for construction and renovation. You see this happening in the pre-fab industry. For the next decade at least, nothing beats buying an existing house, financially. Most houses in the US are selling for less than replacement cost.
House prices are also a hot political issue; namely, each generation wants future generations to pay excessively for their houses when they retire, so they support the gov't borrowing heavily to fuel house prices. (Of course they want future generations to pay for the gov't debt too.)
Improved robotics, materials and whatnot will have limited effect on house prices. A lot of the savings would be absorbed as greater profit for construction and renovation. You see this happening in the pre-fab industry. For the next decade at least, nothing beats buying an existing house, financially. Most houses in the US are selling for less than replacement cost.
> This may be a dumb question but why is housing so expensive? Or I guess to rephrase that question more correctly why DOES IT HAVE TO BE so expensive??
That's easy to answer -- housing is expensive because in an open market, prices rise in response to demand. More demand, higher price. Less demand, lower price.
> Do you think in the near future with improved robotics, materials, building methods that an average size home might cost $25000 instead of $250000?
Possible but not likely. The cost of a house includes the cost of the land the house sits on, and persistent rumors have it that they're not making any more land.
To see the sense of this, compare the cost of a house, with land, versus a similarly equipped mobile home, with wheels. The mobile home costs less because it has no land to call its own.
That's easy to answer -- housing is expensive because in an open market, prices rise in response to demand. More demand, higher price. Less demand, lower price.
> Do you think in the near future with improved robotics, materials, building methods that an average size home might cost $25000 instead of $250000?
Possible but not likely. The cost of a house includes the cost of the land the house sits on, and persistent rumors have it that they're not making any more land.
To see the sense of this, compare the cost of a house, with land, versus a similarly equipped mobile home, with wheels. The mobile home costs less because it has no land to call its own.
"why DOES IT HAVE TO BE so expensive"
It doesn't have to be. I live in a large city and all of these new apartment constructions are popping up.
The thing about new apartment constructions is that they come with gyms,parking spaces, roof top decks w/ bbq grills,movie theaters,etc. All things that I and many others don't need.Yet my option is pay for it or pay half and move into a 100yr old building with "vintage old world charm".
It would be nice to see a trend of new modern buildings with out the frills so people have some place affordable.
It doesn't have to be. I live in a large city and all of these new apartment constructions are popping up.
The thing about new apartment constructions is that they come with gyms,parking spaces, roof top decks w/ bbq grills,movie theaters,etc. All things that I and many others don't need.Yet my option is pay for it or pay half and move into a 100yr old building with "vintage old world charm".
It would be nice to see a trend of new modern buildings with out the frills so people have some place affordable.
Lowering house prices in Silicon Valley by 70% would be trivial: Let developers build what they want to build, where they want to build it.
Those with $1MM+ houses, however, oppose this for obvious reasons.
Those with $1MM+ houses, however, oppose this for obvious reasons.
Yes, sewage treatment and treated water supplies are completely optional for successful development, and unnecessarily increase the price of the house that is serviced by them.
You can provide you own protection, so you don't need the police (I'm actually half-serious on that), and firefighting is just a scam. Why, I bet that you could find an insurance company that would insure your house without it being protected by a fire district. Heck, you don't need homeowners insurance at all! Just buy your cheap house outright, and there's no need!
And zoning laws? Who needs them! People can live just as comfortably downwind of a sewage treatment plant or an oil refinery as they can by a lake! It's a scam, front to back!
And to answer the poster's original question, why is housing so expensive, read Adam Smith's "The Wealth of Nations." Even if you just pick it apart, and read the chapters you want, it's a fascinating description of .. well, the wealth of nations. Rents are part of that equation, and he covers it.
You can provide you own protection, so you don't need the police (I'm actually half-serious on that), and firefighting is just a scam. Why, I bet that you could find an insurance company that would insure your house without it being protected by a fire district. Heck, you don't need homeowners insurance at all! Just buy your cheap house outright, and there's no need!
And zoning laws? Who needs them! People can live just as comfortably downwind of a sewage treatment plant or an oil refinery as they can by a lake! It's a scam, front to back!
And to answer the poster's original question, why is housing so expensive, read Adam Smith's "The Wealth of Nations." Even if you just pick it apart, and read the chapters you want, it's a fascinating description of .. well, the wealth of nations. Rents are part of that equation, and he covers it.
This is also the case in the UK. Property price here is a trivial expression of the supply/demand function. Yet no one from any of the political parties will suggest the obvious: build. Those with £1MM+ houses (which includes all our politicians) seem to be against this (for some reason).
One factor that increases housing prices is that people are competing on houses near good schools, because of the importance of education.
But education might become less dependent on geography(by using remote ed tech) or in some scenarios(better AI) much less important, which will indirectly reduce housing costs.
Another option is a growing availability of remote jobs and better remote social lives( remote telepresence and video conferencing, access to great and varied food through sous-vide, generally better digital experiences) might also decrease the demand for city life.
But education might become less dependent on geography(by using remote ed tech) or in some scenarios(better AI) much less important, which will indirectly reduce housing costs.
Another option is a growing availability of remote jobs and better remote social lives( remote telepresence and video conferencing, access to great and varied food through sous-vide, generally better digital experiences) might also decrease the demand for city life.
One factor that increases housing prices is that people are competing on houses near good schools, because of the importance of education.
It's interesting that people who are in the business of selling houses and lots will tell buyers that they are selling a place "in a good school district" even in states like Minnesota, where there is statewide public school open enrollment, so that anyone can live anywhere in the state and send their children to schools anywhere in the state.
http://education.state.mn.us/MDE/StuSuc/EnrollChoice/index.h...
In my public school district, which aggressively seeks open-enrollment students, there are students enrolled with residence addresses in the territories of FORTY-ONE other public school districts. We happen to be homeschoolers who live in this school district for other reasons, but it amazes me how many families think they have to live in this school district to have their children in the schools here, when the law has been otherwise in Minnesota for more than twenty years now.
Agreed that decoupling work choices from residence address constraints will help change the market for housing. Having public school open enrollment in all states, with public school funding rules more like Minnesota's
http://www.house.leg.state.mn.us/hrd/pubs/mnschfin.pdf
might also help rationalize the housing market, but the example here shows that will be a slow process as families readjust their habits in shopping for housing.
It's interesting that people who are in the business of selling houses and lots will tell buyers that they are selling a place "in a good school district" even in states like Minnesota, where there is statewide public school open enrollment, so that anyone can live anywhere in the state and send their children to schools anywhere in the state.
http://education.state.mn.us/MDE/StuSuc/EnrollChoice/index.h...
In my public school district, which aggressively seeks open-enrollment students, there are students enrolled with residence addresses in the territories of FORTY-ONE other public school districts. We happen to be homeschoolers who live in this school district for other reasons, but it amazes me how many families think they have to live in this school district to have their children in the schools here, when the law has been otherwise in Minnesota for more than twenty years now.
Agreed that decoupling work choices from residence address constraints will help change the market for housing. Having public school open enrollment in all states, with public school funding rules more like Minnesota's
http://www.house.leg.state.mn.us/hrd/pubs/mnschfin.pdf
might also help rationalize the housing market, but the example here shows that will be a slow process as families readjust their habits in shopping for housing.
Open enrollment doesn't mean that your child will have the same experience as living in the district of the school. For example, your kid would likely be unable to walk to school, and would have a hard time hanging out with friends from school. School is important from a social perspective too.
I get the impression that the demand for city life is increasing. (Backed up by research by Richard Florida and others.)
One hundred years ago, industry located near natural resources or methods of transport. Large rivers, the Great Lakes, natural seaports, etc. were of huge practical importance, and most industries needed to be relatively close to related industries. So, for example, you saw lots of factories which made car parts in the general vicinity of Detroit.
A website, however, even a huge one like Google, you can make anywhere. And since access to natural resources is no longer really an issue, what's left? Access to people.
One hundred years ago, industry located near natural resources or methods of transport. Large rivers, the Great Lakes, natural seaports, etc. were of huge practical importance, and most industries needed to be relatively close to related industries. So, for example, you saw lots of factories which made car parts in the general vicinity of Detroit.
A website, however, even a huge one like Google, you can make anywhere. And since access to natural resources is no longer really an issue, what's left? Access to people.
Well, I'm not sure about that reducing the cost of housing. However, you bring up one point that could lead to answer to get to the $25,000. If instead of making the schools better, you make them really really bad, you might be on your way. But $25K is going to need more than just bad schools, you need crime, you need disrepair, slums etc. A lack of jobs could help as well, but that could have the effect of making $25K still too expensive.
so if ideal geography and location increases price of land thus increasing cost of living in an area...then is it possible to disrupt this scarcity of space problem?
Yes, yes and YES. I think there's huge possibilities here, but the challenge isn't in designing or construction, but of re-education. Some people think owning a traditional home (and cars etc) will make them happy.
We know that's not the case. Materials possessions and keeping up with the neighbours does not make people happy. That reality needs to be more widely accepted for a true disruption in the housing market.
My .02.
We know that's not the case. Materials possessions and keeping up with the neighbours does not make people happy. That reality needs to be more widely accepted for a true disruption in the housing market.
My .02.
I agree. If people changed the way they looked at what housing traditionally is I think it would allow for some new and innovative ideas.
It would take more than half the people changing. I'd love to buy a lot in my city and put a yurt on it, but the city / voters won't let me live in a yurt.
Well, if the answer is everyone has to become a hippy then housing can already be cheap. Go live in a commune. I don't think this issue is about cars and homes making people happy per se. I think the key here was "average home" not some completely unrealistic societal change that I sure wouldn't want any part of.
What's the alternative? I think it comes down to renting or buying. In the long run I'd say that owning leads to more happiness, since rent can be a lot more expensive in the long run (excluding buying during occasional housing bubbles).
I would argue that the more you own, the more you have to lose and the more vulnerable and fearful you are.
The less you own, and the less reliant you are on others and material possessions, the more at peace and happier you will be.
The less you own, and the less reliant you are on others and material possessions, the more at peace and happier you will be.
I agree in general, but I think most people are genuinely more at peace and happier when they have a permanent roof over their head at night, in which case it comes down to renting vs. buying. They can still have few material possessions at home. Some of my friends were mobile for years, living out of vehicles, but eventually decided that having an apartment or house is better.
Nothing is permanent in life.
As a counterexample, right now, I'm trapped in a job I don't want, because I signed a large rent (yes, I was dumb, but there weren't any good alternatives, there's a housing bubble in my country too).
I can't quit my job because of the rent. If I were an owner, I'd be able to quit. So, I exchanged one freedom for the other.
I can't quit my job because of the rent. If I were an owner, I'd be able to quit. So, I exchanged one freedom for the other.
Renting a place to live is form of reliance; in this case, the renter is relying on the landowner to maintain the property and allow the renter to live there. Ultimately, we have to choose between what freedoms we want and what freedoms we are willing to sacrifice to live a good life. I've rented for a while because I needed the freedom to move around, and it has been the right choice so far. My parents own a home, and it has been the right choice for them considering that they have settled in one location for a much longer time.
[deleted]
Supply and demand. A house which is 60 years old and has changed hands many times doesn't cost X because the owners are still paying off the materials. It's because demand is driving up the cost. Even with cheap materials, the land the house sits on may still be scarce (depending on the location.)
So in a sense housing will always be expensive because of scarcity of land and demand for housing?
Again, it depends on demand vs supply. Land in the middle of nowhere in Alaska is abundant with little demand, so land there isn't considered scarce. In Manhattan, New York, demand causes increased living space to be created by building upwards. In San Francisco, city restrictions on building heights limit supply (can't stack as high vertically as you can in Manhatten.)
When it comes to real estate the 3 most important things are location, location, location. Most city centers do not have options to allow more housing as they are fully built.
The improved materials already reduce the house building costs compared to 10-20 years ago but this mostly applies for rural areas....
The improved materials already reduce the house building costs compared to 10-20 years ago but this mostly applies for rural areas....
This really shouldn't be downvoted because it's completely right. Improved materials can have the opposite effect as well. There are other factors besides location but that's the primary issue. Now, two houses in the same neighborhood, comparable view, etc could vary in price because one is new, more modern, more energy efficient etc.
So what about increasing supply by building more?
most of the highly desirable areas are either fully built or land costs a fortune.
this is exactly the problem for housing prices: supply can't increase while more and more people want to live there(world population keeps growing and migration is at peak levels)
opposed to that there are countries, cities or neighbourhoods where you can buy property cheaper than the price of building it
this is exactly the problem for housing prices: supply can't increase while more and more people want to live there(world population keeps growing and migration is at peak levels)
opposed to that there are countries, cities or neighbourhoods where you can buy property cheaper than the price of building it
For example: a lot of Detroit, Michigan.
Not exactly the direction your question was heading, but check out http://shelterpub.com/ - they have a few books about building your own house (for considerably less money than buying one.) You still have to get the land somehow though.
Interesting TED talk on Automated Construction
http://www.youtube.com/watch?v=JdbJP8Gxqog&feature=playe...!
http://www.youtube.com/watch?v=JdbJP8Gxqog&feature=playe...!
Do you think in the near future with improved robotics, materials, building methods that an average size home might cost $25000 instead of $250000?