What the heck happened to supply and demand economics?

Question

What happened to the basic understanding of supply and demand? I didn’t grow up in a financially savvy household, but even as a kid I remember having a distinct awareness and understanding of supply and demand and its impact on prices. There is so much discussion and legislation going on in our country about the need to implement rent control through major metros, and even state wide, in addition to how our government needs strip away landlord rights such as basic screening and ability to evict tenants out of their own personal property. This is INSANE. We are already seeing property owners in places like Seattle and New York moving out of the market or going through the process taking rentals off the market reducing overall supply.

Looking at new housing (commercial and residential) build data nationally over the past 20 years reveals a significant decline following the 2008 market crash that has really lasted to this day. Current new build numbers aren’t even where they were in the late 90’s and that drop in building is clearly starting to show up as an issue as our population growth didn’t stop during that time. I know markets are complex and different, and there are many factors involved in the housing issues in San Francisco, Los Angeles etc. But the public just doesn’t seem to understand that we need to encourage investors and developers to build, not place crazy restrictions and limitations on those who are trying to provide housing. There are so many complicated stats, figures, etc. out there but the basic principles of supply and demand hold true and I just can’t believe I’m seeing such a breakdown in the public’s ability to recognize this. Better zoning laws, less restrictions and red tape, and continued tax incentives for builders and investors is needed to address the housing crisis, not increased government. If I’m missing something or way off base, I’d love to hear your input because I’m just trying to wrap my head around why this doesn’t seem to register with much of our country…or at least incite more people to question it.

Account Closed · Answer

People love the idea of other people being responsible for their financial well being here in Seattle #socialism 🤣

Pratik P. · Answer

Basic economics and facts don't really matter to our politicians. It's all about saying what needs to be said to get votes. They're trying to ban evictions during the winter (however you define that) in Seattle as if they don't know that there would be mass foreclosures from tenants not paying rent for months at a time...this stuff is the reason why I just stopped looking at hold opportunities in the west coast.

Will Barnard · Answer

Preaching to the quire here. It is very frustrating for sure and just one of a million frustrations our government gives us. They always like to bring a rocket launcher to a knife fight. I am a firm believer in letting the markets work themselves out and supply and demand is just one of those. More tenant rights and restrictions on landlords in how much they charge is NOT the answer. In CA, they finally passed worth while laws starting next year that allow landowners with single family zoning to build ADU's (accessory dwelling units, AKA guest house) without all the municipalities having the ability to make their own restrictions. Additionally, the new laws will allow a homeowner to build not just one but two ADU units. I'm not a huge fan of that portion as one neighbor who purchased in a nice residential neighborhood may not like the fact that his neighbor has two rental units in the backyard but none the less, this is a better law than restricting landlords how much they can charge to "create affordable housing". If they want to create affordable housing, then look in the outskirts of the city or give these people education or on the job training to make more money rather than giving them hand outs all the time.

All we can do right now as investors is buy right and invest our money the best way we can fighting through all the hurdles in front of us.

Scott Passman · Answer

@Brian Hughes "I would say 80% of the crowd of supporters there was somewhere in their late teens through mid 20's"

This is an interesting observation because it does seem like a lot of the push for these policies is coming from the younger generations as part of the social justice reform that has been a major topic recently. The problem is I would venture to guess that only a fraction of millennials on down (disclosure: I am in the millennial generation) have any real conceptual understanding of what socialism actually is and how its policies effect society as whole. The idea always sounds appealing (wealth for all, everybody is equal, no more haves and have nots), but its reality is that everybody will be equal....just equally poor and stripped of their rights while the government is freely given absolute control.

This is a little tangential but it's in line with this topic, I see a lot of conversation now about lowering the voting age to 16. This is terrifying. To think that as soon as next year we could have 16 and 17 year old kids who have virtually no real world life experience and minimal contextual understanding of past policies, economics, national history, etc. swaying election results is only going to push even more short sighted agendas that have a good tag line but don't have the fundamental framework to actually solve the real problems. Like Account Closed stated we already have a growing problem of individuals assuming that it's a fundamental right for them to be financially taken care of by others. Allowing kids who have never had to be financially responsible for themselves vote and determine policies is only going to further ingrain that because they haven't had the opportunity to see how the world really works. There are a lot of smart kids out there who can make a real difference in their community and our country, but that doesn't mean voting laws should be changed as there are many other ways they can contribute.

Pat L. · Answer

I recently read an article where a high school teacher decided to teach, any students interested, basic financials/budgeting & I assume Eco 1 for dummies . It was an evening class on his own time.

19 students showed up for the first class including several parents.

Over the years we have walked many adult kids through their financials to eventually own a home & we are still amazed by the lack of basic financial knowledge & an understanding of what that innocent couple of Starbucks/day adds up to.

I remember (in Australia) when they dropped our voting, drinking & smoking age to 18 because we were being conscripted for 'Nam at 18. Voting is still a compulsory civic DUTY or you are fined. Most pre-18 teens were already smoking & drinking on our nude & topless beaches but you couldn't buy Playboy until 21.

Allowing kids 16 to vote, may not be such a big deal especially if we can get them before they are indoctrinated & indebted by the college of their parents financial/social status choice.

John Barrett · Answer

@Scott Passman as others have stated, the idea of getting something for free is really appealing to many people these days. I also understand and sympathize that real wages have been flat and that the cost of housing has greatly increased over the same time period. That said, this situation has more to do with restrictive building codes than any of the other stated factors. Call me cynical but I have yet to hear anyone in government admit that this situation is the logical conclusion to years of bad/failed policy decisions.

Rather they hold protests against those "other people" in this case landlords as the villains of their story. You can replace landlords with just about any other group (Billionaires, the wealthy, Amazon, Microsoft, Tech Bro's, etc.) and the message is essentially the same. Someone else is responsible for the mess we find ourselves in. It's much more convenient to try an enact policies that target the symptoms rather than addressing the fundamental issues.

I am still hopeful that we will get some actual leadership from our elected officials on these issues as doing so is the only real way help those most affected / impacted. Regardless of all the blame games and shenanigans ultimately only adding additional supply will produce the results everyone desires.

John

Scott Kimberly · Answer

The issue, to me, isn't that people don't want to invest in new builds, its that they have to be a certain size to be viable and no one wants them. The price of materials always goes up, the price of houses always go up, but wages have stagnated for 40 years. That combined with younger generations not wanting to buy massive houses creates a real housing problem.

Real Estate has been able to run wild for decades because there was enough room to between home value and wages. Now, in a lot of areas (but not all), the wages cannot sustain the prices. I will say that arbitrarily raising wages is not the solution, but wages do need to accelerate faster than inflation for a number of years to make up for lost time. Once wages catch up to where they should be, then they should just pace inflation.

Brian Hughes · Answer

I suspect one (of many) of the fundamental issues here I think is extreme risk aversion borne out by many of the people pushing for laws like this. In September I attended a seattle city council meeting where our avowed socialist city council member proposed her rent control ordinance. I would say 80% of the crowd of of supporters there was somewhere in their late teens through mid 20's. Most of the rest looked to be elderly/retirees.

Theorizing here, but for the younger crowd they would have been in childhood formative years 10-12 years ago during the height of the last housing bubble / great recesssion. I suppose many of them saw their own family or somebody they knew go through a period of instability. (Of course, several complaints voiced by speakers at that meeting was (paraphrased/aggregated) "I'm an engineering student and I'm too poor to rent a wallingford house without having 4 roommates" - er... boo hoo? Wait a few years mr. ms. newly-minted UW engineer and that salary will catch up fast.)

Fast forward now, and many probably think the easiest/safest route to their own security is - yes - to force somebody else to buffer them from financial and other risks. One angle of that is rent control and all these ordinances making it harder to screen for qualified/acceptable risk tenants and harder to remove bad tenants.

I wonder if it will make news if and when the first landlord in seattle is foreclosed on during the annual 5 month eviction moratarium now proposed by same city council member (because its inhumane to evict when you need to wear a coat outside)

Joe Villeneuve · Answer

Supply and demand is always there. they don't always equal eachother, and they take turns which one leads the other. It's what defines a seller/buyer market.

...and, you can't use any % (they all lie anyway) to judge this. Especially ones that are "all country inclusive", since all markets across the country are not the same...or even close to being the same (an example of %'s telling lies).

What the heck happened to supply and demand economics?

What the heck happened to supply and demand economics?

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