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Jeremy Levine's avatar

Great piece! One nitpick: filtering actually refers to the process by which new housing makes older become more affordable through the chain of moves. Adding more musical chairs mean the older depreciated chairs have lower demand and become more affordable. Distinction matters because filtering can impact housing prices pretty quickly.

Depreciation refers to the process of new housing getting older and lower cost. A sort of fourth way housing new housing makes the overall market more affordable—today’s fancy new housing can become tomorrow’s “naturally occurring affordable housing” faster than many think. Filtering and depreciation often play into each other but I’d say they are distinct phenomena

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bnjd's avatar

"When people claim that for-profit developers won’t supply new housing in the midst of a downturn, they’re kinda right.1 Generally speaking, developers won’t start new construction in the midst of falling demand. They will, however, finish new construction that’s near completion, even if the market has started to turn. As it turns out, housing developers are almost as bad at predicting economic cycles as macroeconomists."

People are somewhat unpredictable in the aggregate and individually. Nobody is great at predicting cycles and some sectors of supply are more responsive than others. Often neighborhood pizza parlors can readily make more pizzas by ordering more supplies or hiring more cooks, and can respond to increased demand within weeks, or even days. Supply is less elastic for real estate development and manufacturing of durable goods, so it's not just a problem of prediction. It's also a problem of the time that it takes to plan and construct new buildings.

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