Why housing stays expensive despite building more

HostIt feels like a simple bit of math we all learned early on. If people need more of something, and you make more of it, the price should go down. We see it with phones or clothes or even food. But when it comes to the roof over our heads, that rule seems to just break. We see cranes in the sky and new flats going up everywhere, yet the rent stays sky high and buying a home feels like a dream that keeps moving further away. Why does the simple fix of just building more stuff not seem to work for housing?

GuestIt's a bit of a head scratcher if you only look at the numbers of buildings. But housing isn't like making a loaf of bread. When you build a house, the biggest cost often has nothing to do with the wood or the bricks. A huge part of the price is the land itself. In a city where everyone wants to live, that dirt is worth a fortune. Then you have to add in what we call soft costs. These are things like the money you pay to the city for permits, the pay for the people who draw the plans, and the interest on the big loans the builder takes out. If it takes three years to get the green light from the city to start digging, that's three years of interest building up. By the time the first person moves in, the builder has to charge a huge amount just to break even.

HostSo even if they wanted to build something cheap, the bill for just getting started is so high that they physically can't?

GuestThat's a big part of it. If the land and the red tape cost you a quarter of a million dollars before you even buy a single nail, you're not going to build a small, basic cottage. You're going to build a glass tower with a gym and a roof deck because those are the only homes that sell for enough to pay back those early costs. This is why everything new looks like a luxury flat. It's not always because builders are greedy, though they do want a profit. It's because the floor for how much it costs to build has been raised so high that basic housing has been priced out of the market.

HostBut even those fancy glass towers should help, right? If the rich people move into the new shiny tower, they leave their old, slightly less shiny flats behind for the rest of us. It's like how a used car is cheaper than a new one. But I'm not seeing these cheaper used flats anywhere.

GuestWell, that idea of older homes getting cheaper as new ones open up is real, but it takes a very long time. We call it filtering. The problem is that we stopped building enough homes decades ago. We have such a massive hole to fill that even a few new towers are just a drop in the bucket. And while we wait for those buildings to get old and cheap, the people living in them are getting richer too. Plus, houses don't sit in a box. They're part of a neighborhood. If a whole area gets popular, even the old, crumbly houses start costing more because of the shops and parks nearby. So the house gets worse, but the dirt it sits on gets way more expensive.

HostThat feels like a trap. We're stuck waiting for a wave that never hits the shore. And then there's the fight on the ground. Every time someone tries to build a simple block of flats, the neighbors come out to stop it. They say it'll ruin the look of the street or make it hard to park.

GuestThat's the local veto. It's one of the biggest reasons why we stay stuck. Most people who already own a home have a big reason to want prices to stay high. Their home is their life savings. If a bunch of new, cheap flats go up next door, they worry their own home value might stop growing or even go down. So they use city rules to slow things down. They ask for more studies on traffic, or they fight for rules that say every flat must have two parking spots. Those parking spots can cost fifty thousand dollars each to build. That cost goes straight onto the rent or the price of the home. It's a way to say no to new neighbors without actually saying the word no.

HostIt's a weird conflict. We want our own homes to be worth more so we can retire one day, but we want our kids to be able to afford a place in the same town. We're basically voting against our own families.

GuestYou hit the nail on the head. We treat a house as two things that don't play well together. It's a place to live, which should be cheap and easy to get. But it's also a bank account, which we want to grow as fast as possible. You can't have both. If housing is a great way to grow your wealth, that means it's getting more expensive for the next person. Lately, big money has noticed this too. Large firms are buying up thousands of family homes because they know we're not building enough. They see the shortage as a guaranteed way to make money. They're betting on the fact that we'll keep making it hard to build.

HostSo the very fact that it's a safe bet for a big company is proof that the system is broken for the rest of us.

GuestThe real trick is that there's no one single thing to blame. It's a mix of high land prices, rules that make it slow to build, and the fact that we all want our own patch of ground to be worth more tomorrow than it was yesterday. Until we decide that a house is more like a tool for living than a prize to be won, we're going to keep seeing those prices climb, no matter how many cranes are in the sky.

HostThe simple math of supply and demand works just fine, but we have spent a long time putting our thumb on the scale.

GuestWe built a world where a roof is a gold mine, and now we're surprised that nobody can afford to buy the gold.

HostThat simple loaf of bread becomes a lot harder to buy when everyone in town is betting on the price of wheat going up forever.