"Developers are only building luxury houses!" is a symptom of supply being forcibly prevented from meeting demand. An unrestricted market on housing will build houses up and down the price spectrum. Now introduce an arbitrary cap on the number of houses which can be built. Which houses are the ones that get built? Obviously it will be the ones at the top of the spectrum: they are the most profitable, so that demand gets met first until it is either fulfilled or developers can't build anymore.

Consider, if a car company was only allowed to build 100 cars per year, of course they would build only million-dollar hypercars. In order to profitably meet demand at the bottom end of the market, they need to be allowed to supply in large quantities.

>An unrestricted market on housing will build houses up and down the price spectrum.

I don't know, it would seem land costs would make up a higher proportion of the total cost of small low-cost individual houses, and if that's true then you'll need to buy a lot more land and start running into people who won't sell or quote ridiculous land prices, which makes those builds unfeasible.

My guess would be they'd still go for bulk, high density builds for low cost housing. The biggest issue there is that those are almost always apartment rentals which don't build wealth, which leads to less buying power further along in life, and that hurts demand for medium individual homes.

But to be clear homes only build wealth because they go up in price over time right? And this is due to the limited supply of housing in particular relative to our population. Previously, I had always assumed if mortgage payments and rent were comparable, then you'd come out ahead buying. But you need a down payment, and you need to borrow money to finance the home. So the real comparison is rent + no borrowed money + investing your down payment instead. Every calculator I use to do that, its very difficult to end up with more wealth buying than renting. UNLESS the home price goes up significantly after you purchase.

Isn't housing inherently limited by space, city's ability to plan / permit, and setup / install services?

Even housing builders seem limited in their ability to build.

I'm not sure an "unrestricted" market is a realistic or even desirable concept here.

> all we would seem to get are developers who want to sell luxury houses

This is how it is in my part of the US. Not so much houses as large luxury apartment buildings aimed at the wealthy (and being built with taxpayer subsidies). They are doing nothing to address the very real housing shortage.

AFAICT, in my metro and others, pretty much all the cheap housing is luxury housing from ~100 years ago. Cheap housing built 100 years ago has been torn down and replaced, but the good stuff built 100 years ago is still standing and being used.

The problem is that we weren't building luxury apartments 50 years ago, it was all single family housing. So there aren't any luxury apartments that can degrade into cheap housing. Building luxury apartments & condos now will help the cheap housing situation in 50 years time.

What's considered a "luxury" apartment in Bay Area is considered normal in many other parts of the country. I've heard it's mostly a scheme to avoid certain regulations but I can't find anything from a quick lookup. Regardless, while searching for an apartment recently, the term "luxury" was completely meaningless. I found luxury apartments that were cheaper and/or had less amenities/features than "affordable" ones. The biggest factor seems (often slight) differences in location rather than differences in the quality of the apartment itself

I'm not in the bay area, and I'm defining "luxury" by price point, not amenities or features. I should have used the term "luxury priced".

This is the second biggest piece of economics misinformation, behind people who believe their net income will go down if they get a raise into the next tax bracket.

Just like cars, all new housing is luxury. No one working minimum wage can afford the cheapest new car on the lot. But those new cars get bought by people who sell their used cars.

Yes, I understand this argument and it makes some logical sense. The issue is that when it comes to housing, it doesn't seem to be happening, at least not on the time scale of a couple of decades. Affordable housing is not increasing, and that's where the need actually is.

Yes, because of severe supply constraints in the previous decades, there are not enough old units to go around and get cheaper. Rather they refurbish and rebrand as luxury as well. As its usually illegal to build new ones, there is no competition.