On caveat about the basic maintenance => appreciation /= wealth creation. It’s not just land appreciating in value. As building becomes more expensive faster than GDP growth, replacement values for the existing structure increase as well. So it’s not just the land appreciating, the physical building in place may appreciate (in competition with the real depreciation of entropy).
Good point, thanks Seth! I think we're all going to have to get serious about construction costs as part of the longer-term abundance project. Ultimately it's not enough to permit enough units if we can't also produce units economically.
Another fun feature: as construction costs increase, insurance costs increase (because they are based on replacement costs). Higher operating expenses all things equal lowers building value, making construction harder to pencil.
Construction costs is the blue whale in the room. We’re just starting to think seriously about the problem.
One other addendum: another value of existing buildings that “appreciates” is non code compliant features that are grandfathered: more efficient layouts, masonry beauty, fewer elevators and stairs etc.
Sadly, I think Erdmann himself doesn’t really get these points; the “words on paper” he’s most obsessed with are underwriting standards.
But I think these fundamentals make it clear that he’s critically mistaken. Reducing standards will just make it easier for people to bid up houses they already can’t afford.
I wouldn’t construe land itself as a monopoly so much as that it falls under the rules private property. Which as you note is a bedrock of civilization.
Construction prices will continue to rise at some rate so long as the quantity of money increases and or interest rates are lower than they should be which (wrongly) spurs creation of additional product. At this point, costs are not going to return to 2019 (for example) levels without severe recession (unlikely) or decrease in money supply (not going to happen).
Tinkering with financing just changes how many people can or can’t afford something, not that it makes houses more affordable in the sense of a lower average pricing.
Rent is value creation and meets the definition of creating a service or good for which someone will voluntarily pay. In this case, shelter. Definitely not a transfer payment.
On caveat about the basic maintenance => appreciation /= wealth creation. It’s not just land appreciating in value. As building becomes more expensive faster than GDP growth, replacement values for the existing structure increase as well. So it’s not just the land appreciating, the physical building in place may appreciate (in competition with the real depreciation of entropy).
Good point, thanks Seth! I think we're all going to have to get serious about construction costs as part of the longer-term abundance project. Ultimately it's not enough to permit enough units if we can't also produce units economically.
Another fun feature: as construction costs increase, insurance costs increase (because they are based on replacement costs). Higher operating expenses all things equal lowers building value, making construction harder to pencil.
Construction costs is the blue whale in the room. We’re just starting to think seriously about the problem.
One other addendum: another value of existing buildings that “appreciates” is non code compliant features that are grandfathered: more efficient layouts, masonry beauty, fewer elevators and stairs etc.
Did you know that Houston briefly implemented an LVT?
I did actually! I learned about this from Lars Doucet: https://www.astralcodexten.com/p/does-georgism-work-part-3-can-unimproved
I cannot think of a better source for the LVT.
Sadly, I think Erdmann himself doesn’t really get these points; the “words on paper” he’s most obsessed with are underwriting standards.
But I think these fundamentals make it clear that he’s critically mistaken. Reducing standards will just make it easier for people to bid up houses they already can’t afford.
I generally agree.
I wouldn’t construe land itself as a monopoly so much as that it falls under the rules private property. Which as you note is a bedrock of civilization.
Construction prices will continue to rise at some rate so long as the quantity of money increases and or interest rates are lower than they should be which (wrongly) spurs creation of additional product. At this point, costs are not going to return to 2019 (for example) levels without severe recession (unlikely) or decrease in money supply (not going to happen).
Tinkering with financing just changes how many people can or can’t afford something, not that it makes houses more affordable in the sense of a lower average pricing.
Rent is value creation and meets the definition of creating a service or good for which someone will voluntarily pay. In this case, shelter. Definitely not a transfer payment.
Density > magic money
Great piece, btw!