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[quote=Anonymous][quote=Anonymous]The affordable housing advocates arguments seem to begin and end with saying that increasing supply will reduce prices.

What I don't understand is that the more single-family homes you tear down, in order to replace them with luxury condos, the more valuable single-family homes become.

Which means their price goes through the roof. Which means it no longer becomes economical for developers to buy single-family homes so they can replace them with luxury condos. Which means this whole process of trying to increase density stops. And the relax-the-zoning laws crowd is never able to get the massive number of new units built that they'd need to put in a dent in prices.

Also, if you own a single-family home and you're thinking of selling, and a developer comes sniffing around, you should triple your asking price. Why should developers make all the money?

[/quote]

Ok, let me illustrate this for you.  The market evaluates a new SFH in location X at 1 million bucks. Because of costs to renovate, etc, you can seel it to a flipper who will renovate and resell for 600k, say. (Dont quibble on the numbers, this is illustrative and will vary of course).

Now the parcel is upzoned.   A developer can put in 4 condos at 800k each, total of 3.2 million.  To make it pencil out, the MOST he can pay is say, 1.4 million.

Lets say the price of the parcel goes upto 1.4 million then.   Does the price keep going up, until there is no more conversion?  Probably not, because if conversion stops the value of the property goes back down to 600k.  Now maybe as there are fewer SFHs around, the equilibrium price of a renovated SFH goes up from 1 million to 1.2 million.  So the price to sell to someone who is going to renovates goes from 600k to 700k. It still does not get high enough to deter conversion.

Not until one of two things happen.  A The equilibrium price for SFHs gets really high  - like double or triple what it was before.  Could happen, but I am skeptical that there is sufficient demand for SFHs at that price point for that to happen

B.  The price of condos comes down, from say 800k to 600k.  If THAT happens then the pro-supply people have been proven right - the new supply has brought prices down.  [/quote]

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