in cases like Manhattan or San Francisco demand is more or less infinite
I don't know if either of those cases is true. Certainly in SF, housing construction is very tightly controlled, so we've never tested whether there is a practical limit to demand. And by limit to demand, let me quote a observation I read somewhere: "Downtown Chicago would be more scenic without all those 60-story residential towers, but living there would probably be a lot more expensive." Manhattan is a messier case. I don't know if there are restrictions on building housing in practice, but the rent control system tends to constrict the landlord's ability to make money off the building, which is going to prevent the demand for rental units as provided by tenants from being seen as demand for buildings by landlords. The real test case is when, in practice, a landlord can buy a city block, flatten it, and build a residential tower that is as tall as he likes -- at that point, does demand still saturate supply to cause insane rents?
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Date: 2014-03-07 10:55 pm (UTC)I don't know if either of those cases is true. Certainly in SF, housing construction is very tightly controlled, so we've never tested whether there is a practical limit to demand. And by limit to demand, let me quote a observation I read somewhere: "Downtown Chicago would be more scenic without all those 60-story residential towers, but living there would probably be a lot more expensive." Manhattan is a messier case. I don't know if there are restrictions on building housing in practice, but the rent control system tends to constrict the landlord's ability to make money off the building, which is going to prevent the demand for rental units as provided by tenants from being seen as demand for buildings by landlords. The real test case is when, in practice, a landlord can buy a city block, flatten it, and build a residential tower that is as tall as he likes -- at that point, does demand still saturate supply to cause insane rents?