I have a long annoying comment that's related only casually to this post; in fact it's in response to a recent Slow Boring post where Yglesias discusses short term rentals in the context of the U.S. housing market. He has a fascinating diagram that he uses to frame supply and demand for housing. It has four combinations:
-More Supply + More Demand=Boomtown; Florida, 19th century cities, Austin, etc...
-More Demand + Constrained Supply=Displacement; Kevin's life's work, the general hellscape of American housing, etc....
-Less Demand + Constrained Supply=Doom Loop; much or rural America, most cities in the 1960s, Detroit, etc...
-More Supply + Less Demand=???
That last scenario is fascinating to me, because although it describes some of the speculative real estate development in China I can't think of potential example here in the U.S. when it comes to housing. Some commercial office and retail architecture is experiencing this condition, but there's a potential for self correction through conversions, fire sales, and general population growth. I need to be careful with trying to provide a definitive answer because I'll end up repeating some version of Say's Law.
Given the general scarcity of all building types because of the persistence of scaled construction, the only way you could have a broad condition of More Supply + Less Demand is a Thanos type snap or Zombie apocalypse. There would be an inflationary surge from a monetary perspective, but a kind of "super-filtering" for all building types. It's amusing as a thought experiment, but such a rare (hopefully) scenario that it's not relevant to policy making. Just struck me, is that it does describe some darker periods of the Great Recession, though....
Great comment. And thanks for pointing me to the Yglesias post, which was excellent as always.
I think most of the time that outcomes are identified as more supply/less demand it’s mostly just a deep demand shock and people have a tendency to associate the bag holders as “dumb money” who overbuilt. I don’t know details about China. It might be an exception.
I write a lot about that here. Monetary inflation causes all prices to rise in unison. Variations in price changes, like in your rent, are caused by supply conditions.
I have a long annoying comment that's related only casually to this post; in fact it's in response to a recent Slow Boring post where Yglesias discusses short term rentals in the context of the U.S. housing market. He has a fascinating diagram that he uses to frame supply and demand for housing. It has four combinations:
-More Supply + More Demand=Boomtown; Florida, 19th century cities, Austin, etc...
-More Demand + Constrained Supply=Displacement; Kevin's life's work, the general hellscape of American housing, etc....
-Less Demand + Constrained Supply=Doom Loop; much or rural America, most cities in the 1960s, Detroit, etc...
-More Supply + Less Demand=???
That last scenario is fascinating to me, because although it describes some of the speculative real estate development in China I can't think of potential example here in the U.S. when it comes to housing. Some commercial office and retail architecture is experiencing this condition, but there's a potential for self correction through conversions, fire sales, and general population growth. I need to be careful with trying to provide a definitive answer because I'll end up repeating some version of Say's Law.
Given the general scarcity of all building types because of the persistence of scaled construction, the only way you could have a broad condition of More Supply + Less Demand is a Thanos type snap or Zombie apocalypse. There would be an inflationary surge from a monetary perspective, but a kind of "super-filtering" for all building types. It's amusing as a thought experiment, but such a rare (hopefully) scenario that it's not relevant to policy making. Just struck me, is that it does describe some darker periods of the Great Recession, though....
Great comment. And thanks for pointing me to the Yglesias post, which was excellent as always.
I think most of the time that outcomes are identified as more supply/less demand it’s mostly just a deep demand shock and people have a tendency to associate the bag holders as “dumb money” who overbuilt. I don’t know details about China. It might be an exception.
I don't know where you live, but my rent has risen by 42% in the last 3 years.
I write a lot about that here. Monetary inflation causes all prices to rise in unison. Variations in price changes, like in your rent, are caused by supply conditions.